Karam v ANZ Banking Group Limited & 1 Ors [2001] NSWSC 709 | Case summary | Zoe

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Karam v ANZ Banking Group Limited & 1 Ors

[2001] NSWSC 709

Supreme Court of NSW|2001-08-21|Before: Santow J, Sperling J

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Source facts

Court

Supreme Court of NSW

Decision date

2001-08-21

Before

Santow J, Sperling J

Source

Original judgment source is linked above.

Judgment (399 paragraphs)

INTRODUCTION 1 The Karams, two brothers and their wives, together with their family company in a shoe-making business, are the Plaintiffs in these proceedings. The Defendant and Cross-Claimant is their long-time banker, Australia and New Zealand Banking Group Limited ("the Bank"). 2 Recent years have seen a number of challenges to bank securities as well as claims based on alleged bank advice, or a recommendation associated therewith. Some such claims prove to be well-founded. Others are a failed attempt ex post facto to find some equitable wrong or other deficiency in relation to the bank's securities or the way in which obtained. Many claims involve personal guarantees as here. The critical issue in this case is whose account is to be believed, when tested against recollection of the events or a stated practice, contemporary records and in cross-examination. Is it the Karams upon whom rests the onus of proof, or the Bank? Or is neither account wholly to be believed? That factual determination is the principal key to resolving the legal issues that attend the competing claims of the parties. The legal issues pertain to legal interpretation of the securities, unconscionability, possible application of the Contracts Review Act 1980 (NSW) and whether economic duress was brought to bear on the Karams by the Bank. There are also claims based on alleged negligence or breach of fiduciary duty on the Bank's part in relation to a particular land purchase funded by the Bank. The Bank relies on a number of defences including estoppel and whether the claims are statute barred. What is perhaps notable about this case is that it brings all these issues together. 3 The first legal issue is whether the Bank acted unconscionably in obtaining various guarantees and securities from the Karams. This was so as to support obligations of their incorporated family business in a way and extent that the Karams contend was not understood. The Karams contend that they laboured under the special disability of having limited education and understanding of technical English and inadequate financial understanding. They contend that they received inadequate or misleading explanation from the Bank concerning the availability of their security for the Company's indebtedness. The Karams say the Bank thereby took unfair advantage of their disability in seeking to obtain and then retain the advantage of that security for the Company's bank indebtedness. Thereafter, say the Karams, the Bank applied illegitimate pressure amounting to economic duress in order to retain that benefit unconscionably obtained. This was first by having the Karams execute further documentation bolstering the Bank's security position. Then it was to have the Karams sell that security on behalf of the Bank, paying over the proceeds in reduction of the Company's bank debt. That realisation means that the Karams seek their relief through equitable compensation primarily, though also under the Contracts Review Act. 4 Finally there is a dispute about whether the Bank gave advice or made recommendations to the Karams which rendered it liable to them as customers for negligence, misrepresentation or breach of fiduciary duty. This was concerning the purchase of a new factory site which the Bank financed. 5 The Bank disputes all these claims. It relies, inter alia, on the Karams having received independent advice before signing the further documentation and on various defences. It cross-claims for what it says is the balance owed to it.

OVERVIEW OF FACTS AND CONTENTIONS 6 The facts and contentions in the broadest of outlines are these. For nearly thirty years, the Karams, customers of the Bank, carried on a family business starting off in partnership, making shoes. From small beginnings, as Lebanese immigrants to this country, arriving with rudimentary English and limited education, their business came to prosper, leading to its eventual incorporation in 1980. The family company which thereafter carried on that partnership business was originally called Larama Pty Limited and subsequently became Karam Bros Footwear Pty Limited ("the Company" or "KBF"). It was throughout owned equally by the four Karams and the two families. With prosperity came expansion, culminating in the acquisition of a factory site at Ingleburn whose seven hectares well exceeded the needs of the factory. It was bought with a loan provided by the Bank at the end of 1989. That however was the beginning of the heavy debt burden which, associated with declining profitability and eventual collapse of the business, led to realisation of the Bank's securities. That realisation was effectuated by the Karams following their executing further documentation having obtained advice from Mr Marsden their solicitor. It was intended to reinforce or protect the Bank's security position. The Karams contend and the Bank denies that illegitimate pressure amounting to economic duress was brought to bear by the Bank on the Karams in bringing about that documentation and then the subsequent realisation of the security. 7 It is following that realisation that these proceedings have been brought by the Karams. The proceedings commenced with the Plaintiffs filing a Statement of Claim against the Bank on 22 April 1997. It seeks to impugn the guarantees and securities given by the Karams personally and a mortgage given by the Company connected with the purchase of the Ingleburn site. The Bank for its part seeks to rely upon these guarantees and securities and upon the subsequent documentation including acknowledgments. It also relies upon what it contends was a general release, whose effect is disputed by the Karams. It relies on these securities and guarantees, reinforced by that further documentation, as validly securing all the corporate debt of the Company entitling it to retain the proceeds of realisation and to ground its cross-claim. 8 Their dispute starts with whether two house mortgages, given by John in 1978 and Charles Karam in 1986, were available also to secure the Company's debt. The Plaintiffs' attack is threefold. First that the house mortgages do not apply also to corporate debt as a matter of their proper construction. Second, that it would be unconscionable for them so to apply to corporate debt in the circumstances. Third, that if otherwise applicable to the corporate debt, they would be "unjust contracts" under the Contracts Review Act such that a remedial order would be just in the circumstances and should be made. The subsequent security documentation including a form S148, personal guarantees, two acknowledgments and a cross-deed of covenant are said by the Karams not to alter this result and to have been obtained unconscionably. The Karams contend that the acknowledgments and cross-deed of covenant were obtained by illegitimate pressure amounting to economic duress. That duress (it is said) was also brought to bear in making the Karams sell their property in reduction of the corporate debt. There is a contest as to whether a mortgage given over an earlier factory site at Regents Park by the Karams was available as security for the Company's later post Ingleburn debt. It is also disputed whether personal guarantees given by each of the four Karmas were available to secure corporate debt. The Karams dispute that availability on a number of grounds, both equitable and legal. Apart from equitable compensation, they seek relief under the Contracts Review Act 1980 (NSW). They contend that the various securities were unjust contracts within s7 of that Act, and that it would be just in the circumstances to make various remedial orders. 9 In relation to purchase of the Ingleburn factory site, the Plaintiffs and the Company claim against the Bank in damages for negligence, misrepresentation and breach of fiduciary duty. The Bank denies any such breach. It also disputes damages, placing primary responsibility for the businesses' declining profitability on mismanagement. 10 The Bank contends that the Karams' claims have no credibility, attacking their credit, nor any proper legal basis. It defends them on factual and legal grounds including limitation defences. The Bank denies that the contracts upon which it relies were unjust and contends that the Court in its discretion should in any event deny relief under the Contracts Review Act. The Bank similarly denies any unconscionability, economic duress or liability to pay equitable compensation. The Bank in turn cross-claims against the Company in debt, which at 1 July 1996, with interest, stood at $1,700,541.19. The Bank's cross-claim extends also to a claim against each of the four individual Karams pursuant to their respective guarantees, subsequent acknowledgments and under what is described as a cross-deed of covenant. The Karams resist the Bank's cross-claim, relying upon the same grounds as are relied upon to impugn the guarantees and securities. 11 The judgment which follows deals sequentially with the following:

SALIENT FACTS 14 I commence below with the salient, essentially undisputed facts to provide an uncontroversial chronological framework. Where there is dispute, I have indicated that. These are cross-referenced to the relevant source documents. Thereafter, I turn to the questions and issues posed by this case. I start with some general observations about the Plaintiffs' English competence and credibility before turning to the specific questions and issues posed. I elaborate where necessary upon the events that happened, making necessary factual findings on disputed matters for this purpose. 15 I start with the original borrowers, the two brothers Karam and their wives. Charles Raymond Karam, the First Plaintiff ("Charles") and John Raymond Karam, the Second Plaintiff ("John") are the two brothers. For convenience I shall, without disrespect, refer to each of them, and their respective wives, by their first names. The two brothers were both born in Lebanon, Charles in 1944 and John in 1946. They both moved to Australia in 1961 when Charles was 16 and John was 14. They have resided in Australia since. Whilst in Lebanon, except for a period of one and a half years when war suspended schooling John and Charles attended school where they learnt Arabic and some French but no English. (Charles' affidavit 13 October 1998 paras 1-5; John's affidavit 2 October 1998 paras 1- 5.) 16 Nada Karam, the Third Plaintiff ("Nada") was also born in Lebanon and arrived in Australia in 1962-1963 when she was 8 or 9 years old. Nada married John in 1971. (Nada's affidavit 2 October 1998 para 3-4; 7; John's affidavit 2 October 1998 para 18.) 17 Diane Karam, the Fourth Plaintiff ("Diane") was also born in Lebanon and moved to Australia in 1971 when she was about 18 years of age. Diane married Charles in 1976. (Diane's affidavit 2 October 1998 para 3-5; 11; Charles' affidavit 13 October 1998 para 39.) 18 Upon arriving in Australia in 1961, John worked as an apprentice shoemaker for five years for Sali Horner Shoes Pty Limited. Between 1966 and 1972 John worked for a number of different companies in the shoemaking industry as a shoemaker. From his arrival in Australia until 1972 Charles worked in a shoe factory, W J Grundy, and undertook an apprenticeship at Sydney Technical College. During this period Charles and John commenced to make shoes in their spare time from a garage in their family home. (Charles' affidavit 13 October 1998 paras 6-11; John's affidavit 2 October 1998 para 10-16). Their respective wives Diane and Nada worked only in the manufacturing side of the business, cleaning, spraying and packing the shoes and like activities. 19 In 1972 Charles and John set up a business of their own manufacturing shoes, their wives continuing to work as before. The business was known as Karam Bros Footwear ("KBF") and operated out of leased premises at Greenacre. They manufactured children's shoes to be sold and distributed by Bob Hanshard. The business expanded between 1974 and 1978 to include adult and youth shoes. (Charles' affidavit 13 October 1998 para 15; John's affidavit 2 October 1998 para 20.)

Regents Park Property 24 On 29 October 1979 the Plaintiffs purchased some vacant land at 23 Carlingford Street, Regents Park being wholly contained within Folio Identifier 2/2/715 ("the Regents Park Property"). The Plaintiffs' intended to build a factory on this land. The Bank agreed to a loan to enable a factory to be built. ("the Regents Park loan"). (Charles' affidavit 13 October 1998 para 54; John's affidavit 2 October 1998 para 53) 25 On 14 February 1980 the partnership business of Karam Bros Footwear was transferred to a newly incorporated company called Larama Pty Limited ACN 001 844 831 subsequently renamed Karam Bros Footwear Pty Limited ("the Company" or "KBF"). Charles, John, Nada and Diane each held one share in the capital of the Company and all were listed as directors of the Company. (TB 1.026-1.044A; 1.044C; Charles' affidavit 13 October 1998 para 62; John's affidavit 2 October 1998 para 46; Nada's affidavit 2 October 1998 para 31; Diane's affidavit 2 October 1998 para 20) 26 On 18 March 1980 Stuart Gordon Kitching ("Kitching") became Manager of the Bank's branch at Chapel Road Bankstown and took over the Plaintiffs' accounts from John Mair. (Kitching affidavit 4 May 1999 para 3) 27 In March 1980 the Bank approved term loans in favour of the Company to construct a factory on the Regents Park land, totaling $60,000; an amount which was in addition to an existing overdraft facility of $10,000. (Diary Note 27 February 1980, TB 1.044B, 1.044C; Kitching affidavit 4 May 1999 para 5). In June 1980 the term loans were increased by a further $10,000. (Kitching affidavit 4 May 1999 paras 8, 14; Diary Note 19 June 1980; 25 June 1980 26 June 1980 TB 1.064A) 28 In 1980 the new factory was completed on the land (Charles' affidavit 13 October 1998 para 63). This factory was approximately 6,000 to 7,000 square feet in size, including offices. The factory was capable of producing on average between 2,000 and 2,500 pairs of shoes per week. (Charles' affidavit 13 October 1998 paras 79-81)

(e) a Form s148 linking the McMillan Street Mortgage Guarantee allegedly signed by Charles. (Kitching affidavit 4 May 1999 para 10). The Bank is unable to find this document (Kitching 4 May 1999 para 12). 30 Those guarantees were in common form of which I quote the principal operative clause (clause 1: " 1. The Guarantor hereby guarantees the payment by the Customer to the Bank upon service upon the Guarantor of the Bank's written request for payment under the hand of any of the Officers of the Bank or by the solicitors of the Bank delivered personally to the Guarantor or any one or more of them (if more than one) or left or sent through the Post office addressed to the Guarantor or any one or more of them (if more than one) at his or their place of abode or business or the place of abode or business of any of them last recorded in the books of the Bank (the production of the receipt of the Post Office for such request being conclusive proof of the service of any request so sent at the time when the same ought to be delivered in due course of post and although such request may be returned through the Post Office undelivered) or served in any other manner permitted by law or upon the Guarantor determining this Guarantee as to future advances as hereinafter provided of all sums of money whatsoever which shall for the time being be owing or unpaid by the Customer to the Bank (and that although the whole or some part of such sums of money be then represented and/or secured by any mortgages bonds covenants guarantees bills of exchange or promissory notes or other securities then current or under any letters of credit or other documents (whether or not similar to the above or any of them) issued by the Bank of Australia and New Zealand Bank Limited or The English Scottish and Australian Bank Limited to or for the benefit or at the request of the Customer either alone or jointly or in common with any other or others and whether or not the Customer shall for the time being be legally liable to pay the same to the Bank and whether or not default shall have been made by or demand made on the Customer in respect thereof) for or in respect of all loans advances credits or banking accommodation heretofore made created or given by the Bank or Australia and New Zealand Bank Limited or The English Scottish and Australian Bank Limited or now or which may hereafter be made created or given by the Bank to for or on account or at the request of the Customer or in respect of any indebtedness from the Customer to the Bank on any account whether now existing or which may hereafter be opened or by any means whatsoever including all sums in which the Customer is or may hereafter become liable immediately or contingently to the Bank upon or in respect of any account or accounts in which the Customer is now or may hereafter be interested or concerned either alone or jointly or in common as aforesaid or in respect of any guarantee undertaking or obligation which has been given or incurred for or at the request of the Customer by the Bank or Australia and New Zealand Bank Limited or The English Scottish and Australian Bank Limited or by the Customer to the Bank or Australia and New Zealand Bank Limited or The English Scottish and Australian Bank Limited or which may hereafter be given or incurred for or at the request of the Customer by the Bank or by the Customer to the Bank either alone or jointly or in common as aforesaid or in respect of any bills or bill of exchange or promissory notes or note heretofore purchased discounted or paid by the Bank or Australia and New Zealand Bank Limited or The English Scottish and Australian Bank Limited or hereafter purchased discounted or paid by the Bank for or at the request of the Customer either alone or jointly or in common as aforesaid or in respect of any bills or bill of exchange or promissory notes or note bearing the Customer's name or the name of any partnership or firm of which the Customer may be a member or members and which are or is now or may hereafter be held by the Bank and whether such bills of exchange and promissory notes as aforesaid or any of them shall have arrived at maturity or not AND also all sums of money which the Bank may after the date of such request or determination pay to or for the Customer in respect of cheques drafts bills or other negotiable or other instruments drawn before such request or determination on any account in which the Customer may be interested or concerned either alone or jointly or in common as aforesaid or in respect of any other obligations incurred by the Bank of Australia and New Zealand Bank Limited or The English Scottish and Australian Bank Limited with or on behalf of or on account of the Customer either alone or jointly or in common as aforesaid prior to such request or determination AND also all sums of money received by the Bank or Australia and New Zealand Bank Limited or the English Scottish and Australian Bank Limited for credit of any account in which the Customer may be interested or concerned either alone or jointly or in common as aforesaid and for which the Bank may be obliged to account or may in its discretion account to any official receiver trustee liquidator official manager or other person in the administration or winding up of the estate or affairs of the Customer in any liquidation bankruptcy or official management of the Customer or under any assignment for the benefit of or arrangement or compromise with creditors of the Customer or otherwise AND all stamp duty payable hereon and also all Bank charges and commissions and all costs and expenses in or for which the Bank is or may become liable or may charge against the Customer including all costs and expenses (computed as between Solicitor and own client) of or incidental to obtaining or enforcing or attempting to obtain or enforce payment of all or any of such moneys as aforesaid under or by virtue of this Guarantee or otherwise together with interest on all such sums of money for the time being remaining unpaid computed until payment at the rate or rates and in the manner from time to time usually charged by the Bank to its other customers on accounts of similar nature or in the case of so much (if any) of such sums of money as to which the Bank in pursuance of any agreement between the Bank and the Customer has the right at any time or from time to time to determine the rate or rates applicable thereto (irrespective of the rate or rates charged by the Bank to its other customers on any accounts of a similar nature) at the rate or rates from time to time applicable thereto and any such interest remaining unpaid on any half-yearly balancing day of the Bank shall thereafter bear interest at the rate or rates from time to time applicable to the account or respective accounts to which such unpaid interest shall be debited by way of compound interest with half-yearly balancing days of the Bank from time to time although the relationship of Banker and Customer may have ceased and it is hereby declared that a certificate in writing signed by any of the Officers of the Bank certifying to the rate of rates from time to time or at any time charged by the Bank or applicable as aforesaid shall be conclusive proof of the rate or rates therein certified to and payable hereunder."

Purchase of Ingleburn Property on 5 October 1989 and associated loan of $2,070,000 secured by mortgage of 22 December 1989 38 In February 1989 Kenneth John McCombe ("McCombe") was appointed Regional Executive of Business Banking at Macarthur and Western Region. (McCombe affidavit 2 March 1999 para 2) 39 On 8 February 1989 negotiations commenced between Charles and a company known as Macarthur Development Corporation ("Macarthur") for the purchase of either 7.109 hectares of land at Brooks Road, Ingleburn at a price of $2.3 million or 2.35 hectares for $1.78 million. (Charles' affidavit 13 October 1998 para 125-127; John's affidavit 2 October 1998 para 94; Diary Note 19 May 1989 TB 1.137; DX28) 40 On 3 March 1989 Macarthur had received a holding deposit of approximately $10,000 from Charles. (Charles' affidavit 13 October 1998 para 132) A file note of 3 March 1989 produced by Macarthur on subpoena (DX28) records that this deposit was for a parcel of land of size 2.35 hectares "at a rate of $440,000 per ha.". A file note dated 22 March 1989 notes that Charles requested that the holding deposit be accepted as a deposit over the entire 7.109 hectares. A further file note records that a meeting took place on 23 March 1989 between Charles and representatives of Macarthur to discuss this arrangement. (DX28) 41 In early May 1989 Mr Barnes states he became aware that the Plaintiffs were interested in purchasing land from the Macarthur Development Board (Barnes affidavit 27 May 1999 para 9). Mr Barnes visited the Ingleburn land and had conversations with Charles in relation to Charles' plans for the land. (Charles' affidavit 13 October 1998 paras 137-138; Barnes affidavit 27 May 1999 para 11) Mr Barnes informed the Karams that the Bank was not interested in funding the acquisition of the entire parcel of land at Ingleburn (Barnes affidavit 27 May 1999 para 10-14; Charles' affidavit 13 October 1998 para 139; Diary Note 19 May 1989 TB 1.137) And on 19 May 1989 the Bank resolved not to support the Plaintiffs' purchase of the Ingleburn property. Mr Croker advised Charles and recommended that Charles talk to Ian McLachlan ("McLachlan") of the Bank. (Charles' affidavit 13 October 1998 paras 139-141) (Barnes affidavit 27 May 1999 para 12) 42 On 31 May 1989 Mr Croker invoiced the Company for preparation of a five year profit and loss forecast and a cash flow forecast analysing the impact on the Company if it proceeded with purchase of the Ingleburn property (DX36). 43 On 30 June 1989 Charles phoned Ms Felicity Fairley at the Bank informing the Bank about the course he was to take in relation to the proposed purchase. (Barnes affidavit 27 May 1999 para 13; Diary Note 30/6/89 TB 1.154) 44 On 6 July 1989 Macarthur wrote to Charles regarding Ministerial approval for the sale of the Ingleburn land and confirming that a holding deposit of $10,000 was held as part of the agreed sale price of $2,300,000. (DX28) 45 On 7 July 1989 Mr Barnes telephoned Charles to inform him that the Bank would not accept the proposal in relation to Macarthur Development. (Charles' affidavit 13 October 1998 para 144) 46 On 14 July 1989 Charles met for the first time Ian McLachlan, who was then business manager with the Bank's Western Sydney Region. (McLachlan 6 May 1999 para 7; Malone affidavit 12 March 1999 para 4 and Diary Note) Charles states a meeting was held at Mr Croker's offices; (Charles' affidavit 13 October 1998 para 156) whilst Mr McLachlan agrees he met Charles in early July 1989; he states this was at a cocktail party not at a meeting. (McLachlan affidavit 6 May 1999 para 10; Diary Note 14 July 1989 TB 1.156) Charles requested on behalf of the Company a loan from the Bank to enable it to fund the purchase of the whole of Lot 701 for the agreed price of $2.3 million. (Charles' affidavit 13 October 1998 para 156) The Bank was to fund $2,070,000 with the deposit of $230,000 to be paid out of the Company's funds. 47 Around this time Mr McLachlan assumed control of the Plaintiffs' accounts when the accounts were transferred to the Liverpool Business Bank. Mr McLachlan's assistant was Peter Malone. (McLachlan affidavit 6 May 1999 para 3; Malone affidavit 12 March 1999 para 2) 48 On 21 July 1989 Mr McLachlan visited the factory premises and informed the Plaintiffs that he would take over control of their accounts to the Liverpool branch of the Bank. In Charles' affidavit, 13 October 1998 para 161-163 the conversation there recounted was said to have been to the effect that he would take their account away from Mr Barnes (who had rejected the loan application) and take the Company to the Liverpool branch of the Bank. Mr Malone acknowledges the visit but denies such a conversation took place (Malone affidavit 12 March 1999, para 9) though the account was thereafter so moved. Shortly after Mr McLachlan and Mr McCombe inspected the property and had lunch with Charles during which they discussed the proposal. (Charles' affidavit 13 October 1998, para 170-173; McLachlan affidavit 6 May 1999, para 16) Mr McCombe has no recollection of the conversation which took place. (McCombe affidavit 2 March 1999, para 9) 49 Mr McLachlan then submitted an application to Mr McCombe, the Bank's regional executive, for approval recommending that the application be approved. The loan application for $2.070 million was approved on 24 July. (McLachlan affidavit 6 May 1999, para 8) 50 Mr McLachlan and Mr McCombe inspected Ingleburn and Mr McLachlan and Charles had a number of conversations at this time. (McLachlan affidavit 6 May 1999, para 14-16; McCombe affidavit 2 March 1999, para 9) In September Charles had a telephone conversation with Mr McLachlan about the purchase. (Charles' affidavit 13 October 1998, para 174; McLachlan affidavit 6 May 1999, para 19; Diary Note 15 September 1989; TB 1.157) 51 By agreement for sale of land dated 5 October 1989 the Company contracted with Macarthur to purchase 7.109 hectares of land at 4 Brooks Road, Ingleburn, being the whole of Lot 701 in DP 78865. The price stipulated in the contract for sale of the land was $2,300,000. (DX18) 52 [What follows is disputed by the Bank, but I am satisfied should be included having noted where the parties differ.] At some stage during October 1989 the Company received an offer from Walker Development Corporation to buy the contract for the sale of land and to pay the Company $400,000 or give the Company 6.5 acres. According to the Karams, but denied by the Bank (see below), Mr McLachlan and Mr Croker advised the Company not to take up the offer. (Charles' affidavit 13 October 1998, para 190-195) Mr McLachlan denies speaking to Mr Croker or Charles about an alleged offer. (McLachlan affidavit 6 May 1999, para 28-29) 53 At about lunch time on 22 December 1989 Mr McLachlan and Mr Malone attend the Regents Park factory, to have the mortgage executed and the settlement authority signed for the Ingleburn property securing (in the first instance) $2,070,000 (cost of land $2,300,000 less deposit paid of $230,000 by Karams). (McLachlan 6 May 1999, para 31) The seal of the Company was affixed to the mortgage and it was attested by Charles and John. This event occurred during the Company's Christmas Party. (Charles' affidavit 13 October 1998, para 196-203; John's affidavit 2 October 1998, para 122-128; Diane's affidavit 2 October 1998, para 57; Malone affidavit 12 March 1999, para 8; Diary Note 22 December 1989; TB 1.159) This was the First Registered Mortgage number Y850567 to the Bank ("the Ingleburn Mortgage") (TB 1.171; DX5 at 67). Nada was present for a short period. (Nada's affidavit 2 October 1998, para 76) This is disputed. (Malone affidavit 12 March 1999, para 22) Prior to this time Mr McLachlan and Charles had had conversations in relation to the interest rate which was to apply. (McLachlan affidavit 6 May 1999, para 25; Charles' affidavit 13 October 1998, para 181). Mr Malone is said to have discussed the interest rate during the meeting and had shown Charles and John relevant documents. This, however, is denied by the Plaintiffs. (Malone affidavit 12 March 1999, paras 14-15; Charles' affidavit 22 April 1999, paras 24-26; John's affidavit 28 April 1999, paras 24-25) 54 The loan approval for the Ingleburn property was given orally by Mr McCombe (T, 845; T, 929) and a formal loan application was only subsequently prepared. (McCombe affidavit 2 March 1999, para 12) The loan application for the Ingleburn property is dated 17 February 1990. (TB 1.189) Mr McLachlan had sent Mr McCombe a Credit Memorandum dated 7 February 1990 which was approved and signed by Mr McCombe on 9 March (McCombe 2 March 1999, para 12; McLachlan 6 May 1999, para 8) Mr McLachlan explains that this delay was due to work pressure. (McLachlan affidavit 6 May 1999, para 8) 55 On 8 March 1990 Marks, Croker and Cheetham, the Plaintiffs accountants, prepared a detailed review of the Plaintiffs trading results to 28 February 1990. (DX20)

1991 58 As of 2 January 1991 the factory was completed and came in on the then budget (now $1.65 million). (Diary Note 2 January 1991; TB 1.334) By the end of January 1991 the move to the new factory was completed (Charles' affidavit 13 October 1998, para 226). 59 On 24 April 1991 Minutes of a Meeting of KBF at which Mr Croker and Mr Le Miere were also present. The minutes record that Charles suggested they sell "some of the remaining land" at Ingleburn "to offset our existing loan". (DX21) 60 On 6 May 1991 another meeting of the Board of Directors was held. (DX24) 61 On 5 September 1991 Mr Malone met with Charles who informed the Bank that the Plaintiffs had decided to sell the surplus land at Ingleburn as well as the Regents Park property. (Diary Note 5 September 1991; TB 1.416) 62 In September 1991 Mr Malone ceased assisting Mr McLachlan (Malone affidavit 12 March 1999, para 2; last Diary Note 27 September 1991; TB 1.447) 63 In early to mid October 1991 Mr McLachlan took sudden sick leave and Mr Barnes was appointed to replace him as Commercial Account Manager at the Western Region and again took over the Plaintiffs' facilities. (McLachlan affidavit 6 May 1999, para 2; Barnes affidavit 27 May 1999, para 20) 64 On 10 October 1991 the Bank wrote to Charles requesting that he sign and return to the Bank a Form S148 linking his registered mortgage over the Jacobs Street property to the unlimited guarantee of 26 May 1980 (TB 1.450; Charles' affidavit 13 October 1998, paras 229, 232). 65 On 4 December 1991 both Charles and John signed on Company letterhead a declaration agreeing, amongst other things, to sell the factory at Regents Park as well as the additional acreage at Ingleburn. (TB 1.468). This is said to have been at the request of the Bank. (TB 1.417) Prior to this time Charles had expressed concern about selling the additional acreage. (Charles' affidavit 13 October 1998, paras 230-232) 66 On 14 February 1992 Charles signed a Form S148 in respect of the Jacobs Street Property mortgage (Barnes 27 May 1999, para 34) in support of his guarantee of 26 May 1980 and forwarded it to the Bank. (DX5 at page 90; TB 2.068) 67 As of 26 February 1992 the Company's Business Strategy Plan formulated at the request of the Bank, was produced. The Bank agreed to extend the overdraft limit to $750,000 until 30 June 1992. (TB 2.007; Diary Note 26 February 1992; TB 2.075) 68 There was an attempt to sell the excess land at Ingleburn by public auction on 15 April 1992. However, the land was withdrawn from sale on 14 April as it was discovered that it had not been subdivided. (Diary Note 14 April 1992; TB 2.193 T688) 69 On 30 June 1992 a meeting was held to discuss the appointment of an independent accountant. (Barnes affidavit 27 May 1999, paras 46 and 56) Present were Charles, John, Mr Le Miere, Mr Sultana, Mr Barnes and Allan Hyatt. (Diary Note 30 June 1992; TB 2.239) 70 On the same day following lodgment of Development and Subdivision Application (into three industrial lots) for the Ingleburn land approved subject to various conditions including submission of a final survey plan (which, it appears had not been filed until 17 March 1999 when relevant subdivision was actually effected - see communication from solicitors for Defendants to my Associate dated 11 July 2001). 71 At this time there were a number of discussions between the Plaintiffs and the Bank in relation to the Company's overdraft limit. (e.g. Barnes 27 May 1999, para 54; Charles' affidavit 13 October 1998, para 248-249 72 During July 1992 the Company changed its external accountants to Lamb and Barnes, using David Lamb. (Charles' affidavit 13 October 1998, para 264) 73 On 7 July 1992 a meeting was held at Ingleburn between John, Mr Le Miere, Rick Harvey, and Mr Sultana. Confirmed that the Plaintiffs agreed to execute a mortgage debenture and appoint Star Dean-Willcocks as Investigative Accountants. (Diary Note 7 July 1992; TB 3.025; Charles' affidavit 13 October 1998, para 254, 265; Barnes affidavit 27 May 1999, para 58)

Investigations and other steps July 1992-June 1993 76 16 July 1992 was the day of Mr Barnes last dealing with the Plaintiffs' account. (Barnes affidavit 27 May 1999, para 53) 77 As of 22 July 1992 an Interim Report was prepared by Star Dean-Willcocks (TB 3.032) and on 30 July 1992 a final report was received by the Company. (TB 3.074; Diary Note 30 July 1992; TB 3.072; Charles' affidavit 13 October 1998, para 268; Murray affidavit 16 May 1999, para 5) 78 On 17 August 1992 John Le Miere resigned. (Diary Note 17 August 1992; TB 3.184) 79 Kenneth Murray first became involved in the Plaintiffs' accounts on 28 September 1992. (Murray affidavit 16 May 1999, para 82) 80 In October 1992 Mr Barnes was replaced by Richard Harvey as the manager of the Liverpool branch of the Bank. (Charles' affidavit 13 October 1998, para 269) 81 On 19 October 1992 the Bank wrote to the Plaintiffs seeking further security from the Plaintiffs. (TB 3.369) The Bank also requested the Karams' Insurance policies. (DX26; TB ANZ-65) 82 Letter of Offer dated 19 October 1992 was forwarded to the Plaintiffs. (Murray affidavit 16 May 1999, paras 9-10; TB 3.369; TB 3.389; DX5 at 168) 83 Mr Murray first met Charles and John at the Ingleburn Property on 27 October 1992. It is likely that there would have been some telephone contact prior to this date. (Murray 16 May 1999, para 9) 84 On 1 December 1992 a meeting was held at Ingleburn between John, Charles, Mr Lamb, Mr Murray and Mr Sultana. They discussed the fixed rate facility; review of facilities and reporting procedures. The Letter of Offer dated 19 October 1992 was executed and returned and the Book of General Conditions was to be forwarded to Plaintiffs for execution. (Murray 16 May 1999, para 11; TB 3.369; TB 3.377; Diary Note 1/12/92; TB 3.516) A meeting of the Directors of the Company was also held and the Minutes were signed resolving that the Letter of Offer of 12 October 1992, and the Special Conditions for Fixed Rate Advance and for Lease Finance be approved for execution. (TB 3.379) (General Conditions Credit facilities are at TB 3.395; the General Conditions were forwarded on 3 December 1992. TB 3.518) 85 On 22 February 1993 Diane and Nada purported to resign as directors of the company. (Murray 16 May 1999, para 72; TB 5.498) 86 On 5 April 1993 discussions took place between Murray and Charles in relation to the Company's overdraft and an offer received by the Company for the Ingleburn property. (Murray 16 May 1999, para 14; Diary Note 5 April 1993; TB 4.096). An offer to buy the Ingleburn factory and an adjoining two acre parcel of land was received by the Company but was rejected as being unacceptable. (Diary Note 5 May 1993; TB 4.137; Diary Note 14 March 1993; TB 4.124) 87 On 12 May 1993 a meeting was held between Charles, John, Mr Murray, Mr Lamb and Mr Sultana. (Murray 16 May 1999, para 15) During this meeting they discussed the Plaintiffs' funding request for $500,000. It was noted that a precondition to any consideration for additional funding was for Star Dean-Willcocks to complete a comprehensive review; a marketing strategy for the sale of the vacant land at Ingleburn as well as for Regents Park and the two residential properties and a timetable be prepared for the sale of Ingleburn and Regents Park and additional security. (Diary Note 12 May 1993; TB 4.181; 4.185; DX5 at 182; Charles' affidavit 13 October 1998, para 279; Murray affidavit 16 May 1999, para 84) 88 At this time Charles approached John Marsden ("Marsden"), a partner with the firms Marsdens, Solicitors ("Marsdens"), on behalf of the Company. (Charles' affidavit 13 October 1998, para 281) 89 Star Dean-Willcocks commenced a review of the Company on 17 May 1993. (TB 4.202; Charles' affidavit 13 October 1998, para 283) 90 On 24 May 1993 a report from Colliers Jardine was furnished in relation to a marketing strategy for the sale of property. (Murray 16 May 1999, para 17; TB 4.219A; TB ANZ-66) Marketing reports were also prepared by Richardson & Wrench and Pacbest. (Diary Note 2 June 1993; TB 4.231) 91 On 2 June 1993 the Report was received from Star Dean-Willcocks. (TB 4.245; Diary Note 2 June 1993; TB 4.232) 92 On 4 June 1993 Marsden informed the Bank by telephone that he had received instructions from the Plaintiffs to act on their behalf in relation to their arrangements with the Bank (Diary Note 7 June 1993 TB 4.287; Murray affidavit 16 May 1999, para 85). This was confirmed by letter dated 7 June 1993. (TB 4.288) 93 On 7 June 1993 a meeting was held between Phillip Lucas, the assistant regional manager, Mr Murray, Ron Dean-Willcocks of Star Dean Willcocks, Mr Lamb, John and Charles. Charles asked for further assistance. (Murray 16 May 1999, para 86) The Bank informed Charles and John that more security documents would have to be signed. (Charles' affidavit 13 October 1998, para 283-285) This is denied by Mr Murray. (Murray 16 May 1999, para 86). (Diary Note 7 June 1993; TB 4.287) The Baillieu Knight Frank report on marketing proposals (TB 4.291) arrived during this meeting. (Murray 16 May 1999, para 24) 94 On 9 June 1993 the Bank received legal advice from Minter Ellison Morris Fletcher that the Bank has possible exposure to risk and requested that the Bank produce an interim document to protect the Bank's position pending total re-documentation of facilities/securities. (Diary Note 9 June 1993; TB 4.311) The Bank decided to extend funding to the Company subject to re-documentation and execution of an Acknowledgment. (Diary Note 9 June 1993 and Diary Note 11 June 1993; TB 4.315) The Bank faxed to the Plaintiffs pro-forma acknowledgments; a solicitors certificate and certificate of independent financial advice. (TB ANZ-72 Charles' affidavit 13 October 1998, para 289)

Sale of Properties/Investigative Reports 106 On 11 October 1993 the Plaintiffs instructed Marsdens to act in relation to the sale of the Sir Joseph Banks property (TB 5.292B) and the Jacobs Street property. (TB 5.293) (Murray affidavit 16 May 1999, para 53) 107 On 18 October 1993 Tony Eskett ("Eskett") was employed as an accountant assisting Leon at the Company. (TB 5.315) 108 On 20 October 1993 John and Nada entered into an Exclusive Agency Agreement with Real Estate World Pty Limited to sell the Sir Joseph Banks property. (DX19) 109 In late October to 29 November 1993 Murray was on holidays. (Murray 16 May 1999, para 66) Andrew McLaren ("McLaren") was the relieving manager. (TB 5.454) 110 On 1 November 1993 Mr Marsden sent a note to Drew Percival with whom he worked attaching the Plaintiffs' file and outlining issues concerning the Plaintiffs. (PX15) 111 On 3 November 1993 John entered into arrangements for the sale of the property at 7 Sir Joseph Banks Street for $245,000 to Mr Sol Michael (the sale was settled on 19 January 1994) (TB 6.006). On 24 January 1994 the proceeds of the sale, $235,365 were received by the Bank. (Murray 16 May 1999, para 79; Diary Note 24 January 1994; TB 6.009; TB 5.395-5.433) 112 On 4 November 1993 a meeting was held at Ingleburn. Present were Mr Harrison, Mr Lucas, John, Charles, Diane, Nada, Sol Michael and Mr Leon. They discussed, inter alia, the sale of property, Mr Marsden's involvement, the interest rate and the Company's management structure. (Diary Note 4 November 1993; TB 5.434; Charles' affidavit 13 October 1998, para 324) 113 A Letter of Offer also dated 4 November 1993 was prepared and forwarded to the Plaintiffs (DX5 at 186) for fully drawn advance facility of $2,070,000 whose purpose was expressed to be "Assist with purchase of vacant land at 4 Brooks Road, Ingleburn". 114 On 8 November 1993 Nada wrote to Mr Marsden in relation to the interest being paid by the Company. (DX9) On this same date Mr Marsden wrote to Charles in relation to Mr Marsden's position and the relationship between Mr Marsden and the Plaintiffs. (DX11) 115 On 12 November 1993 Mr Marsden wrote to Nada addressing concerns Nada had had with the security documentation. (DX12) 116 In November 1993 Mr Leon was made the General Manager of the Company. 117 On 17 November 1993 a meeting was held at the Bank's offices at Parramatta. Present were Charles, Nada, Sol Michael, Mr Harrison, Mr Lucas and Mr McLaren (John and Diane were also possibly present). They discussed, inter alia, the fixed rate facility for $2,070,000. (Diary Note 17 November 1993 TB 5.470; Charles' affidavit 13 October 1998, para 325) 118 On 18 November 1993 the Bank received a facsimile from David Lamb indicating the resignation of Nada and Diane as directors of the Company as of 22 February 1993. (Murray 16 May 1999, para 72) On the same day, a letter of offer was sent by the Bank to the Directors of the Company stating that following review, the interest rate was 8.07% fixed from the date of formal acceptance of the offer until maturity date, i.e. 22 December 1994; DX5 at 203. 119 On 29 November 1993 the Company accepted the Bank Letter of Offer dated 4 November 1993 and advice of 18 November 1993. (TB 5.496; Murray affidavit 16 May 1999, para 76)

Arthur Anderson Report - 1 September 1995 135 On 1 September 1995 a draft report from Arthur Andersen was received by the Bank (Diary Note 1 September 1995 TB 10.303, 10.309) 136 In September 1995 Eric Yacoel succeeded Mr Harvy as Senior Manager Asset Management. (Spiteri affidavit 13 April 1999, para 26) 137 On 19 September 1995 a meeting was held at Ingleburn to discuss the Arthur Andersen report. This was the first time Mr Spiteri introduced Eric Yacoel to the Karams. Present were Charles, John, Mr Isaac, Mr Royal, Mr Yacoel, Spiteri and Ms Harvey. (Spiteri 13 April 1999, para 32; TB 10.397; Charles' affidavit 13 October 1998, para 342) 138 In October 1995 the Arthur Andersen Reports were produced. (TB 11.001; 11.127; 11.156) ("the Arthur Andersen report"). 139 Charles notes that another meeting was held shortly after the 19 September meeting. (Charles' affidavit 13 October 1998, para 345-350) These and other meetings held at this time involved, inter alia, discussions as to whether or not an administrator should be appointed. Mr Spiteri notes that the only meeting at which Mr Yacoel and he were present with Mr Isaac, Mr Royale and Karams is the meeting recorded at pages 453-454 of the Diary Notes. Mr Spiteri denies the conversation in para 342 of Charles' affidavit and notes that Royale and Arthur Anderson never recommended the appointment of an Administrator. (Spiteri 13 April 1999, para 33) 140 On 4 October 1995 a meeting was held at the Bank; present were Charles, Mr Yacoel, David Williams, Susan Ghafari and Mr Harrison. Discussions were held in relation to the Bank's decision not to advance the Company further funds and advising the Company to appoint a Voluntary Administrator. The Arthur Andersen findings were also discussed with Royal from Arthur Andersen. (TB 12.009) 141 A letter was sent by Arthur Andersen to Company on 9 October 1995 outlining the benefits of an voluntary administrator. (TB 12.031) Another meeting was held between Charles, Mr Yacoel, Mr Williams and Ms Ghafari. Charles suggested a buy out of the Company and they had discussions about the appointment of a voluntary administrator. (Diary Note 9 October 1995; TB 12.035; Charles' affidavit 13 October 1998, para 355)

Termination of Bank's facilities and demands - appointment of receiver 142 Before the appointment of the Bank's Receiver, control of the Company's accounts went to Group Credit Management (NSW) and Mr Spiteri had nothing further to do with the Plaintiffs. (Spiteri 13 April 1999, para 35) Glen Harvy had ceased having any relationship with the Plaintiffs some months earlier. Mr Spiteri ceased to have control of the Plaintiffs' accounts on 12 October 1995. (Spiteri affidavit 13 April 1995, paras 1-2) 143 On 23 October 1995 the Bank issued to the Plaintiffs a Notice of Termination of Facilities and Declaration that all monies owing to the Bank are due and payable. (TB 10.039; TB 12.081) In addition the Bank issued a Letter of Demand for $498,287.30 (TB 12.082); a Letter of Demand for $2,079,201.14 (TB 12.084) and a Letter of Demand for $2,082,252.38 (TB 12.085) On 24 October 1995 the Bank made demand upon the Company in the sum of $4,659,740.82. (Charles 13 October 1998, para 360; Spiteri 13 April 1999, para 34) 144 On 2 November 1995 the Bank informed the Plaintiffs that they were unable to agree to Marsden's request on behalf of the Plaintiffs to a two week extension of time to the letter of demand. (TB 12.127) The Bank also rejected the Plaintiffs offer to repay $2,700,000 via a repayment programme. (PX16; TB 12.128; Charles' affidavit 13 October 1998, para 364; TB 12.134) 145 On 3 November 1995 the Bank appointed a Receiver and Manager (Madden) to the Company. (DX5 at page 160; TB 12.135; 12.141; 12.145) 146 On 28 November 1995 a notice pursuant to s57(2)(b) of Real Property Act 1900 in relation to default was issued (TB 12.155) and on 29 November 1995 Diane, Charles, Nada and John received notification of the termination of their employment from the Receiver and Manager as of 3 November 1995 (TB 12.160; 12.161, 12.162). On 22 December 1995 the status of their employment was confirmed. (TB 12.185, 12.186, 12.187, 12.188) 147 On 31 December 1995 a report as to the Affairs of the Company (a Form 507) was prepared (TB 12.189) 148 The Company ceased trading on 12 January 1996. (TB 13.037) 149 Between 22 and 24 January 1996 the Bank issued letters of Demand to Diane, Charles, John and Nada for amounts of $2,083,453.68 and $2,136,881.24 and $574,419.15. (TB 13.001-13.017) 150 On 1 February 1996 a loan approval for $210,000 was received by John and Charles from the Howard Group (TB 13.020) and on 2 February 1996 A & J Financial Services approved a facility for $210,000 with security in Regents Park (TB 13.032) as well as a facility for $2,800,000 with security in Ingleburn. (TB 13.035) 151 On 6 February 1996 a circular was distributed to customers informing them that the Receiver and Manager had been unsuccessful in selling the business and that the Company had ceased trading on 12 January 1996. (TB 13.037) 152 On 7 February 1996 the Plaintiffs were informed that the Bank would not accept an offer made by the Plaintiffs to repay $2.85 million in exchange for an assignment of its securities and debt. (TB 13.038) 153 On 10 and 13 February 1996 further demands were made on the Company in the amount of $4,826,451.67.

John Karam 161 John was born in 1946 in Lebanon where his schooling comprised nine years in Lebanon until the age of 16. Like his brother Charles, his schooling was then interrupted and he came to Australia where for the first time he had to learn English. He attended St George High School at Kogarah for two months but left to obtain an apprenticeship as a shoe-maker. His evidence is that he has not, other than those two months, had any education in reading, writing or speaking in the English language. However, he has lived in an Australian environment albeit in a Lebanese household. He contends that to this day he cannot write English, has limited ability to read English though capable of reading simple words but contends that "to read a letter or any document I cannot understand it". He adds that his wife, Nada, "reads the documents to me if I need to"; see John's affidavit of 2 October 1998, paras 4-9. 162 His role in the business was exclusively production. His brother Charles took on the role of sales and marketing the shoes and administration of the business. He describes how, because he could not read or write English when in the 1970's he started out in business, he had to get the customers to write out their order and put their names and addresses on it; see John's affidavit 2 October 1998, paras 23-24. 163 I would agree from my observation of John that even to-day, and certainly in the 1970's to early 1990's he would have no grasp of technical legal points concerning a mortgage nor any sophisticated understanding of financial matters generally. 164 I consider he would have had a general understanding of what a mortgage was and could well understand that it could secure the loan required to buy the property mortgaged. But I do not consider that in the absence of clear and simple explanation, he would have had any notion of a mortgage being available as security for future loans to another, albeit associated, corporate entity. Nor, absent such explanation, would he have appreciated the effect of an unlimited guarantee of the then Larama's debts on 26 May 1980, more especially one expressed in the complex unparagraphed printed language of the guarantee actually signed. 165 In terms of his credibility, I found his recollection of specific events not precise and considerably overlaid with emotion, probably reflecting the traumatic events surrounding the failure of their business and the realisation of the security. This does not mean that his recollections should be treated as necessarily unreliable. Certainly I did not find his answers involved deliberate untruth. Nonetheless they need to be assessed with caution because of a tendency to see events with that emotional overlay to which I have referred. An example of this was the meeting of 26 May 1980 with the Bank at which a number of documents were signed as later described. In his affidavit evidence, and at first in his oral evidence, he did not remember the meeting. He then did recall, but only after some confusion as to whether he was at the meeting at all or had the documents brought to him; T, 409 esp at .55 and 410. 166 In fairness, it must be recognised that these events occurred in the 1980's, the signing on 26 May 1980 being over twenty years ago. I shall deal with specific instances of credibility as and when they arise. However, as a general observation, I would agree with the contention that so far as John appears to have developed some understanding of guarantees and mortgages, that understanding was rudimentary at best and more likely the product of preparation for this case and the more recent events attending collapse of the business.

Nada Karam 167 Nada is married to John. She was 8 or 9 years old when she arrived in Sydney and at that time could not speak, read or write or understand English. She attended a Primary School at Marrickville for four or five years and then completed the equivalent of first form at High School at the High School at Marrickville. When she was 13 or 14 years old she left school to work in a shoe factory. She says that she speaks Arabic and English and a little French. In her affidavit evidence she says, "I am fluent in English and fluent in Arabic and my English reading and writing skills are fair but I have difficulty in understanding technical or complex legal documents or articles."; see Nada's affidavit 2 October 1998, paras 3-6. 168 The same affidavit attests to her not having "any role in the management or administration of the business or any decisions of the business", these being "taken by my husband, the Second Plaintiff, and the First Plaintiff and they controlled the business and made all decisions and I was not consulted nor did I take part in any decisions". She goes on to say "traditionally, it is not the role of wives of men who come from Lebanon to play any active part in the decision-making of their businesses or control the business" and "I have at all material times accepted this traditional role"; see Nada's affidavit 2 October 1998, paras 12-14. 169 She then states that between 1974 and 1975 she "completed a secretarial course at Bankstown, which was a course in basic office skills, book-keeping and secretarial duties." 170 As of 1979, when Regents Park was bought in October for a factory and subsequently built in 1980, Nada states: "I thought that financially we could afford to buy Regents Park and build a small factory and I was happy, even though I had no information about the business finances or the business dealings which were at all material times controlled by my husband. He made all the decisions. Every time we sign a document or do something I submitted"; see Nada's affidavit 2 October 1998, para 44. 171 She says in her evidence that when she signed the mortgage document over the Regents Park property in favour of the Bank (26 May 1980), while she knew there was a borrowing from the Bank (though not remembering the figure $70,000 at this time) and had an understanding that the four Karams were liable to repay that borrowing, she states did not know (T, 250.37-.52) that:

(c) If the loan was not repaid, the Bank might have recourse to the property at Regents Park and could sell it and use the proceeds of sale to repay the loan. 172 Nada gives evidence that back then she did not have that understanding but acquired it though not until about late 1992 early 1993; T, 250.51-.53. 173 Nada acknowledged in her evidence in cross-examination that while in 1980 she was in a position to read a document such as that mortgage, she did not do so; T, 251.40-.54. 174 Subsequently in her cross-examination she deals with her recollection of the events of the signing on 26 May 1980. She gives evidence that she would have sought an explanation from her husband of the relevant documents and that she would have signed them without reading them; see T, 251-254.7. Further, that her understanding in 1980 was that "Back then I would have thought we were just borrowing the money to build the [Regents Park] factory on the land that they purchased and this [the document] was to give us money". I would, from my observation of her, not ignoring the Bank's diary note of that meeting, accept her account of her limited understanding at the time. 175 Nada readily acknowledged that the relationship she had with her husband started off as fairly traditional where he was head of the household and made business decisions in their household but that the relationship with her husband is not now quite as traditional. So that, having married at fifteen I later "assumed more responsibility" "for the business side of life" as I "tried to improve myself" becoming "more involved in the business than just in a fairly menial way in 1991, 1992"; see T, 254.35-.54. She adds that by the early 1990's she was assuming a role in the management, but not the financial side, of the business, being invited to do so by her husband and becoming "somewhat" involved; T, 255.22-.36. She then states that "during late 1992, 1993 I became a bit more involved due to the fact that things were, if I may use the term, going crazy in the place" there being "just so much pressure from the Bank and there were frequent visits by the Bank Manager to the Company …"; T, 255.50-.54. She emphasised though that she did not become involved in examining the financial situation of the Company as well as she would not have understood it; T, 256.10-.35. I accept that as well, though she would have been capable of a very basic, unsophisticated understanding. 176 I have recounted this evidence in some detail because in Nada's case in particular it is necessary to test whether or not her good spoken English to-day, her evident intelligence, each as they emerge in giving evidence, would be any guide to the level of her earlier understanding of the security documents at the time when signed; that is, more sophisticated than that to which she attests at that earlier time. In her case, the first document she signed, relevant to the Bank, was on 26 May 1980. On that date she signed an unlimited guarantee for Larama's debts and a mortgage in favour of the Bank over the Regents Park property. This was followed twelve years later by her declining to sign certain Bank documents in early 1992. But then, she says under protest, she did sign the mortgage debenture on 14 July 1992. She signed it as Director and Secretary with an accompanying Statutory Declaration. Then there were further documents she signed in October 1992 ("Letter of Offer"). She later signed further documents, again she says under protest, following a meeting with their solicitor Mr Marsden on 10 June 1993 consisting of two acknowledgments. She signed yet further documents, again she says under protest, following advice from Mr Marsden and a Mr Drew Percival on 1 October 1993 being a "Cross-Deed of Covenant". I would conclude her understanding of the guarantee and any associated security documents in May 1980 would have been rudimentary at best, certainly no greater and probably less than the unsophisticated understanding which I attribute to John above. By June 1993 I would conclude that her understanding then reflected her greater involvement in the business and her efforts to improve herself. By then she would have had a broad understanding of what she then signed, but only if assisted by a sufficiently clear and simple explanation. 177 Nada thus presents to-day as a much less unsophisticated person than she must have been in the 1970's and 1980's. Though at times asserting a more precise recollection than she had, I conclude she was on the whole a truthful witness who readily acknowledged how her understanding grew over time, as her intelligently critical approach to the later documents which she discloses in her evidence bears out: thus see Nada's affidavit 2 October 1998 in relation to the events of 14 July 1992 (paras 87-106), Letter of Offer of October 1992 (para 114) and Acknowledgments of 10 June 1993 (paras 114-130) and the Deed of Cross Covenant (paras 133-152). 178 I find however that Nada would not in the absence of a clear and simple explanation, appreciate that when she signed the documentation on 26 May 1980 she was signing an unlimited guarantee of the then Larama's debts with the consequence that she would be personally liable. Nor do I consider she would have realised that later, taking the position up to the meeting with Mr Marsden on 10 June 1993. I deal later with her understanding as at 10 June 1993 when she joined in signing the two acknowledgments and as at 1 October 1993 when she joined in signing the Cross-Deed of Covenant. Finally, although her level of understanding did progress as to what was going on with the business, I do not consider she would ever have taken a course that was independent of her husband. In that sense, she remained a traditional wife, one who would not go against her husband's wishes. But by the 1990's she had nonetheless become a person who would express her views if concerned about something. That indeed is what she did in the meetings with Mr Marsden, as I later explain, though she too went along with what was done under the pressure the Karams were placed.

Charles Karam 179 Like his brother John, he was born in Lebanon, attending school in Lebanon (apart from a period of one and half years during wartime when schooling was suspended) leaving for Australia at the age of sixteen. His schooling in Lebanon consisted of reading and writing Arabic and a little French but no English and upon his arrival in Australia in about May 1961, he did not read or write any English. Subsequently he entered into an apprenticeship "but as I could only read and write Arabic and little of French I had an enormous difficulty in the theoretical parts of the apprenticeship"; Charles' affidavit of 13 October 1998, paras 3-9. Charles' affidavit evidence is then that he would "bring the course material to the factory "where it was explained to him in English by those at work", he not being formally taught to read or write English. He completed a certificate in shoe-making and shoe design in 1966 whilst working full-time. 180 He describes how he and his brother, John, went into business together first at Greenacre making shoes with their respective wives assisting in the production. He says that, "I was also involved in the administration and selling of the shoes and dealing with suppliers and customers because my English was better than [John's] and I was able to write a little." He describes how Don Khoury was the family accountant who showed him how to write invoices and statements by hand and how to attend to banking matters; Charles' affidavit of 13 October 1998, paras 23-26. 181 By the time Charles had married Diane in June 1976 he states that, "I was able to understand spoken English in common usage and relied upon my solicitor and accountant who all spoke Lebanese"; Charles' affidavit of 13 October 1998, paras 39-40. Also, as of 1976 he states that he said to his then bank manager, Alan Parmeter of ANZ that, "Nada and Diane and John do not know anything about business, I am involved in the business administration and dealing with banks"; Charles' affidavit of 13 October 1998, para 49. I would agree that his comprehension of these matters was somewhat greater than that of the other three Karams but I would not consider him to be financially sophisticated. 182 In regard to the document signed on 26 May 1980 for Regents Park, he states: "I knew that the Bank had taken a mortgage over the factory at Regents Park but I did not really know what a mortgage was. I thought it was something to do with the loan from ANZ to the Company to build the factory."; see Charles' affidavit of 13 October 1998, para 67. He adds, "I was not explained the KBF guarantee, the Regents Park mortgage or the two forms S148 nor did I have independent legal advice on any of the documents". "I was not told that I could go and have independent legal advice or have the documents explained". "I did not know nor was it explained to me that the KBF guarantee and the Regents Park mortgage were unlimited as to amount, that I was now personally liable for all of the debts of KBF to ANZ of whatever nature and that myself, my brother and our two wives were all personally liable for any debts of that company to ANZ". "I was not explained that for any other borrowings of the company later on I would also be personally liable that my wife and my brother and his wife would be liable as well and that we were all liable to ANZ for each other's debts to the Bank". "I was not told that ANZ could sell Regents Park or my home, or my brother's home or sue us personally in any order of priority it wanted or that the Bank would bankrupt me". 183 I would agree that in the absence of clear and simple explanation as to these matters (as to which see later), he would not have understood these documents unaided. Finally he says "had I been explained what I now know to be the true effect of the KBF guarantee, Regents Park mortgage and the S148 forms, I would not have signed them."; see Charles' affidavit of 13 October 1998, paras 68-73. I am inclined to agree that Charles, more likely than not, would have resisted putting his home at risk for the Company's business debts and likewise resisted a personal guarantee unlimited in scope if he understood it to render him personally liable, with his wife, for all future debts of the Company. 184 At paras 82-90 of Charles' affidavit of 13 October 1998, he describes purchasing the Jacobs Street property prior to it being built upon and then at paras 91-100 is his account of what is called the Jacobs Street mortgage of 10 January 1986. That followed the earlier purchase of the Jacobs Street land on 11 June 1985. It is convenient that I deal with my findings in relation to that mortgage later when dealing with that particular transaction. 185 My overall impression of Charles to-day is that his English is quite good. I consider that he was not at the relevant times (1980 to 1993, or indeed now) financially sophisticated. Nonetheless he was not lacking in basic business sense or savvy. While his understanding of financial matters was always limited it did exist at a basic level. 186 As to his credibility and credit, the Bank contends that Charles could not be regarded at all as a witness of truth, that he fabricated much of his evidence in order to implicate the Bank in the catastrophe that ultimately befell the Company and, indirectly, the Karams themselves, for which, in his own mind, Charles blamed the Bank. The Bank in its written submissions (para 142) then goes on to illustrate this with examples of Charles making categorical assertions and denials which, in the light of objective materials such as Diary Notes, were simply not credible. Examples are given; see T, 559, 575, 611, 691, 710, 712, 713 and 726. 187 It is true that Charles did not do his credibility any service by his tendency to dispute matters where in reality his recollection was simply deficient though it is significant that he did this on more than one occasion where it had no apparent purpose in advancing his cause. Thus a good illustration of this appears at T, 575 where he disputes contemporary notes from the Macarthur Development Council made on 3 March 1989 and referred to in a letter to Charles of 6 March 1989 (see DX28). That appears to demonstrate that Charles had paid a holding deposit in respect of 2.35 hectares at $440,000 per hectare, being the land ultimately to be used for the Ingleburn factory. When pressed in cross-examination, after initially stating that the note was false, he indicated that he did not recall ever being offered 2.3 hectares of land at Ingleburn for $1,034,000; T, 575.30-.32 and .42-.50. 188 The subsequent passage of cross-examination brought out that Charles did accept that he subsequently set about having that holding deposit, which initially, according to the documentation, was for only 2.35 hectares, treated instead as a holding deposit for 7.109 hectares; see T, 578.4-.15. 189 Charles then persisted in his contention that, "I said to him [Mr Pawlutschenko of Macarthur Development Council] the deposit for $10,000 over the 7.109 hectares. I said to him from the beginning to the end." Then, in answer to the question, "to the extent that that note suggests that the holding deposit was paid by you as a holding deposit over only 2.35 hectares you say that note is incorrect?" To which the answer is, "that's right"; see T, 578.33-.45. 190 Charles did not assist himself by those kind of confused denials. But I would not say of them that they necessarily represented any deliberate attempt to lie. Often they were simply the actions of someone who had a fixed recollection, very defensive, no great facility in reading the documents shown to him in cross-examination, and who was attempting to recall what happened some eleven years earlier. 191 There were other occasions where he did retreat when pressed with undeniably contradictory evidence. A good illustration of this is the evidence concerning reliance on the accountant Mr Croker in relation to the purchase of the Ingleburn land. Charles initially was adamant in his denial that Mr Croker ever advised him that it was a good idea to proceed with the purchase and was quick in that denial to add that Mr Croker had asked Charles "to ask Mr Barnes"; see T, 586. He denied being advised by Mr Croker on several occasions. One could believe that he was conscious that if he admitted reliance on Mr Croker he would be weakening his claim to have relied on the Bank in deciding to purchase the Ingleburn land. Though he maintained that denial when first confronted with contrary allegations in his Statement of Claim (T, 589-590) when then confronted by his affidavit verifying the Statement of Claim he did concede that Mr Croker had in fact also advised as to the proposed purchase of the property and the development of the factory. He added, "that he was not the only one, he was number two"; see T, 591, 592 and 593. 192 While therefore I would not go so far as the Bank as to treat Charles as in all respects not a witness of truth, his evidence did reflect what may well have been an unconscious desire to recall in a fixated manner events in a way favourable to the Karam's cause and to a much greater degree than any of the other Plaintiffs. His defensiveness did his overall credibility no service. It means that Charles' evidence needs to be treated with considerable caution more particularly where he feels most aggrieved, namely in relation to the Ingleburn purchase and its aftermath. That said, I would not necessarily reject his evidence in other areas, though still approaching it with caution. I do not consider that Charles set out deliberately to fabricate his evidence. Indeed the earlier illustration from the Macarthur Development Corporation is an illustration rather of a determination not to alter what had become his remembered version of events rather than the desire to manipulate the evidence to his cause. Indeed to an extent that incorrect assertion would be against Charles' interest in that it left less room for a credible assertion that the Bank later persuaded him to increase the amount of the land that he was purchasing. I should add that it is not uncommon for a witness with a sense of grievance, in recalling events of many years back, to become fixated in a recollection that has not been checked by reference to the contemporary documents and then, defensively, to reject those contemporary documents when they appear to collide with that firmly fixed recollection. His lack of reading fluency would contribute to that. That requires the trial judge to be appropriately cautious in accepting his evidence, but not to assume deliberate falsehood or that the witness's evidence is necessarily wrong on all points.

Diane Karam 193 Diane Karam was born in Lebanon in 1953 and came to Australia when she was 18 in 1971. She attended a local school in a village in Lebanon and completed the equivalent of to-day's year ten education. After leaving school she did one year of a three year fashion and sewing course, obtaining a certificate in fashion and sewing for the year completed in Lebanon. 194 When she arrived in Australia in 1971 she could not read or write or speak or understand English. She did not have any formal education in English and picked up the language as best she could from working and living in Australia. She says she has difficulty understanding large English words and if a person is speaking English fast she has difficulty in understanding that. She says she also has difficulty understanding legal and complex and technical English terminology and statements. She says she has never been taught to read English and cannot read or write English properly. She says she finds the reading of the English written word limited to simple phrases and sentences and that she has difficulty reading a newspaper or any written article that is not simple and/or brief; see generally Diane's affidavit 2 October 1998, paras 3-9. 195 From my observations of Diane in the witness box, I have no reason to doubt the correctness of what she has said about her capacity to understand English or to read it. In particular I would have little doubt that she would have had no knowledge of the legal documentation that she signed save to the extent that she received any simple explanation of them, though I would assume even then only a rudimentary understanding at best. In particular, I would consider her knowledge of English and of technical matters inferior to Nada's both at the time of the events and to-day. I would accept her evidence that her usual practice in signing documents was that her husband would show the documents to be signed and tell her to sign and where to sign and she would sign without question and she states that she does not interfere and it is not her place to ask about business things. She never interferes with her husband who she regards as head of the houses as she says he is doing whatever he wants to do for her family. 196 She describes how, after arriving in Australia, she worked full-time as a factory worker in numerous factories, moving to Sydney in 1975-6 and marrying Charles in 1976. She says that she had nothing to do with the business of her husband other than helping when asked, her role being to stay at home raising her four children including one from her husband's previous marriage. She said that she would help out if asked but was not regularly employed by the partnership or later the Company; see generally Diane's affidavit 2 October 1998, paras 11-16. 197 At para 17 she says, "I worked on a part-time basis assisting with the factory work. I did not work in the office as I do not have any knowledge of accounting, financial, administrative or management details." At para 18 she says, "I knew how much we sold the shoes for and how many we made and how much they cost but I do not have a knowledge of accounting or management or administration or any experience in these areas and my English is poor." 198 Again, I have no reason to doubt those statements. 199 In her affidavit she makes clear that she is aware now that in February 1980 a company took over the business. She was not involved at the time in any discussions about the incorporation of the partnership or the business and was not really aware of it at the time. She said she was never a director or secretary or office-holder in the Company (in fact she was a director) but at all material times held one ordinary fully paid share in it. She concludes, "I knew we had a factory and a business and it was all the two families. Me and my husband we are one, it is no different."; see para 22. Again, I have no reason to doubt that evidence nor indeed her basic truthfulness. 200 As to the purchase of the Regents Park property, she says she was not involved with the purchase and was not aware that she owned a quarter share in it but knew that her husband and his brother John had bought land in Regents Park and she had observed the factory being built, leaving all decisions to her husband in a household where he was head of the house, controlled all business matters and made all decisions. She left everything to him. Again, I accept that evidence. 201 When the documentation was signed on 26 May 1980, the full extent of her knowledge as she puts it, was set out at paras 29-32 of her affidavit. This I accept and quote as follows: "28. In or about 26 May 1980 I knew the business account was at ANZ branch at Chapel Road, Bankstown and my own bank account was there as well. 29. I had never signed a mortgage before signing the Regents Park Mortgage, this was my first, and I had never signed a guarantee before. 30. I thought that my husband's business was doing very well and that he wanted to build up the business and this was a business document for that. 31. I knew that ANZ was giving money to the company and I thought that it was somehow related to the money being provided to the company. 32. I knew that I was signing some documents for the business to get money but that was all that I knew about the documents that I signed."

203 I would accept all of that evidence though I would add that had she been asked by her husband to sign the documents without independent legal advice I think it more probable than not that she would have done so in 1980 provided he had signed them and assured her that he understood their import. On balance, I do not consider her husband (or John) would have signed the documents unaltered if he had understood they made him personally liable for all future indebtedness of the Company, or put their home at risk for the Company's debt or rendered Regents Park liable for all future corporate debt. Moreover I consider that if the two brothers had understood their import instead of the inadequate and misleading explanation they received, one could not assume that further negotiation with the Bank would not have modified that outcome. Likewise a clear recommendation to take independent legal advice offered not merely in the alternative to reading the documents may well have produced a different result. It must be remembered that the Karams were by 1980 a successful enterprise who would be negotiating, not from the situation of later weakness post Ingleburn, but as a valuable local account for that branch of the Bank. 204 Diane's evidence is that she brought to bear no independent judgment about the purchase of Ingleburn and again I accept that evidence; see Diane's affidavit 2 October 1998, paras 47, 56. At para 59 of her affidavit describing the position as she understood it on 22 December 1989, she says: "Nobody told me that I was now personally liable for $2.3 million [the money borrowed in respect of Ingleburn] or that my interest in the Regents Park property could be sold. I knew nothing about the arrangements between myself and ANZ and the Company and my husband, brother-in-law and his wife." And at para 60 she says, "Nobody explained to me and I was not given any opportunity to have an explanation, nor did I see any document which sought to explain it." 205 Again, I would accept that evidence. It can be taken also that she would not have sought explanation either, assuming her husband signed. 206 At paras 83-102 she describes signing documents in Mr Marsden's office, on 10 June 1993, concluding at 96, "I did sign a document that day. I think it was for the money to be released to the business." At paras 101-102 she says, "I viewed that I had no choice, it was like a rope around your neck." At para 102 "I signed, but I do not know what the document was or how many documents I signed but I think it was one or two, all I know is that I was signing the document and I had no choice." She then annexes a copy of the two acknowledgments dated 10 June 1993. 207 Again, I have no reason to doubt her evidence, in the circumstances that then prevailed; see later. 208 She describes the events of 10 October 1993. Regarding the Cross-Deed of Covenant signed on 10 October 1993, she states that she does not recall being explained the documents (para 108), that it was the same as the documents she had signed before (para 109), that she thought she had no choice but to sign the documents (para 114) and that she did not know when she signed the documents that her family home could be sold or Regents Park could be sold or that she was personally liable (para 116) and that she thought she was "signing for the Bank to give us the money". 209 She recounts a conversation she had with her husband in October/November 1993 where her husband told her that they would have to sell Jacobs Street, to which she replied, "Charlie why are we selling it, it has nothing to do with the business." He replied, "If we sell it we can put the money into the business and buy another house." 210 Accepting her account as I do, she clearly indicates in that exchange that she was proceeding on the assumption and understanding that Jacobs Street did not stand as any kind of security for the business. Again, I accept that evidence accurately reflects her state of mind. 211 Again, I make no specific findings at this point in relation to the various documentation that she signed beyond noting that I am satisfied on her evidence that at no time did she understand that she was signing a personal guarantee that rendered her liable for all the future debts of the business. 212 My observation of her as a witness was that her oral English to-day was reasonable if fairly basic. She clearly had difficulty identifying whether the documents shown to her as signed were or were not for the business. Clearly she would have had no understanding of the documents themselves, if they had been merely read to her. I found her a truthful witness whose description of her own very limited knowledge of what was going on was credible. Unlike Nada Karam, her sister-in-law, she did not over the years develop any understanding of business matters. Nor did she come to exercise any kind of judgment independent of her husband's.

John Karam's 1978 Banks Street Mortgage - What explanation was given and does it as a matter of construction secure a future guarantee given by John for future advances made to a future company Larama, not yet formed or otherwise secure that corporate indebtedness? 213 There is an issue first about what was said by Mr Parmeter to John on 13 June 1978 concerning that mortgage by way of explanation. John contends that no explanation was given nor was he asked to take it to an independent solicitor, in circumstances where John told Mr Parmeter that he could not read or write, when invited to read the document; see John's affidavit 20 October 1998 paras 38-42. On Mr Parmeter's own evidence quoted below (Parmeter affidavit 10 March 1999 para 5) the claimed explanation, even if accepted, only demonstrates that no explanation was given that the mortgage could secure any other money than that lent at the time for the house. Certainly no explanation of the effect of the "all monies" clause was given. Its comprehensibility, as exemplified by the all monies clause quoted below, would have strained the understanding of sophisticated lawyers let alone lay persons with limited understanding of financial matters and even less of legal matters; so too in State Bank of New South Wales v Muir and Anor (1996) BPR 15,483 per McLelland CJ in Eq at 15,486 (in relation to the liability for debts of a co-borrower). Yet Mr Parmeter's evidence shows that he did not recommend the obtaining of legal advice and that his explanation went no further than this: "5. I say that in 1978 and for many years previously it had been my usual practice from which I did not depart, even for direct first party mortgages, that when I was present and taking a mortgage from a customer I would say to them words to the following effect: " You understand that you are going to sign a Mortgage. We are going to lend you money and we are taking this Mortgage as security. In the unlikely event that you can't pay back the money to the Bank we can exercise our rights under the Mortgage and sell the property. After we have sold the property we will then pay back the money from the proceeds. If you do not understand what a Mortgage is I can explain it to you further or you can go off and get some advice from your Solicitor. " During my career as a Manager with the Bank I say that it was my practice as a Manager to be personally present at the execution of any mortgage or guarantee being given by a customer in support of a loan which was being advanced and for which I was responsible. I say that I would have been present at John Karam's execution of the mortgage and I would not have allowed John Karam to sign the mortgage unless I had first given to him the substance of the explanation stated above. I further say that I would have given in accordance with my usual practice an explanation to similar effect as set out above on 13 June 1978 when Charles Karam called at the Bank to sign the mortgage over his McMillan Street property as referred to in my Diary Note of 13 June 1978."

214 The all monies clause 1 of the mortgage was in these terms (on which I have emphasised the parts relied upon by the Bank): "1. That the Mortgagor will on demand in writing pay to the Bank free from all deductions the amount or balance which shall for the time being be owing or unpaid by the Mortgagor and/or the Customer to the Bank (and that although the whole or some part of such amount or balance be then represented and/or secured by any mortgagee bonds covenants guarantees bills of exchange promissory notes leasing agreement or other securities be agreements then current or under any letter of credit or other documents (whether or not similar to the above or any of them) issued by the Bank or Australia and New Zealand Bank Limited or The English Scottish and Australian Bank Limited to or for the benefit or at the request of the Mortgagor and/or the Customer either alone or jointly or in common with any other or others and whether or not default shall have been made by the Mortgagor and/or the Customer in respect thereof) for or in respect of all loans advances credits or banking accommodation heretofore made created or given by the Bank or Australia and New Zealand Bank Limited or The English Scottish and Australian Bank Limited or now or which may hereafter be made created or given by the Bank to for or on account or at the request of the Mortgagor and/or the Customer or in respect of any indebtedness from the Mortgagor and/or the Customer to the Bank on any account whether now existing or which may hereafter be opened or by any means whatsoever including all sums in which the Mortgagor and/or the Customer is or may hereafter become liable immediately or contingently to the Bank upon or in respect of any account or accounts in which the Mortgagor and/or the Customer is now or may hereafter be interested or concerned either alone or jointly or in common as aforesaid or in respect of any guarantee undertaking or obligation which has been given or incurred for or at the request of the Mortgagor and/or the customer by the Bank or Australia and New Zealand Bank Limited or The English Scottish and Australia Bank Limited or by the Mortgagor and/or the Customer to the Bank or Australia and New Zealand Bank Limited or The English Scottish and Australian Bank Limited or which may hereafter be given or incurred for or at the request of the Mortgagor and/or the customer by the Bank or by the Mortgagor and/or the Customer to the Bank …" [emphasis added]

(b) The "all monies" clause 1 defines what the Mortgagor agrees to pay on demand, the earlier quoted emphasised portions being those of its provisions upon which the Bank could be expected to rely. The emphasised portion of clause 1, read literally, might be capable of applying to monies lent in future "at the request of" John as mortgagor or customer, or to monies for which John was "liable immediately or contingently" under "any guarantee" in respect to an account in which John "as mortgagor or customer" "is now or may be interested". However, the following considerations preclude it from applying either to a future guarantee (or to money lent at John's request), given that what is sought to be thus guaranteed is a future loan, made to a company yet to be formed. (i) The quoted words "owing … whether contingently or otherwise" were construed by the High Court in National Bank of Australia Ltd v Mason (1976) 50 ALJR 362. Stephen J held (at 368) that those words were restricted to an occasion dependent on a contingency which, having happened, then gives rise to actual indebtedness. Barwick CJ (at 366) held more broadly that, before monies will be "owing contingently", there must be some presently existing obligation under which the ultimate liability will grow, thereby giving a wider construction. But on neither construction could a triple contingency be covered of the kind here. That is to say, the contingency of there being first a future incorporated business (Larama), second the contingency of a future loan to it, at John's future request, and third the contingency of calling up of that future hypothetical loan so as to give rise to a liability on John's part. If liability under a separate future guarantee were relied upon as the linkage rendering John liable, that would indeed represent a fourth contingency; (ii) If there were any ambiguity on this score (and I doubt that it even rose to that point) an "ambiguous contractual provision should be construed in favour of [a] surety" ( Ankar Pty Limited v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561 per Mason A-CJ, Wilson, Brennan and Dawson JJ) and equally so in favour of a person who would otherwise be made a surety ( State Bank of New South Wales v Muir (supra) at 15,486), more especially in a standard mortgage in printed form, written in obscure language required of an unsophisticated person on a take it or leave it basis. (iii) Given that its factual context would be relevant to its construction, where ambiguity was present, here the context was of a purely domestic loan and with no commercial corporate loan then in contemplation; compare Fountain v Bank of America National Trust & Savings Association (1992) 5 BPR 11,817 at 11,819 per Gleeson CJ requiring clauses in a (commercial) mortgage to be "confined to their operation by reference to the context in which they appear and by reference to the commercial purpose which they were intended to serve".

Taking into account the circumstances of signing this documentation, in 1978 and 1980, but not the later documentation signed by the Karams (on 10 June 1993 two deeds of acknowledgment, 1 October 1993, cross-deed of covenant and 1 March 1995 acknowledgment re no further claims and any other later documentation), could any of the guarantees and securities given by the Karams or the Company in 1978 (John's mortgage taking into account the subsequent form S148) and in 1980 (various securities) be impugned or set aside in whole or part either at general law or by statute as unconscionable, or unjust within the Contracts Review Act 1980, s7? If no longer capable of being so impugned because the property secured was later sold. Does later realisation of those securities give rise to equitable compensation and, if so, in what measure? 219 Before dealing with the specific question, I should say that I do accept for the reasons earlier elaborated, that the wives, Nada and Diane, as of the 1970's and 1980's played an entirely subsidiary and uninformed role when it came to the family business, and in particular banking matters. Moreover, I would accept the Plaintiffs' contention that that must have been obvious to the Bank officers dealing with the Karams. While as I have earlier explained, Nada later to a degree took a more active and questioning part in the business affairs, this was only after difficulties became apparent following the purchase of the Ingleburn land. I would accept that until then neither wife played any active part in the business affairs of their respective husbands and that Diane never did, either then or later. I would accept also that although the wives were in regular attendance at the business premises, the Bank officers rarely, if ever, spoke with them and certainly undertook no business with them. I mentioned this, because it provides essential background to an appraisal of what occurred on 26 May 1980 when the wives for the first time participated in giving any guarantees or security. 220 I would also, generally speaking, accept the contention of the Plaintiffs that the Bank, which commenced dealing with Charles and John Karam in about 1978, knew them: "(a) to be very cautious men who would not take any chances with the business they had worked hard to build up [TB 1.084]; (b) to be hard-working [TB 1.081 Myatt T/s 790/57]; (c) to be honest [TB 1.081 Myatt T/s 791/2]; (d) to be cautious and not prepared to take risks [TB 1.119; Myatt T/s 791/37]; (e) to have a conservative approach to management [TB 1.119, McLachlan T/s 843/34-42]; (f) to have a good understanding of their industry [TB 1.119], but minimal financial knowledge and sophistication [TB 1.119]. The success of KBF had been achieved despite the limited formal education of the Karams and the unsophisticated knowledge of financial management of Charles and John (see reports of Holyman Dart and Arthur Andersen [TB 8.144, 11.140 and 11.141]), but as a consequence of the characteristics listed in para. 12 above."

Scope of John's Banks Street Mortgage taking into account subsequent form S148 222 This background becomes relevant first in dealing with the mortgage executed by John over his Banks Street residential property in which he and Nada lived as their family home. That mortgage as I have said was executed on 28 September 1978 some one and three-quarter years before the combined set of security documents were entered into on 26 May 1980 including the form S148 signed by John. That form S148 purports to "deposit" the mortgage of John's Banks Street property "in support of" the unlimited guarantee he had contemporaneously signed that day. 223 The first question is whether, having earlier concluded that the Banks Street Mortgage properly construed could not apply to secure monies only later to be lent to Larama Pty Limited when at the time of the mortgage Larama was not in existence, does the form S148, taken after Larama was formed and loans made to it, overcome that lack of coverage? I leave aside for the moment the question of whether the form S148 or the guarantee given by John are capable of being impugned as unconscionable or as an unjust contract under the Contracts Review Act. 224 In dealing with that question, I also put to one side in the first instance what was said by the Bank by way of explanation to John and his subjective understanding based upon that advice. Those matters could not, so far as they go to subjective intention, bear upon the proper objective construction of the Banks Street Mortgage and the later form S148 of 26 May 1980. Rather that goes to questions of unconscionability. 225 When one turns to the actual wording of the form S148 it is not on its face an amendment to the Banks Street Mortgage at all. It does not purport to alter that mortgage as one might expect so it now secured that which it did not previously secure, namely John's later obligations under the unlimited guarantee signed on 26 May 1980 entered contemporaneously with the form S148. Nor does it purport to amend the house mortgage so it now secured future loans to Larama. Rather it professes to be a letter from John to the Bank on a standard printed form. That letter merely states that "the following documents have been deposited by me with you in support of unlimited guarantee dated 26 May 1980 for the account of Lamara P/L [the correct name should have been "Larama Pty Limited"] T/A Karam Bros Footwear". It has then a schedule in the following terms: "RM No. Q925655 over 7 Sir Joseph Banks Street Bankstown." The deposited documents are not title deeds, but a mortgage, which of itself confers no right of property on the mortgagor, merely leaving the mortgagor with his residual rights, namely his equity of redemption. 226 I turn now to the plain words of that form S148 document. What does a deposit of the mortgage "in support of" John's unlimited guarantee for the account of Larama connote? If it connoted that the mortgage is confirmed as henceforth available also to secure Larama's corporate debt, it does so on the mistaken assumption that the mortgage is by its terms already capable of so doing and without altering and extending those terms. But I have earlier concluded that mortgage by its terms could not apply to a future guarantee. Deposit of a mortgage does not unequivocally point to any intent that the mortgage was henceforth to comprehend obligations that it did not previously secure. Nor would this cause the title deed to Sir Joseph Banks Street to be thereby appropriated to secure a guarantee, or loans made to Larama, when the mortgage properly construed did not have that effect. If there be any ambiguity in this attempt to render John a guarantor, granting security in support, that ambiguity must, as with a guarantee itself, be resolved in favour of the party sought to be rendered a secured guarantor; see earlier at para 217(b)(ii). 227 However, the possibility remains that the form S148 might operate to create a security over the equity of redemption, as the result of estoppel. As is observed in "Fisher and Lightwood's Law of Mortgage" by Tyler, Young and Croft (Butterworths, 1995) at 12: "It should be noted that, in appropriate situations, a security may exist as the result of estoppel". Does John's executing the form S148 constitute a security as a result of estoppel over the relevant title deed, or equity of redemption, so that John is thereby estopped from denying that the mortgage in its terms extends to secure his obligations under the unlimited guarantee, though it otherwise would not? 228 For such an estoppel by representation to be made out, the relevant statements in the document relied upon must be clear and unambiguous, the party making them must have intended that the other party act upon them, and the other party must have believed the representations in that document to be true and have actually acted upon them. Thus in Lowe v Lombank Ltd [1960] 1 WLR 196 estoppel was not made out merely from signing a delivery receipt in relation to a hire purchase transaction, so as to preclude the plaintiff from relying on a breach of the implied condition of fitness for use. This was in the case of a car subject to that hire purchase transaction. 229 But here the short answer is that the Bank has not pleaded estoppel as a basis for reliance upon the form S148 as a security (though estoppel is later relied on based on the June 1993 acknowledgments and the October 1993 Cross-Deed of Covenant). That was no doubt on the basis that it considered the words themselves sufficiently clear and unambiguous, such that the original mortgage was itself capable of application to a future guarantee for future loans to a company not yet formed. It is too late now for the Bank to amend its pleadings. However, I should say that even were estoppel to have been pleaded, I would have concluded that the representation here relied upon in the form S148 is not, as required for estoppel, unambiguous and unequivocal, purporting as it does merely to "deposit" a mortgage document in support of a guarantee. There is no reference to extension by alteration of the terms of the mortgage to embrace that which the mortgage did not previously cover, so as to entitle the Bank reasonably to form a belief that the representation was true and to act upon it. The Bank must be taken to know the meaning of its own security. It cannot rely upon a representation that the mortgage means something different to its true meaning, even assuming in the Bank's favour that that was what the form S148 amounted to in terms of a representation. 230 I now turn to deal with the position on the assumption that my earlier construction of John's mortgage is incorrect. I shall assume, contrary to my earlier finding, that it was, when granted, capable of applying to a triple contingency, namely a guarantee not then in existence for a company not then in existence and in respect of indebtedness not then in existence. 231 However proceeding on that assumption (and contrary to my earlier conclusion) still the form S148 adds nothing. It is merely confirmatory - albeit with ill-adapted language - of what would on that assumption otherwise result from the combination of the terms of the mortgage so construed and the later execution of the guarantee on 26 May 1980 by John of the obligations of the Company. (That the form S148 misdescribes the Company as "Lamara Pty Limited" does not matter either way. That result presupposes that the guarantee in question is not itself capable of being set aside as unconscionable or subject to remedial order pursuant to the Contracts Review Act, questions to which I will return (see paras 243 and following). I might add that I am satisfied that no explanation was given of the intended effect of the form S148 on 26 May 1980. There is nothing in the diary note of 26 May 1980 (TB, 1.044F) attesting to any explanation of the S148 as distinct from explanation of the unlimited guarantee. Even the guarantee was, according to the diary note, only "explained to them [John and Nada] in a general manner". The explanation Mr Kitching says he gave in his affidavit of 4 May 1999 (para 10) makes no mention at all of the form S148, and presupposes his explaining the signing of a mortgage (when the 1978 mortgage was already signed) and not a form S148. He claims no independent recollection, but merely his practice. In those circumstances I would conclude that John and Nada had no understanding of the effect of the form S148 and every reason to continue to believe on 26 May 1980 their house property solely secured the house loan and not corporate debt, having regard to what they were told by the Bank in 1978. 232 Nor do I yet deal with the effect of the June 1993 Deeds of Acknowledgment and the October 1993 Cross-Deed of Covenant ("the 1993 documentation") but will return to their effect later under Issue 6. 233 What I now turn to is whether, should the Banks Street Mortgage be construed as covering the future indebtedness of Larama, contrary to my earlier conclusion, that mortgage is to be impugned as unconscionable at general law, or as unjust within the Contracts Review Act.

Unconscionability and Banks Street Mortgage 234 It can readily be inferred from the evidence that, when John purchased the Banks Street property on 28 September 1978, he understood that the Bank took some security over it for the loan which the Bank provided to enable him to purchase the property. 235 The evidence of John is that at the time he gave the mortgage in 1978, he had no belief that the Bank could avail itself of that security in the event of default arising out of some other borrowing and indeed the belief to which he attests was to the contrary; see John's affidavit 2 October 1998 paras 43, and earlier 33; T, 393.34-.44, 393.57, 394.15. 236 But apart from that evidence, Mr Parmeter from the Bank himself leaves no room for doubt on the matter and it confirms the basis for John's belief. At para 5 of his affidavit of 10 March 1999 he says: "I say that in 1978 and for many years previously it had been my usual practice from which I did not depart, even for direct first party mortgages, that when I was present and taking a mortgage from a customer I would say to them words to the following effect: 'You understand that you are going to sign a mortgage. We are going to lend you money and we are taking this mortgage as security. In the unlikely event that you can't pay back the money to the Bank we can exercise our rights under the mortgage and sell the property. After we have sold the property we will then pay back the money from the proceeds. If you do not understand what a mortgage is I can explain to you further or you can go off and get some advice from your solicitor.' During my career as a manager of the Bank I say that it was my practice as a manager to be personally present at the execution of any mortgage or guarantee being given by a customer in support of a loan which was being advanced and for which I was responsible. I say that I would have been present at John Karam's execution of the mortgage and I would not have allowed John Karam to sign the mortgage unless I had first given to him the substance of the explanation stated above."

Conclusion 249 I would therefore conclude that in all the circumstances, the Bank's procuring the form S148 document to be signed was itself to take unconscientious advantage of John Karam, insofar as that document purported to appropriate the Banks Street Mortgage to his personal guarantee; prima facie that entitles John to equitable compensation as to which see Issue 6. Another way of putting it, is that the form S148 does not remove the consequences of unconscionability attending the Banks Street mortgage, insofar as sought to be relied upon by the Bank as security for the corporate debt. In the words of Deane J in Louth v Diprose (1992) 175 CLR 621 at 637 the Bank was thereby seeking to "retain" if not "procure" the benefit of John's assent as the disadvantaged party to that element of the impugned transaction. That was an unconscionable dealing taking unfair advantage of the special disability of John. This was, in the words of Deane J earlier in Commercial Bank of Australia Ltd v Amadio (supra) at 474, by "the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability", so amounting to an unconscionable dealing. That attempt was by using the form S148, insofar as it were capable of being effective at all to effect such an appropriation of security. I have already concluded that it was not so effective. That is, by reason of the terms of the form S148 and the terms of John's mortgage, properly construed. Insofar as relief were required under the Contracts Review Act, I would conclude that it would be unjust for the form S148 to effect such an appropriation, if in fact it were capable of so doing, and that it would be just to set aside the form S148 accordingly to remove that unjustness. The factors leading to that result are essentially the same factors as support a conclusion of unconscionability. I shall deal under Issue 6 with the effect, if any of subsequent events on this outcome and on the equitable compensation claimed.

255 It can be taken that the practice relates to the giving of the explanation which then he sets out. Because of its importance I set out the whole of the introduction to the explanation and the quote of explanation said to be Mr Kitchings' invariable practice. "In this particular case I was aware on 26 May 1980 that I was taking from the Plaintiffs a mortgage over the Regents Park Property which they owned jointly as well as a guarantee from each of the Plaintiffs for Larama Pty Limited's debt to the Bank, a Form s148 linking the Sir Joseph Banks Street Property Mortgage to the KBF Guarantee, a Form s148 linking the Regents Park Mortgage to the KBF Guarantee, and a Form s148 linking the McMillan Street mortgage to the KBF Guarantee. In these circumstances it was my practice to say to customers who I was about to ask to sign such documents words to the following effect: ' You will be signing a mortgage over your property at [I would give the address of the property] and it will be security for the borrowings of X Pty Limited [I would name the relevant company] and it will support your guarantee of the company. You will also be signing the guarantee and the guarantee means that if the company cannot repay its debts to the Bank you will have to, and heaven forbid that this ever happens. If we thought this then we would not be lending you the money. However if the company cannot repay at any stage you will have to and it is your responsibility, and it gives the Bank the right to sell the property to recover the money owing, and in the unfortunate situation that there is any money owing after they are sold you would still personally owe it. The guarantee is not limited. You know what the companies borrowings are, you control the companies borrowings by either drawing cheques or making withdrawals from its accounts or seeking further loans and therefore the extent of the companies liability is totally within your control and the debt cannot be any higher than you want it to be.' 'Before you sign this you have the opportunity to go and seek independent legal advice if you wish to and you have the opportunity to read these documents. On the back of the guarantee you sign an acknowledgment that says that you have carefully read and understand this document. However I understand that you will probably not read it. The most important part of that acknowledgment is your signing of it means that you understand what you are doing.' If I was linking a further property in support of a guarantee where the Bank already held a registered mortgage, as was the case here with the Sir Joseph Banks Street Property belonging to John Karam, and the Regents Park Property I would then say in connection with the Form s148 words to the effect: ' You will also need to sign this form which links your property [I would name the address] directly to your guarantee in support of the company.'

257 As the passage from Mr Kitchings' cross-examination on 8 November 2000 (T, 766.23-767.33) acknowledges, if the diary note is accurate, as asserted, then explanation as to the mortgage and S148 could not have been given. 258 Moreover such explanation as was given about the guarantee, if that quoted be taken as accurate, does not make clear that all future loans to the Company - not merely the working overdraft to cover cheques and the like - would be automatically covered by the guarantees. The first part of the explanation could be understood as applying to existing debts and (though less clear) the debts from future company trading but not a future major special purpose loan (as for Ingleburn) separately secured. Reference towards the end, if in fact made, to "seeking further loans" comes closest. But it is still likely not to have clearly enough conveyed that category of uncontemplated future guarantee liability to the Karams (see 260 below), with their limited understanding of such technical security matters. 259 The Plaintiffs then contend that the words "take it" should be read as applying to the preceding reference to the guarantee and to nothing else, as their syntax indicates. This meant that no opportunity was given to take the other documents away and seek legal advice, namely the mortgage and form S148. However, I do not think that the diary note should be read quite as narrowly. I would accept that if the opportunity to take away the guarantee were given it would be understood as referring to all the security documents signed at the time. 260 But accepting there was no explanation of the guarantees, or none beyond that quoted as Mr Kitching's invariable practice, there are two things of concern. The first is that the stated explanation does not explain that if the Company gives its own specific security for a future loan to purchase a property like Ingleburn, being a specific and major transaction separately secured, not then in contemplation and outside of a conventional trading overdraft, that the guarantee would still apply. The second is that it is not enough merely to invite the four Karams, with their limited understandings, to "read the document and/or take it away and seek legal advice". First that does not constitute recommending these steps. Nor, importantly, would inviting the Karams, without legal advice, to read the Guarantee in all its convoluted and unpunctuated complexity be likely to enlighten the Karams with their limited English and education and lack of adequate financial understanding. This guarantee, as I point out below, was for even someone not so disadvantaged, exceptionally difficult to understand in the density of the technical language. Reading nonetheless was treated by the Bank as sufficing without legal advice. In the context of wives guaranteeing their husbands' debts, Barclays Bank plc v O'Brien [1994] 1 AC 180 makes clear that, to protect the bank, it must at "a private meeting" not only "warn of the risks" but also "recommend independent legal advice". In Royal Bank of Scotland v Etridge (No. 2) [1998] 4 All ER 705 at 722 the Court of Appeal while doubting that a private meeting was likely to be feasible, considered independent legal advice of the greatest importance. This is especially in my view because the lender has an inherent conflict of interest in explaining its own security, which it ordinarily seeks to maximise, to a borrower whose interest is rather to minimise its security burden and risks. Here there is a comparable situation of conflict and disability, though not derived from emotional dependence. Yet despite this, independent legal advice was never recommended. It was just one invited option, given no greater weight than merely a reading unaided, after taking the documents away. When unsurprisingly neither invited - not recommended - option was taken, as the Bank officers well knew, the Bank was nonetheless content to take the benefit of an immediate signing, knowing of the Karams' disability and in that way unconscientiously taking advantage of it. 261 Moreover, it appears that the Karams as customers, as is clear from the diary note and the standard explanation itself, chose to sign the documentation without having "carefully read and understood" the document. Moreover, like the guarantee in Houlahan v ANZ Banking Group (supra) its principal clause 1 (quoted para 30 above), setting out the "Extent of Guarantee" is a similar "single sentence of 47 lines in length couched in incomprehensible legal gobbledegook" capable of being "understood only by a commercial lawyer with the time and patience to read it carefully" (per Higgins J at 263). Yet Mr Kitching permitted his customers to sign such a guarantee with a false acknowledgment on its face (DX5, page 56) that they had "carefully read and understood" the document. This he did, knowing they had not and could not, and had moreover taken no legal advice though without it they would have found the document quite incomprehensible. He was pressed upon this in cross-examination to the effect that he well knew that that acknowledgment was not true (T, 773.42) and even though he realised that such acknowledgment might mislead bank officers or a court reading the acknowledgment years later (T, 773.50). 262 Mr Kitching then sought to support his view that the Karams understood the documents by reference to the letter of offer "with all conditions and terms" which had previously been sent by the Bank (T, 776-7.1-.21). Mr Kitching had to accept that, had no such letter been sent, that might affect the customer's understanding of the lending and security requirements (T, 776-7.37). In fact it appears that there is no record of any letter of offer of that sort ever having been sent at the time and no copy has been since located or produced; Kitching affidavit 4 April 1999, para 7. There was indeed no practice of sending formal letters of offer in the retail branches(of which Bankstown was one) until 1989 as Mr McLachlan conceded; T, 839.21. I would again accept that the reliance could not therefore be placed on the letter of offer to augment any understanding the Karams had of the nature of the documents they were signing. I would also accept that these deficiencies apply as much to the diary note entry and explanations purportedly given to Mr and Mrs John Karam as they do to Mr and Mrs Charles Karam; T, 778.14-.52. 263 In all the circumstances, I have no reason to doubt the Karams' evidence that they received no adequate explanation of the documents insofar as they consisted of the registered mortgage and S148 - and probably none at all. I would further conclude that they received a less than adequate explanation of the unlimited guarantees. In particular I conclude that the Karams received no clear explanation that their guarantees would automatically attach without their consent to an uncontemplated major future corporate loan transaction such as might be independently secured by the Company and outside the scope of the existing Regents Park based business. I believe that the most likely position is that such explanation as they received and the context in which it was received left the Karams understandably believing that their respective guarantees applied only to the advance then in contemplation, namely to build the Regents Park factory with the term loan of $60,000, to the prior overdraft for that purpose, to the subsequent increase in the business overdraft of a further $10,000 as well as to such other accommodation of that general business trading nature as might be provided in the future. I so conclude because it is difficult to conceive of the Karams failing to appreciate that their guarantees were intended to cover the Company's ordinary trading, accepting that some such explanation was given by Mr Kitching (though he does not recall the actual advice but relies on his practice). But I conclude they were left with no understanding on their part, indeed more likely a contrary understanding, that the guarantees would apply automatically and without their consent to some other borrowing well into the future, and not then in contemplation, in particular such as for a major corporate loan transaction to acquire a property outside the framework of their Regents Park based business and which would be independently secured directly by the Company. 264 These conclusions find further support in the fact that Mr Kitching could not attest, with any reliability, to whether the Karams understood the documents they signed on 26 May 1980 or to the nature of their understanding. The Bank would have known that the Karams, despite their disability (of comprehension of such legal documents) took no financial advice or legal advice as to the terms and effect of the documents. Moreover I am satisfied Diane and Nada with their limited English and education had no understanding at all of the effect of the proposed documents at the time they were signed; T, 233.41-.47, 235.18-.30, 250.36-.54. Charles attests to his understanding that the Regents Park property was available to the Bank in the event of default in respect of the borrowing used for the purchase of that property only; see Charles' affidavit 13 October, 1998, paras 67, 70, 71; John's affidavit of 2 October 1998, paras 61, 64 and 67. That is consistent with the explanation they received in relation to their own house properties being only for the borrowing applicable to their purchase or building. However, I deal later with Regents Park, concluding that it became available by later agreement to secure the funding of the Ingleburn factory construction loan. It must be remembered that the Regents Park loan had been repaid at the time of the Ingleburn transaction in 1989/1990. 265 I leave out of account at this point the conversations which Charles attests to having taken place in or about March 1990 some ten years later which conversations are disputed. These were conversations in connection with the Ingleburn mortgage. I deal with these later; see Charles' affidavit 13 October 1998, paras 218-9, 205-6 and see also John's affidavit of 2 October 1998, para 117 and T, 442.33-.45. 266 The Bank attempted to attack the characterisation of what occurred on 26 May 1980 by describing the evidence proffered by the Karams as just not credible; see para 92 of the Bank's written submissions. But the difficulty for the Bank is that the strength of the Plaintiffs' evidentiary case is that it is reinforced by Mr Kitching's own diary notes and what he said in relation to them. So based, it is consistent with the Karams' own evidence, accepting the need for caution in regard to that evidence and the tendency from time to time of a selective recall of events. 267 The Bank also attempt to justify the guarantee in these terms (para 93 of the Bank's written submissions): "Further, there is nothing about the guarantee itself, or about its terms, which is unreasonable, or goes beyond what is reasonably necessary for the protection of the Bank's interests. The guarantee is itself in the Bank's standard terms. The circumstances in which the guarantee came to be required by the Bank related to the fact that the business of Karam Bros Footwear, which had until early 1980 been carried on by Charles and John personally and from premises owned by Charles, John, Diane and Nada, was from that time to be conducted by the newly incorporated Company, which was itself otherwise without assets. The Company would of course be requiring financial accommodation from the Bank from time to time for its business, as the Karams had prior to 1980. In these circumstances, there is nothing in the least unusual or unreasonable in requiring the four principals of the Company to provide personal guarantees. It was, to use the words of McHugh JA in West , a most commonplace transaction. There is therefore no substantive injustice either in relation to the taking of the 1980 guarantee."

268 The difficulty here as I have earlier explained is that it fails to recognise what is fundamental, namely the commercial context in which the guarantees were taken. It was not only that the newly incorporated company was taking over the business previously carried on by the Karams as individuals, but it was doing so in a context understood by the Karams of their making available, reasonably enough, the Regents Park factory as security for the loan to obtain and build that factory. That was backed up by personal guarantees which they would have likely believed were primarily required in respect of that transaction. I accept that the Karams, on balance would have understood the guarantees to be available for the associated ordinary business borrowings of the newly incorporated company, for which previously the Karams personally were liable, though limited as I have earlier explained in relation to future loans. While from the Bank's viewpoint it might have seemed reasonable enough for the guarantees to extend also to any future indebtedness of the now incorporated business, from the Karams' viewpoint it might be reasonably asked why they would wish in the first place to incorporate. This is if their personal assets remained wholly at risk for all future transactions carried out by the now incorporated business, more especially corporate transactions of a non-trading nature outside the scope of the business based at Regents Park and directly secured by the Company. Essentially there may well have been a mutual mistake operating here as in Houlahan v ANZ Banking Group, though that is not part of the Plaintiffs' pleaded case. But that factor is also relevant to unconscionability, when the other circumstances are also taken into account. 269 Finally, had the Bank actually recommended independent legal advice, not merely proffered it as one option, I consider there was reasonable prospect though not a certainty that the Karams would have taken that course. I further accept that in those circumstances, where the Karams would have had a proper explanation of the extent to which they were standing surety for the Company, an independent legal adviser more likely than not would have used the fact that the Karams would then have been a valuable, profitable account as leverage to negotiate for their houses not to be at all at risk and for the guarantees and Regents Park not to be automatically available for all future corporate borrowings but only for the narrower ambit of those corporate borrowings then in contemplation, and perhaps like borrowings into the future. 270 In reaching that conclusion I am conscious that I am here inferring that the true position is closer to the Karams' version, though not entirely on all fours. In so concluding, I have had the advantage of hearing the witnesses, observing them under pressure of cross-examination. In particular I have observed the Karams and their level of apparent or likely understanding of security matters. This is with the important caveat that the observation is well after the events, when their understanding is now with the wisdom of hindsight, brought about by the disastrous intervening events as well as preparation for this case. However, where their understanding to-day is genuinely still lacking, that must reinforce their case. Moreover the contemporary documentary evidence, mainly from the Bank's own records, helps establish what the Karams would have then understood, and largely though not completely supports their retrospective recollection. 271 My conclusions are reached on the balance of probabilities. Such confidence as I have in the conclusions I have reached is I have said based not only on impression, which though not unimportant has its limitations, but also on the Bank's contemporary diary notes and documentary evidence, and on what can be inferred from the objective circumstances. One such circumstance, leads me to conclude contrary to the Karams' submission that the guarantees did not only secure Regents Park. That circumstance is their contemporary association with non-Regents Park business debt by way of the modest $10,000 business overdraft that existed at the time (May 1980) and its readily foreseen increase as a trading overdraft in the context of that Regents Park business. Looking however at the Bank's case, not too much emphasis should be placed on the unlimited nature of the guarantees' terms obscure as they were. Nor should too much emphasis be placed on the guarantees being associated with the takeover of the partners' business debt by the newly formed Larama. The notion that incorporation went with complete cross-collateralisation and complete personal liability would deny much of the advantage of incorporation so far as the Bank's security. Moreover, the Karams, I am satisfied, did not, in their essentially trusting relationship with the Bank, anticipate that some major new and separately secured transaction, like the Ingleburn one, would automatically inherit the security of personal guarantees, Regents Park itself and their house mortgages. Nor had the Bank any proper justification for assuming such an understanding by the Karams of the Bank's intentions in that regard. This is so, especially given the Bank's inadequate explanation, its failure properly to encourage if not urge legal advice, as distinct from a useless (to the Karams) unaided reading of the documents, and the fact, known to the Bank, that the Karams did neither, despite their obvious disability.

Issue 4: Charles' 1986 House Mortgage - Does it secure the Company's debt taking into account form S148? 275 Charles Karam's 1986 Jacobs Street Mortgage - What explanation was given and does it as a matter of construction, with or without recourse to the earlier guarantee given by Charles on 26 May 1980 secure advances to Larama or otherwise secure that company's indebtedness? Was the form S148 signed on 4 February 1992 effective to bring that result about or would such result, in the circumstances, be unconscionable or precluded by orders made under the Contracts Review Act? 276 Before turning to the effect of subsequent events as they may potentially affect those conclusions, I need to consider the position regarding Charles Karam's entry into the mortgage over his Jacobs Street residential property on 10 January 1986. It will be recalled that earlier in August 1985, Charles had taken out a loan for approximately $90,000 from the Bank to build a house on the Jacobs Street property that he had previously purchased on 11 June 1985. When on 10 January 1986, Charles signed a mortgage over the Jacobs Street property, Charles' evidence was that he did not understand that the mortgage could be applied by the Bank so as to secure the Company's debts; see Charles' affidavit of 13 October 1998, paras 98-100. 277 I should interpose here that this mortgage was in all relevant respects in equivalent terms to the earlier real property mortgage taken out by John in relation to the Banks Street property. The only difference in circumstances was that, as a matter of fact, Larama Pty Limited had been incorporated some six years earlier, whereas in the case of John's mortgage it had yet to be incorporated. Moreover that meant in Charles' case, there were already monies advanced to Larama at the time of his mortgage (1986). It is true the layout on the front page of the mortgage is slightly different, but again the only mortgagor was in this case only Charles. The equivalent of note D in John's mortgage containing reference to "customer" (with John being described as the customer) is to be found in note E of Charles' mortgage. Again there is no one else so described (apart from Diane) so like John, Charles was both mortgagor and customer, leaving no scope for clause 3 to operate as a guarantee. That note refers to the consideration as being "all or any loans advances credits or banking accommodation whether made created or given on the signing hereof or that may hereafter be made created or given in its discretion by the bank to for or on account of the Mortgagor and/or to for or on account of"

But there is no reference at all to the incorporated entity now called Karam Bros Footwear Pty Limited. Thus anyone reading the document up to that point would have assumed it was to secure a loan to Charles and Diane though with a consideration, if read closely, that was expressed to be somewhat more expansive than that which later followed in the small print clauses of the mortgage. But in any event, the consideration expressed could not, of itself, cause such loans as are described in the consideration to be secured by the mortgage. That depends upon the clauses which follow. These are in printed form and in small print. 279 Neither does that small print include in the expression "customer" Karam Bros Footwear Pty Limited or any other company so again clause 41(d) cannot be called in aid of the guarantee provisions in clause 3. These are only operative where customer and mortgagor are distinct, such that the mortgagor guarantees the customer. That is of course not the case here (just as it was not in John's case). 280 Clause 41(g), again in the small print at the end of the mortgage, states that "this mortgage shall be a security for all monies which … the Customers or any or either of them … shall be indebted or liable immediately or contingently to the Bank either alone or jointly or in common with any other or others on any account or by any means whatsoever". 281 The Bank in oral argument relied upon the words referring to monies owing "contingently" as extending the mortgage to Larama's indebtedness. The Bank then again relies upon the tangled syntax and dense verbiage of the "all monies" clause 1 in an attempt to link what is secured (cl 41(g)) to what must be paid (clause 1). This I have quoted earlier in relation to John and is repeated for Charles in essentially identical terms. It states what it is in the way of monies that the mortgagor agrees to pay on demand, namely: "all sums in which the mortgage and/or customer is or may hereafter became liable immediately or contingently to the Bank upon or in respect of any account or accounts in which the mortgagor and/or customer is now or may hereafter be interested or concerned … or in respect of any guarantee … which has been given or incurred for at the request of the mortgagor and/or the customer by the Bank …"

The latter reference is to guarantees given by the Bank, so is not applicable and could not apply. Again the Bank's preferred construction (to the effect that the mortgages operate as a guarantee extending to the Company's debt) must find its basis in the reference to monies "contingently" owing. That requires these words to cover now two contingencies. First, the contingency of future indebtedness arising on the part of the Company and second, the contingency of default in paying it. 282 I consider that there are formidable difficulties in that construction. These are similar to those which attended John's mortgage except that here the company did pre-exist Charles' mortgage as did John's personal guarantee. That removes those two as mere contingencies. Thus the Bank seeks to rely upon these words by way of extension; that is to render the mortgage itself a guarantee of the Company's future indebtedness, or in support of Charles' personal guarantee to the extent so extending the Company's indebtedness. But again the documentation must be read contra proferentem against the Bank. Moreover, National Bank of Australasia v Mason (supra) construed the words "owing … whether contingently or otherwise" as not extending to any contingent indebtedness but only to "an occasion which, the contingency having happened, has given rise to actual indebtedness." (per Stephen J). Clearly that condition is not satisfied here, in relation to future, post Ingleburn indebtedness, as the contingency of it becoming owing has yet to happen. 283 Barwick CJ concluded more broadly that before the monies will be "owing contingently" there must be some presently existing obligation under which the ultimate liability will grow. This too is lacking. Taking Barwick CJ's approach, the only possible such "presently existing obligation" in the present case would be the guarantee earlier given by Charles on 26 May 1980. But I have already concluded that, aided by remedial order under the Contracts Review Act, his guarantee should be read as limited in the manner I have described. Certainly no monies advanced directly to the Company outside that limited scope could in any event be comprehended by the mortgage from John, even on the most benevolent construction favouring the Bank. Moreover, though the guarantee pre-existed the house mortgage, the indebtedness arising from purchasing Ingleburn had yet to be "presently existing", so could not be "owing contingently". 284 There are thus two bases for concluding that John's mortgage does not apply to any other indebtedness than his house loan, disregarding for the moment the effect of any subsequent documentation. First is that the mortgage, as a matter of its proper construction is not capable of applying to any later indebtedness owed by the Company to the Bank. That would be clearly so on the narrower construction favoured by Stephen J but also I conclude on the wider construction favoured by Barwick CJ. The second basis is that, in the event that the mortgage were capable of applying to secure indebtedness of Charles pursuant to his guarantee, that guarantee taking into account the earlier conclusions regarding the Contracts Review Act and unconscionability, must be treated as only capable of applying to a limited category of indebtedness. That category would exclude future indebtedness of the Company arising from a major transaction outside the scope of the Company's business based at Regents Park and which was directly secured by the Company and was not of a kind in contemplation at the time of the guarantees. The mortgage insofar as reliant for its coverage upon such separate guarantee cannot secure that which the guarantee does not reach. 285 Were the construction I prefer in error, such that Charles' mortgage were capable of applying to the post Ingleburn indebtedness, it would still be necessary to consider the application of signing a later form S148 and the potential application of the Contracts Review Act. Also whether the circumstances attending the taking out of the Jacobs Street mortgage were such as to invoke equity's intervention on the ground of unconscionability. These questions, though distinct, are connected and are considered below. 286 The starting point is the evidence concerning the circumstances surrounding the taking out of that house mortgage. Charles' evidence is that he did not understand that the mortgage could be applied by the Bank so as to secure the Company's debts; see Charles' affidavit of 13 October 1998, paras 98-100. Given the need for caution in accepting Charles' evidence, it needs to be tested against the evidence of the Bank officers and any contemporary records. 287 The only Bank witness is Eric Myatt who in late 1981 had become Manager of the Bankstown North branch of the Bank and thus took over control and supervision of the accounts of the Plaintiffs and KBF. 288 Mr Myatt annexes to his affidavit diary notes created or approved by him. He says, "that they truly state and record the events, circumstances and conversations which they record". 289 He described how in or about July/August 1985 he first became aware that Charles had decided to purchase a residential property located in Jacobs Street Bankstown. Initially Charles used funds from the Company overdraft account but having raised the matter with the Bank, agreed that it would be preferable for himself to take out the loan and repay the Bank overdraft. 290 Then at para 8 of his affidavit of 3 May 1999 Mr Myatt gives the following evidence: "8. I have a present recollection of the meeting with Mr Charles Karam where he signed mortgage number W172955 registered over the Jacobs Street Property and a copy of which mortgage is annexed hereto and marked with the letter "B". It was signed by Charles Karam in my office at the Silverwater branch of the Bank in the presence of myself and Mr Trevor Robinson who was my assistant. We were the only three present. I do not now have a present recollection of the precise words which I spoke on this occasion but I say that in accordance with my practice and procedure as a Bank Manager that I would not have permitted Charles Karam to have signed this mortgage in my presence unless I had first given to him an explanation of the effect of the mortgage in general terms to the following effect: 'The Bank has approved a housing loan for $85,000 against the security of the Jacobs Street Property. This mortgage is over that security. The basis of the mortgage is that if you default the Bank has the right to exercise sale of the property. Please take time to read the mortgage and if you wish you can seek independent legal advice before you sign it. If you don't understand any part of the mortgage or what I have just said to you take the mortgage to your solicitor and get some advice. We aren't going to sign the mortgage tody if you don't understand it.'

291 It will be apparent from Mr Myatt's own evidence that the first part of his explanation, accepting that was what he said, gave no indication other than that the mortgage was security for the housing loan for $85,000. There is no mention at all at that first point of any availability of the mortgage as security for accommodation made available to the Company. 292 It is the explanation which follows upon which the Bank relies. But that explanation is entirely dependent on there having been a form S148 which was signed at the time. Only if there were a form S148 is it capable of being the subject of the claimed explanation that it, "links this mortgage which you are giving to your guarantee of the debts of the Company as replacement security for the Yagoona property". 293 The fundamental difficulty in that contention is that no S148 document linking the 1986 mortgage to KBF's indebtedness signed in January 1986 has ever been produced. 294 Moreover, had it been executed, one would expect its execution would have been recorded by Mr Myatt in a diary note as Mr Myatt concedes; Myatt T, 832.13. But the diary note of the meeting, which does record the execution of the mortgage, does not record the taking of the S148 form; TB 1.013C. Again, it would have been recorded in the security index according to Mr Myatt's evidence had there been an S148 form (Myatt T, 832.17). But no such entry has been produced. Likewise if it existed it would have been recorded in the Bank's credit memoranda (T, 832.41-.57). But neither the 1988 nor 1989 credit memoranda record the S148; TB 1.093, 1.113. 295 Mr Myatt attempted to suggest that the S148 must have been taken because it would have been replacement security for what he described as the Yagoona property or the S148 document said to have been taken out in relation to that Yagoona property. The Yagoona property is Charles' property at McMillan Street referred to at paragraph 18 of Mr Parmeter's affidavit of 10 March 1999. I should note that the diary note accompanying Mr Parmeter's affidavit of 13 June 1978 makes no mention of that property being available as security for anything other than the house loan; see diary note of 19 April 1978 and 13 June 1978 annexed to Mr Parmeter's affidavit. 296 Further as regards the Bank's view of its position concerning the McMillan Street property at Yagoona, the Diary Note of 14 August 1985 indicates that when Charles sold his house at Yagoona the Bank acknowledged that, it having been sold, "in the circumstances we will not rely on the Yagoona property as security for the Company". There was no suggestion that the proceeds of that sale should be applied in reduction of the Company's debt. Rather that this could have been done but that was in effect waived. Mr Myatt in cross-examination explained this by saying that it was at a time when the family were very upset at the death of their mother; T, 835.35-.45. But he did not then find any explanation for there being an absence of recording that either Yagoona had been reinstated as security or the substitute Bankstown property had been reinstated as security. Moreover it is clear there is no diary note to that effect. Indeed as regards the S148 form either for McMillan Street or for Jacobs Street, Mr Myatt conceded that if there were no recording in the security index of the S148 form it was doubtful that it would have been taken; Myatt T, 834.31. 297 Moreover, the form S148 said to have been signed linking the McMillan Street mortgage to the Company guarantee on 26 May 1980 has never been produced, the Bank having given evidence via Mr Kitching's affidavit of 4 May 1999, para 12 that the Bank is unable to find this document. It is significant that the Bank were however able to find the form S148 documents which each of the Karams signed in relation to Regents Park, reinforcing the likelihood that there was no second form S148 signed by John on 26 May 1980 in respect of the McMillan Street property. Indeed even if it had been signed, the most that could be inferred from that is that on a previous occasion, with no evidence of any explanation having been given by the Bank as to its effect, Charles had been willing to sign an S148 acknowledgment in respect of an earlier property. That could not outweigh the significance of the fact that there is no evidence of an S148 document linking the 1986 mortgage to the Company's indebtedness as at the time the 1986 Jacobs Street mortgage was taken out. 298 More to the point, on 10 October 1991 the Bank wrote to Charles requesting that he sign and return to the Bank a form S148 linking his registered mortgage over the Jacobs Street property to the unlimited guarantee; see TB 1.450 to 1.451. It is difficult to see why the Bank would have wanted a second form S148 if they already had one. I find that it was only on 4 February 1992 that Charles for the first time signed an S148 acknowledgment being an acknowledgment in substantially the same terms as the document enclosed with the letter of 10 October 1991, forwarding it then to the Bank; see DX5, page 90. I will consider below the significance of that form S148 and whether or not it is tainted by unconscionability, noting the Plaintiffs' contention that it was and the Bank's denial. 299 Considering the form S148 signed by Charles on 4 February 1992, it is significant that the letter requesting this from the Bank, dated 10 October 1991, contains in handwriting at the bottom, "Charlie we have lost the original that you signed years ago regards Ian Mac". Clearly Ian McLachlan is the person there referred to whose name was typed in the formal part of the letter who was manager of business banking at the time. If, as the evidence indicates, there never was an S148 signed by Charles, the Bank's request was framed in a quite misleading fashion suggesting that all that was being done was replacing something that had been lost, rather than as I infer obtaining an entirely new security document not hitherto enjoyed by the Bank. There is no diary note to suggest any explanation was given beyond the letter. If indeed Charles had adverted to the matter at all it is conceivable, but unlikely, that he could have assumed was that he was making available the Jacobs Street property in support of his earlier guarantee. This was a guarantee that, on the view of the evidence that I have taken, he would have taken to be a guarantee limited in what it secured. The other possibility, which I think much more likely, is that he had no particular understanding of the significance of the form S148 document at all beyond the misleading impression that he was simply signing a replacement for some security which the Bank had previously had, but lost. I am satisfied he would not willingly have allowed his home to be security for corporate debt. Were his family home thereby for the first time to become security for the Company's indebtedness, that clearly called for a proper explanation as to why this should be so in order for there to be informed consent. Even if the form S148 were confirming an otherwise questionable position (taking into account the fact that Charles' mortgage followed rather than preceded his guarantee and the Company's incorporation and subsequent borrowings), the same requirement for a proper, non-misleading explanation applies. In Charles' affidavit of 13 October 1998, paras 242-247 he states that the document was never explained to him nor was he given any opportunity to have an explanation as to its form and effect, that he has no recollection of receiving it and signing it. He says "reading the document now I still do not fully understand it and would need it explained to me but had I known what I now know are the terms and the form and effect of this document I would not have signed this document." I might add that there is nothing in Mr McLachlan's affidavit of 6 May 1999 to indicate any disagreement with the statement that no explanation was given; indeed that affidavit makes no reference to the form S148 dated 12 February 1992 or any request for it. 300 Finally, and for the same reasons as applied earlier to John's mortgage, I consider that the form S148 was not effective by its terms to cause the house mortgage to secure anything more than the monies advanced on his house and in particular did not effectively extend its application to secure the Company's indebtedness. Moreover, even if the form S148 were capable as a matter of construction to extend the house mortgage to secure future advances to the Company either directly, or via Charles' guarantee (contrary to my earlier conclusion), its operation to secure the Company's debt in the circumstances should be denied as unconscionable.

(b) Taking into account the same circumstances as in (a) above insofar as here relevant, were the two house mortgages and Regents Park properly available to support the Ingleburn purchase or construction of the factory thereon and if not, because sold by way of enforcement, does such enforcement give rise to equitable compensation and, if so, in what measure? 303 I now turn to the events surrounding the acquisition and funding of the Ingleburn property, but only so far as relevant to the status of the security taken at that time by the Bank and the security claimed in support. I shall assume for present purposes that which I subsequently conclude. It is that the purchase of Ingleburn, as distinct from the security for it, could not be impugned as involving unconscionability, negligent misrepresentation, breach of duty of care or breach of fiduciary duty by the Bank (see Issue 7). In so doing I make the assumptions most favourable to the Bank, in order to isolate the question whether, under those favourable assumptions, it would be unconscionable for the Bank to rely upon the securities given by the Karams and their respective guarantees in relation to the monies borrowed for Ingleburn. I do so first at the time the lending occurred. Later under Issue 6, I turn to the effect of the subsequent documentation in 1993 and subsequently. 304 I shall start with some uncontroversial facts. In about 1987, Charles and John formed the view that they needed to move from the factory at Regents Park to larger premises; T, 424 (John); T, 567 (Charles). They were looking to build a new factory with about 20,000 to 30,000 square feet (John at T, 425-6); or 20,000 to 25,000 square feet (Charles at T, 569). 305 By agreement for sale of land dated 5 October 1989, the Company later contracted to purchase 7.109 hectares of land at Brooks Road, Ingleburn, being the whole of Lot 701 in DP 788657, from Macarthur Development Corporation ("Macarthur"). The price in the contract was $2,300,000; see DX18 for the Agreement for Sale. 306 It appears that the negotiations between Charles and Macarthur which ultimately led to the purchase of the Ingleburn land commenced on or about 8 February 1989. By 3 March 1989 Macarthur had received from Charles a holding deposit of $10,000. There is a dispute as to whether this holding deposit was received by Macarthur in respect of the small parcel of land of size 2.35 hectares (at the rate of $440,000 per ha). The arithmetic reveals that 2.35 hectares at $440,000 per hectare leads to a price of only $1,034,000 as against the price paid of $2,300,000. 307 However, on 6 March 1989 Macarthur wrote to Charles confirming receipt of the holding deposit in respect of "part Lot 701 Macdonald Road, Ingleburn" [my emphasis]; see letter of 6 March 1989, DX28. Moreover the file note of 22 March 1989 (DX28) records that, "Mr C Karam has requested his holding deposit of $10,000 over part 701 (2.35 ha) be accepted as a deposit over the entire site of 7.109 ha being Lot 701 until Tuesday 23/3/89 when a final price may be negotiated. A meeting at 11 am has been arranged for negotiations."

I pass over what ensued other than to note that after 30 June 1989 the Company's account moved to the control of another section of the Bank, the Business Banking Section of the Bank's Western Sydney Region based at Liverpool. 308 The then branch manager, Mr Barnes, records in the Diary Note of 19 May 1989 (TB, 1.137-1.139) that he then considered two requests for finance from the Company relating to the Ingleburn property. The first was for the purchase of the whole lot for $2.3 million (with a view to the construction of a factory on the land at a cost of an estimated $700,000). The second option considered by Mr Barnes at the Bank, and clearly preferred by him, was "to only purchase 2.35 hectares at a cost of $1,034,000." 309 Mr Barnes records that, while he had assured Charles that the Bank was quite prepared to consider the request for finance to acquire and develop land for the Company's needs, it would not be receptive to his plan to acquire the total parcel of land offered to him, and suggested the Charles discuss the matter further with his accountant, and revert to Mr Barnes in due course. 310 Passing over the detail of what followed, on about 14 July 1989 Charles met for the first time Mr Ian McLachlan, who was then a Business Bank Manager at the Bank's Western Sydney Region. Subsequent to meeting Mr McLachlan, Charles requested on behalf of the Company a loan from the Bank to enable it to fund the purchase of the whole of Lot 701 at Brooks Road for the price he had agreed with Macarthur of $2.3 million. Of this the Bank would fund $2.070 million, with the deposit of $230,000 to be paid out of the Company's own funds. Pursuant to the Company's request, Mr McLachlan submitted an application to Mr Ken McCombe, the Bank's Regional Executive, for approval of the funding. Mr McLachlan recommended the application be approved, and which in due course it was. 311 Contracts were thus exchanged on the Ingleburn purchase for the full 7.109 hectares on 5 October 1989. On 23 November 1989 a Diary Note of Mr McLachlan's suggests that Charles sought to negotiate a better rate from Mr McLachlan by presenting him with a quote Charles had obtained from another financier, Arbitrage Financial Group. The Diary Note of 23 November 1989 is at TB, 1.158 and the quote from Arbitrage is at TB, 1.166-1.169. 312 This provides the background to what then followed. The mortgage over the Ingleburn land to be given by the Company was taken out to the Regents Park factory by Mr McLachlan and Mr Malone on 22 December 1989 where an office Christmas party was in progress. The seal of the Company was affixed to it on that informal occasion and attested by Charles and John. The purchase was completed later that day. 313 Before advancing the funds to enable the purchase to proceed, oral approval was given for the loan by Mr McCombe; see T, 845 (Mr McLachlan); T, 929 (Mr McCombe). It is important to note that a formal loan application was only later prepared. When earlier the mortgage was taken out to be signed there is no evidence or suggestion from the Bank that any explanation was then given that the mortgage was to be supported by the existing personal guarantees of the Karams, or by the house mortgages given by John and Charles. Given the informality of the occasion that is hardly surprising. That to my mind has considerable significance, given the conclusions and findings I have earlier reached about the way in which the Bank explained the position on 26 May 1980 when the original guarantees were taken and the way in which the Bank explained the house mortgages when those were taken. In each case, I am satisfied that the Bank did not give any proper explanation to enable the Karams to appreciate that the house mortgages from the Bank's viewpoint were, or were subsequently in the case of John, to be in support of the Company's indebtedness. Nor that the guarantees, being unlimited, applied to the Company's indebtedness in respect of Ingleburn (either its purchase or the factory construction), or that the Regents Park Mortgage applied beyond Regents Park. Given that again no such explanation was forthcoming on 22 December 1989 (as appears from the Bank's evidence and from that of the Karams) that could only have reinforced the Karams' earlier understanding. But it is important to ascertain whether some further explanation was later given leading eventually to a properly informed, freely arrived at, retroactive consent on the part of the Karams to their guarantees, the house mortgages and the Regents Park Mortgage extending to the Company's indebtedness both generally and in respect of Ingleburn, or whether, consistent with the earlier limited and inadequate explanations given, and then only from the interested viewpoint of the Bank, the Karams were led to believe, and continued to believe, that the only security that applied in respect of Ingleburn was such security as the company itself gave by virtue of the mortgage signed on 22 December 1989. 314 To answer those questions, I need to look more closely at the evidence that Charles gave in comparison to the evidence given by the two Bank officers, Mr McLachlan and Mr Malone, to provide the immediate context to the signing which took place on 22 December 1989 at the Regents Park factory when Messrs McLachlan and Malone went out there to have the seal of the company affixed to the mortgage over the Ingleburn land. 315 First, as to what occurred on 22 December 1989, there is no dispute that the occasion for the signing was informal during the course of the Company's office Christmas party; see para 196 of Charles' affidavit of 13 October 1998. Nor does it appear in any way in dispute that on that occasion no explanation was given to the effect that there was any other security for the Ingleburn purchase than the mortgage over the Ingleburn land. That follows from the Bank's own evidence. First, Mr McLachlan states that on 22 December 1989 he confirmed there would be a five year fixed rate facility and that the interest rate of 15.8% was applicable to a five year fixed term; see para 25 of Mr McLachlan's affidavit of 6 May 1999. No other explanation is there recorded. 316 However, Mr Malone at para 10 of his affidavit of 12 March 1999 describes the circumstances of the execution and at para 11 he says that when he placed the two copies of the Ingleburn mortgage on the table preparatory to execution he said to the Karams words to the following effect: "As you are aware the company is borrowing a substantial sum to purchase the Ingleburn property. Before the Bank can advance the funds this afternoon this mortgage over the Ingleburn property will need to be executed. The mortgage secures all the company's obligations to the Bank and that in the event of the company defaulting the property can be sold under the mortgage. You are free to seek legal advice before signing if you want it." Again no recommendation is made to get such advice, merely an option offered to do so. He then says that either one or other of Charles and John then said words to the effect of "we will sign the mortgage now". Nothing else is said about security, though there is a reference to how the interest rate was set. 317 It therefore must be common ground that, accepting the Bank's evidence of the actual explanation given, it could not be said that any explanation was given to the effect that there was any other security or personal guarantees for the Ingleburn loan than the Ingleburn mortgage; indeed that it was the sole security could fairly be understood from the Bank's own statement of the explanation it did give. 318 I should add that the Bank's Diary Note (TB 1.159) of 22 December 1989 could only add the term of the borrowings and the rates were discussed with no mention of any explanation being given at all. 319 However, it is necessary to assess the significance of this against the background of what was said prior to 22 December 1989 to see if that evidence justifies a finding that there had been any explanation prior to that time as would have alerted the Karams that the Bank was relying upon the earlier security, that is to say over the homes, Regents Park and the guarantees. 320 Here, there is a conflict between Mr McLachlan's evidence and Charles Karam's evidence and insofar as relevant, John's. That evidence in turn needs to be tested against any contemporaneous records, in particular the Bank's diary notes. 321 Mr McLachlan at para 24 of his affidavit gives the only evidence from the Bank's side of any alleged explanation to the Karams that the Bank would be looking as security for the lending of the purchase of Ingleburn not only to a mortgage over Ingleburn but also to the prior mortgages over the two homes, the mortgage over Regents Park and the guarantees. I quote para 24 in full: "The result of all this was that for the purposes of the Bank's security position the Ingleburn Property was given a value of $1.692 million. I was therefore aware that the guarantee given by the Plaintiffs together with the mortgages to the Bank over the Regents Park Property, the Sir Joseph Banks Street Property, and the Jacobs Street Property were critical from the Bank's security viewpoint. This awareness led me also on at least one occasion to say to Charles Karam words to the effect of:

322 Earlier in para 23 it appears that the time period during which para 24 speaks is not precisely stated but is vaguely stated as at some time between July to December 1989. Mr McLachlan quotes Charles Karam as having said to him on a number of occasions during that period words to the following effect: "Ian the bank will never lose money on this as you have all our houses and all our properties as security. We have been in business for many years and we have a good business and are very honest." That statement, if made, would appear to be incompatible with my earlier findings so far at any rate as the houses are concerned. However, the statement, if made, is not unambiguous, begging the question security for what? If it relates prospectively to Ingleburn (as suggested by the earlier words) it must be remembered Ingleburn was not exchanged till 8 October 1989, with none of the Bank's money used until 22 December 1989. It seems highly unlikely that the Karams and the Bank would have agreed on the terms of the future loan for Ingleburn in so casual a conversation. I doubt whether this conversation occurred after 22 December 1989. In any event, Charles denies any of this was said at all. But if it were said, it is open, even with the houses, to an interpretation that the Karams were treating their various securities including the houses as already committed to the Bank for their intended specific loans but not for Ingleburn per se. Thus they could not be used for other borrowings either from the Bank or anyone else; a kind of negative pledge. In John's case there was nothing owing by then on his house or very little. That in turn added substance to their personal guarantees, insofar as they were available (as I concluded) for the non-Ingleburn trading debt (and Regents Park earlier). 323 A further point to note is that none of the Bank's diary notes from July to December 1989 make any mention of the Bank's reliance upon the securities and guarantees abovementioned save that diary note of 14 July 1989 of Mr McLachlan following the meeting with Charles. The first paragraph refers to the proposed Ingleburn purchase where the final sentences are "in the long term he will sell Regents Park which is worth around $700,000 and use it either towards the cost of the new factory or for purchase of other investments. He is yet to decide on that score or be guided by [the Karams' accountant] Bill Croker." 324 Then after a paragraph dealing with the forthcoming trip to Korea appears the following paragraph. Significantly it does not on its face record any communication between Bank and client but rather is an observation which I take to be for internal record purposes: "The account is quite safe. The facilities already current at Western Sydney are the overdraft limit of $400,000 plus a housing loan of $80,000. Security held is apparently the houses of Charlie and his brother which are worth $700,000 and $500,000 respectively plus the factory which is worth $700,000 so safety is not a question it is just a matter of what is best for the business. …" [emphasis added] 325 Significantly, the last quoted statement does not unequivocally state that the houses were actually available both for the overdraft limit of $400,000 and for the housing loan of $80,000; they were only "apparently" available. Nor is that to say that the houses were viewed by the Bank as at that point required security for Ingleburn. Reference is rather to "the account" - meaning the overall account. But the Bank was it appears proceeding on the premise that the security over the houses would extend to secure the business overdraft. However, I am satisfied that assumption was contrary to the Karams' understanding as to the security for Ingleburn, and indeed contrary to what I have concluded was the proper construction of those house mortgages. 326 In contrast to this equivocal evidence from the Bank, there is evidence from Charles in his affidavit of 13 October 1998, para 179 in the following terms: "In or about August 1989 a family meeting was held with myself, my wife, the Second Plaintiff and the Second Plaintiff's wife and a conversation took place to the following effect: Myself: "the Bank's now advising me that the company can buy the Ingleburn property. I know it's a lot of money but the Bank says we can do it."

Events post 22 December 1989 332 It was only after 22 December 1989 that the earlier position regarding the funding for the Ingleburn purchase was sought to be put on a more formal footing within the Bank. I consider there then appears to have been a mismatch between the Bank's perception of its security and what I infer to be the Karams' perception of its security. It is explicable by the combination of lack of adequate understanding on the part of the Karams of legal security matters and lack of proper explanation from the Bank. The Karams saw themselves having the option of selling Regents Park, worth around $700,000, to use towards the costs of the new factory or for the purchase of other investments (see file note of 14 July 1989, TB 1.156. As an earlier Bank file note of 30 June 1989 indicates, Charles saw himself as having the option of placing the surplus 2.2 hectares not required for the business on the market so providing a net amount of $1,750,000. This the Bank considered realistic according to that diary note based on current sales, as well as the then buoyant KBF operating profit before tax of $407,552 noted in the Diary Note of 14 July 1989 earlier mentioned. That events did not transpire in the way anticipated and in particular that the factory proved substantially more costly to construct and the surplus land at Ingleburn was not sold appears to reflect poor financial management. But it does not detract from the understanding and expectations of the Karams that the Bank were to find their security for the Ingleburn purchase from the Ingleburn mortgage itself and not from other pre-existing guarantees, house mortgages or the Regents Park mortgage. 333 I turn now to the further evidence as to the Bank's attempt to place matters on a more formal footing within the Bank. At TB 1.189-1.200 is to be found the formal loan application from Mr McLachlan of 7 February 1990 to the Regional Executive of the Bank. Significantly it discloses that at that time there was no money owing on Regents Park, consistent with the Karams' understanding that it was thus available to provide a source of funding for the factory which would replace Regents Park, though with a need for a one year sale and lease back during the construction period. Similarly it would appear that Sir Joseph Banks had then no house loan outstanding on it. The Jacobs Street property had a twenty year loan taken out on 10 January 1986 indicating further monies still outstanding upon it; it appears that $80,000 was then owing for Jacobs Street. 334 The loan application records the intention on the part of the Karams to sell their existing Regents Park factory on a one year lease back basis and use the sale proceeds to fund the construction of their new factory. Reference is also made to subdividing part of Ingleburn so that the land which was not required would be either sold off or kept as an investment; see TB 1.200. With such sale and lease back so contemplated, Charles and John evidently did not contemplate that Regents Park was already committed to support either the existing overdraft, or the principal loan of $2,070,000 for the purchase of the land; see para 183 of Charles' affidavit earlier quoted. 335 The Bank clearly noted as at 7 February 1990 (TB 1.192) that in looking at the security for Ingleburn, there was not only the registered freehold mortgage over Ingleburn referred to at para (c) of that note but also the unlimited guarantees from the Karams said to be "supported by" a registered freehold mortgage over Regents Park, the Banks Street property residence of John and the Jacobs Street property the residence of Charles. The Bank applied its customary discount for the value of the security treating the aggregate of these securities as reduced from $3,670,000 to $3,318,000. 336 According to the Bank's "safety assessment" (at TB 1.193) the freehold mortgages for Regents Park and the two residential properties at Bankstown plus the Ingleburn mortgage are stated as aggregating in value $2,654,000 with what is then described as "less make weight security at 70%" being the unlimited guarantees by the four Karams leading to what is described as a "overall shortfall" of $334,350. The comment follows that "shortfall is considered safe as company is trading profitably and lending is well within QSV value of freehold properties held".

Conclusion 337 From this, I would conclude that the Bank's expectation as at February 1990 was wholly different from the Karams. The Bank then assumed that they had available to them security as above described consisting of all the existing securities and guarantees. Whereas I consider the Karams believed, understandably from the inadequate explanations given them, their lack of legal advice, known to the Bank, and their disability, that the Bank's security so far as the Ingleburn purchase was concerned was limited to the Ingleburn mortgage. The Karams also regarded as a source for the funding for the new Ingleburn factory, that there was still available the sale and lease back of Regents Park. I further conclude that there was not then appropriated to secure the Bank's Ingleburn financial accommodation (including to construct the factory) either the two house mortgages from John and Charles or the four personal guarantees. However, I would infer that Regents Park was later so appropriated when additional funding for the factory construction was made available; by then its sale and lease-back had not proceeded. It is entirely to be expected that construction of the Ingleburn replacement factory would be so secured by its predecessor Regents Park and I am satisfied this was understood by the Karams. But I do not consider that there was any understanding on the Karams' part, who continued to own Regents Park personally, that Regents Park would be available for the Bank's accommodation for general business purposes of the Company or for the Ingleburn land purchase. From the outset they viewed Regents Park as available solely to secure the original $60,000 term loan for the factory at Regents Park plus the $10,000 later added to the term loan and, I infer the contemporaneous $10,000 corporate business overdraft. It became only subsequently, in the Karams' understanding, security for the construction of the Ingleburn factory. Having regard to my later conclusions as to Issue 7, the availability of Regents Park to secure the construction of the Ingleburn factory only, may not be impugned.

Subsequent Events leading up to Mortgage Debenture of 14 July 1992 given by the Company 338 In the events that happened, the construction cost of Ingleburn proved in fact to be higher than $700,000. The factory was built during 1990 and further funds were borrowed by the Company from the Bank towards these costs, a total of $1.65 million being borrowed in that regard. The factory was completed at the end of 1990 and the move to the new building was completed by the end of January 1991. 339 There is no evidence on the Bank's side that the further advance for construction of the Ingleburn factory involved any explanation by the Bank as to the existing security and guarantees applying in support of and securing that further borrowing or indeed to secure the earlier borrowing for the Ingleburn purchase. 340 The Company incurred trading losses for the year ended June 1991 and then for each year subsequent to that. Draft accounts prepared by the Company's management in early April 1991, for the nine months to the end of March 1991, discloses losses for that period as in the order of $61,000 (DX25). 341 On 24 April 1991 a meeting of the directors of the Company was held, at which Mr Croker, the Accountant, and Mr Le Miere were also present. At this meeting, apparently in response to a suggestion from Charles that some of the Company's remaining land could be sold to offset off some of the Company's loans, Mr Croker would appear to have argued against the sale, explaining that, "by keeping it for another three to five years it could triple its present value"; DX21. 342 On 5 September 1991, according to Mr Malone's Diary Note of that date (TB 1.416 continued on 1.445) Charles told the Bank the Karams had "decided to sell the surplus land at Ingleburn". A further Diary Note dated 27 September 1991 (TB 1.447) confirmed that both the surplus land at Ingleburn and the factory at Regents Park (incorrectly described as being at Chester Hill) were to be sold. 343 On 4 December 1991, in response to repeated requests from the Bank (see, for example, the letter of 19 August 1991, TB 1.417) both Charles and John signed on Company letterhead a declaration agreeing, among other things, to sell the factory at Regents Park as well as the "additional acreage at Ingleburn"; see TB 1.468. 344 On 10 October 1991, the Bank had written to Charles requesting that he sign and return to the Bank a form S148 linking his registered mortgage over 69 Jacobs Street, Bankstown to the unlimited guarantee of 26 May 1980; see TB 1.450-1.451. I have already referred to the fact that on 12 February 1992 Charles finally signed an S148 substantially in those terms and forwarded it to the Bank. 345 There was an attempt to sell the land at Ingleburn by public auction set down for 15 April 1992. The day before the auction was to be held the land was withdrawn from sale because it was discovered that it had not in fact been subdivided; see the Diary Note of Mr Barnes of 14 April 1992; TB 2.193 and Charles' evidence at T, 688. In fact, as is borne out by the affidavit of Ms Engwirda (of the Bank's solicitors) of 16 November 2000, and as Charles conceded (T, 622, 646 and 654) at no time was a linen survey plan of subdivision ever lodged in respect of the Ingleburn land, except for a small corner of land which was the subject of resumption by the Department of Main Roads (TB 3.458-3.471). 346 It appears that Charles was proceeding on the basis that there was in fact a subdivision unconditionally approved which was clearly not correct. There is a document at TB 3.210-3.212 being a Notice of Determination of a Development and Subdivision Application issued by Campbelltown City Council on 30 June 1992 which may be said to constitute a conditional approval, but that document does not record an actual subdivision of the land. As the first condition appearing on TB 3.211 makes clear, the Council's consent to the application was itself conditional upon submission of a final survey plan. That had yet to be submitted. 347 Meanwhile the Company's difficulties continued. A Management Report prepared internally by Mr Le Miere, the Company's Finances and Administration Manager, for the period ended 31 May 1992 (TB 2.211-2.213) referred to a "drop in turnover" as being "the main contributing factor in the overall decline of the Company". It referred to "the directors' reluctance to dispose of the excess land thus reducing the debt level with the Bank". Describing the future of the Company as "cloudy" Mr Le Miere concluded his report with the comment "basically the problems revolve around poor and ineffective management. I have time and again emphasised in our monthly management meetings and reports the critical problems, but regrettably to date, no effective measures have been implemented to rectify the anomalies." 348 During 1992 the Bank sought additional security from the Company in the form of a registered mortgage over its assets; see letter dated 29 May 1992 from the Bank to Charles at TB 2.208, the Diary Note of Mr Barnes' of 2 June 1992 at TB 2.214, the Diary Note of Mr Barnes of 17 June 1992 at TB 2.229-2.230; Diary Note of Mr Sultana of 30 June 1992 at TB 2.239. This was initially resisted by the Karams; see for example the statement attributed to Charles at TB 2.239 (which he denied at T, 699) that "You've got the personal guarantee of all the directors, you don't need that piece of paper (referring to the Debenture)". A mortgage debenture (whose efficacy is not impugned) was eventually executed under seal of the Company attested by Charles and Nada as directors, dated 14 July 1992; see DX5, pages 80-89.

see para 192 of John's affidavit. 357 When the Bank's version of these events is considered, it is largely consistent. I refer in particular to the affidavit of Mr Murray of 16 May 1999 who was in control of the accounts of the Plaintiffs. His affidavit refers also to the contemporaneous Bank diary notes. The evidence from those two sources indicates concern on the Bank's part at the fact that the debt balance in the KBF overdraft account has exceeded its limit by some $45,000 as at 5 April 1993 (para 14 of Mr Murray's affidavit). Mr Sultana in his Diary Note of 5 April 1993 refers to the excess overdraft position stating that "excess has been exacerbated by interest charging of $47,497" (being the monthly interest commitment). The same Diary Note refers to the Bank acknowledging that it was not in the Company's nor the Bank's interest for the Ingleburn property to be sacrificed, in referring to an abortive sale attempt. (see TB 4.168 for the relevant diary note) 358 On 5 May 1993 Mr Sultana's Diary Note refers to Mr Lamb as having advised that "the directors would probably be more amenable to disposing of their houses and Regents park than Ingleburn as the business would allow them to purchase new houses in two to three year's time if the business was properly structured with minimal debt." (Mr Lamb was the Karams' external accountant at that time). Following the Diary Note appears a comment in which the Bank reviews its options as consisting of only a few alternatives, namely appointing a receiver manager to trade out of the position but with the comment that "such action could well prove counter-productive as it may diminish Mr Karam's desire to assist with trading out" or "set a programme of debt reduction from sale of directors' abodes and the Regents Park factory" thus reducing debt and producing an interest saving of around $97,500, sufficient to allow the Company to record a profit on an annualised basis. 359 Then the following is said: "In elaborating these options, the following must also be remembered: (1) If Mr Karam fails to assist with accomplishing sales, appointment of a [receiver manager] would degenerate to a liquidation of assets and realising heavy losses; (2) Option 2, if not wholeheartedly accepted by directors will not achieve the desired results and still lead the Bank to enforcing securities and realising heavy losses. If option 2 is acceptable it must be done by an immediate auction of the assets by agents acceptable to the Bank. A programme must be completed by 31/12/93 to have any notable effect on the next financial year."

To this one might fairly ask: why would the Karams comment to that effect, when the premise in what was put to them was they , not the Bank, should sell the properties to support the Company. Moreover they were clearly concerned about saying or doing anything that might put the Bank off-side, dependent as they were on the Bank in their increasingly desperate financial circumstances, as subsequent events bear out. That the Bank had reason not to be sure of its ground emerges in the Diary Note of 7 June 1993, referred to below. 365 One might equally add that the Bank did not state at any point to Charles and John that Jacobs Street and Sir Joseph Banks Street mortgages did not by their terms apply to the Bank's loans to the Company. This was not even when legal doubt emerged on the Bank's side as to its security position, as I explain, though what that doubt precisely was is not entirely clear, but its general nature is revealed in a diary note of 7 June 1993 (see 369 below). Nor was there any appreciation exhibited on the Bank's part of the events that had led to what I have earlier concluded was the understanding of Charles and John that those house properties were not available as security for the Company's indebtedness. But what is apparent is that, in the events that had happened, the Bank was making it clear that it wanted Regents Park and the personal residences put up for sale by the Karams, with the implied but unmistakable threat that if the Karams did not do this, the Bank would do so, in conjunction with the enforcement of all of the other securities that the Bank considered it had. And importantly this was in circumstances where, as the Diary Note of 7 June 1993 makes clear - though only within the Bank - under the heading "Later" (TB 4.286), that "contact made with Lindsay Powers from Minters … confirmed our opinion that the Bank had been put on notice that their security was possibly defective". That in turn led to the Bank arranging "for a copy of the letter from Marsdens to be faxed to Minters and also security documents and file to be forwarded for assessment." (The letter from Marsdens is described below.) 366 The comment then goes on "prior to the meeting with the Karams both myself and S M C Lucas were of the opinion that we could look at supporting the Company through its present crisis and it is unfortunate this obstacle has now been thrown in our path as the Karams' need is extremely urgent and one we cannot resolve until the security aspect is settled". 367 The letter from Marsdens is dated 7 June 1993. It foreshadows Mr Marsden's proposed attendance at the proposed Bank meeting of 7 June 1993 (which in the end did not occur). It confirmed that "we hold no documentation by way of security documentation that has been entered into between our client and your Bank" and noting that "copies of that documentation have not been made available to [the Karams]" referring to that documentation as including "documentation that was signed on 22 December at a Christmas party at our clients' factory" being documentation that was signed before your Mr Murray by way of personal guarantees by our clients and their respective wives". It requests copies of the documentation and states at the end "we advise that we are happy to try and work with you to resolve these problems"; TB 4.288-9. The Bank, as it emerges, showed no evident desire to produce that documentation to Mr Marsden, indeed delayed doing so till well after his June meeting with the Karams. 368 Then followed phone calls and correspondence referred to in the Diary Note of 8 June 1993, a letter from Minter Ellison to Marsdens of the same date and Marsdens' reply of the same date (TB 4.311-4.313). According to the Bank's account of the telephone conversation that occurred at that time with Mr Marsden, he was saying that "in no way was his letter meant to indicate that the Bank had a problem with its security position". Mr Marsden again reiterates his request for the earlier documentation, with the Bank quoting Charles Karam as stating unequivocally "I do not want you to discuss company matters with Marsdens or provide them with copies of any documents". One might reasonably infer that Charles was concerned that if Marsdens took too aggressive a line the Bank might not provide the assistance that the Karams desperately needed. There is however no basis in the advice Marsdens later gave for inferring that at the time Marsdens were in fact aware of any legal doubts or that the Bank held any such doubts. I say this, notwithstanding the Bank's earlier apprehensions (see abovementioned Diary Note of 7 June 1993). 369 Again, of particular significance is the following Diary Note of Mr Murray dated 9 June 1993 which makes crystal clear the basis upon which the Bank were seeking the further acknowledgments "9/6/93 - MURRAY

As we had agreed to assist the company with additional funding lines, John Friday was asked to produce an interim document to protect the Bank's position pending total re-documentation of facilities/securities. He later provided an Acknowledgment to be signed by all guarantors (obtaining both independent legal and financial advice) stating that existing securities covered present and future liabilities to the Bank." 370 Importantly, this advice was received two days after the Bank meeting of 7 June 1993 with the Karams where Mr Murray refers to having called Charles Karam after receipt of Mr Marsden's letter of 7 June 1993 earlier referred to. This was, significantly, at the very time that the Bank was on notice that their security was possibly defective. Mr Murray says that he said words to the following effect to Charles, "I've received a letter from John Marsden acting on your behalf and he says that you want to have a solicitor present at the meeting to-day. You are perfectly entitled to have a solicitor present at the meeting and I am happy for a solicitor from Marsdens to attend but in that case and in view of the comments made by Marsdens concerning the Bank's securities I would also like to have legal representation from one of the Bank's solicitors and I will need to arrange that so that we will have to postpone the meeting." Charles replied "No. I will attend the meeting without legal representation so it can go ahead to-day." It was at that meeting that, following Mr Murray's observation "well it would not appear that the Bank is going to get any substantial reduction to its debt through the sale of these properties" (referring to Ingleburn property and Regents Park property) Charles said, "I am prepared to sell my Bankstown property" with John Karam making no comment on this and no similar offer with respect to the Banks Street property. Again during the meeting Mr Murray says to John and Charles, showing letter from Mr Marsden, "as you know we have received a letter from Mr Marsden who is acting for you. The letter concerns me because it seems to suggest that the Bank's security is possibly defective or could be challenged by you. This is of great concern because we are being asked to extend your Company borrowings by approximately $1 million against that same security. What is the problem?" I note in parenthesis that all Marsdens had quite reasonably asked for was copies of the securities. From this the Bank in the form of Mr Murray read more than was evidently intended, perhaps reflecting the Bank's own disquiet and legal doubts as to its security position. 371 Faced in any event with that implied threat from the Bank, Charles and John said words to the effect "no Ken, Marsdens aren't acting for us except for the proposed sale over the vacant land at Ingleburn, and we will direct Marsdens to withdraw their letter"; see paras 23 and 24 of Mr Murray's affidavit of 16 May 1999. 372 I pause here to emphasise a point highly relevant to unconscionable behaviour. It is one thing for the Bank openly to pursue a concern expressed about possibly defective security raised with its own solicitors. It is quite another to obtain solicitor's advice, as it did, to the effect that security is indeed such as to result in the Bank having "a possible exposure to risk". And then for the Bank, with no disclosure whatsoever of its need to cure that deficiency in its security position, to hold over the Karams that they must sign acknowledgments intended to put right that security position for the Bank's advantage. Signing the acknowledgments was the price exacted for the Bank holding back from its implied threat to enforce its securities and for continuing to make available financial accommodation. This required the Karams, unwittingly, to concede as open to the Bank to do what the Bank were now I infer on notice that it could not safely do under its security documents. The acknowledgments were intended to give the Bank indubitable security over their personal residences and the Regents Park factory and make them indubitably amenable to enforcement along with their personal guarantees. The Bank deliberately and misleadingly concealed that the acknowledgments were to cure a possible legal deficiency or at least remove what I infer the Bank concluded was some doubt about their security position. The Bank was moreover clearly seeking by that less than candid tactic to retain an advantage which I have earlier concluded it unconscionably procured. That purpose was also served by not providing the security documents to Mr Marsden. By not doing so, the Bank was incapacitating him from giving proper legal advice which might have given the Karams the opportunity to negotiate from greater strength. There is no evidence from the Bank that this was not deliberate. Indeed fear of legal challenge had earlier been exhibited by the Bank which may well explain the Bank's course of getting the acknowledgments signed first, before the documents were made available. In addition there was never any candour on the Bank's part as to its need for the acknowledgments (but see para 374 below). 373 The Bank then sent pro formas of the Acknowledgment, Solicitor's Certificate and Certificate of Independent Financial Advice with a request that "would you please have the acknowledgment executed before your solicitor and accountant and attach the acknowledgment to each of the solicitor's certificate and certificate of independent financial advice. The original documents are to be returned to this office"; see TB 4.314A. Although Charles' and John's earlier phone calls might have suggested otherwise, Mr Marsden's letter of 8 June 1993 sent the day before that acknowledgment was sought, make clear enough to the Bank that Mr Marsden was acting for the Karams in relation to such advice. Yet the Bank well knew that the advice was to be given in circumstances brought about by the Bank where Mr Marsden did not have the relevant security documents whose efficacy was to be subject of the acknowledgment. The Bank should have appreciated that no proper advice could be given in such circumstances, when the adviser was deprived of the very security documents whose efficacy was to be acknowledged. This was in circumstances where the Bank had carefully avoided disclosing that, for example, the original guarantees and all other securities had never been the subject of independent advice, legal or financial. Moreover, the Bank were on notice of legal doubt as to their position from the earlier quoted advice from Minters received on 9 June 1993. That was the same day that Charles was requested by the Bank to arrange for the acknowledgment and certificates of advice to be provided. As to proper candour, I adopt what is said in Etridge No 2 (supra) at 722: "If the bank is in possession of material information which is not available to the solicitor … the availability of legal advice is insufficient to avoid the bank being fixed with constructive notice."

That notice is of whatever circumstance might vitiate the relevant guarantee on the ground of unconscionability. 374 It might be said in response that a lender is not obliged to disclose a deficiency in the security position to a borrower, thereby to render itself vulnerable to legal challenge. That may be true, if the borrower has the information whereby it can get independent advice. But full disclosure by the Bank, could not be avoided where the Bank fails to provide the actual security documents needed to work out that information from its context, more especially as these were the documents on which any advice depends. Moreover, those very acknowledgments related to the effect of those securities. The Bank well knew it had need to cure their possible deficiency or at least fortify them by a freely entered, informed acknowledgment. By analogy, directors must be candid, if they seek absolution by ratification from shareholders for breach of fiduciary duty, in disclosing the circumstances known to the board of that breach. Equity does not proceed on the basis employed by Lady Macbeth that, "things bad begun make strong themselves by ill". Here the Bank was putting maximum pressure upon the Karams to sign curative acknowledgments and sell their houses and Regents Park. Yet by the Bank failing to provide the documents it ensured that any independent advice was likely itself to be inadequate. The Bank in reality was pressing for the Karams to execute documentation intended to secure the Bank's vulnerable position. This was in circumstances where the Bank must have known that the independent legal adviser, denied the security documents, was unlikely to be able to appreciate the full consequences of the acknowledgments. While the Karams could in theory have disclosed to Mr Marsden what they remembered of the original circumstances of the security they gave on 26 May 1980 and in relation to the two house mortgages, the enormous pressure under which they were placed by the Bank was calculated to avoid them doing so. This is more especially as they would not have had the security documentation in front of them to prompt their recollection of what had ensued between themselves and the Bank. This is especially when they had executed it as long ago as 13 years in case of the documents signed on 26 May 1980 and two years earlier still in the case of John's mortgage, with even Charles' mortgage signed some seven years back. Nothing could be more calculated to place an independent legal adviser in an impossible position to do his or her job. 375 As emerges from my description of what followed at the meeting on 10 June 1993 with Mr Marsden, essentially Mr Marsden concluded that the Bank's pressure left the Karams no alternative, if they wanted to save themselves from the Bank selling their houses, from agreeing to the course of action the Bank had put to them including signing the acknowledgments. In reality, had the Karams been able to be properly advised of their true position at law and been so advised, they would have been in a much stronger bargaining position with the Bank. The Bank were in reality faced with guarantees which it would be unconscionable to apply to the Company's Ingleburn related indebtedness and with house securities which in their terms could not apply to any of the Company's indebtedness. But even if they did, they would be so applied unconscionably. The Bank, in its own interest, concealed its knowledge of the circumstances which would have rendered the securities vulnerable to attack and placed the legal adviser in the worst position to give proper advice by denying him the security documents. In so doing the Bank could not shelter behind the resultant independent advice in circumstances where the Bank must be taken to have known that that advice would be uninformed, both for the lack of that information and certainly from the failure to provide copies of the relevant security documents. Indeed I would infer that the Bank's desire later to have the Karams sell for the Bank their own homes and Regents Park was influenced by the Bank's knowledge that its security position was at least potentially vulnerable and that the Bank would be in a safer position if it did not enforce the security itself but left the Karams to do its work for it. To suggest the Bank were seeking to give the Karams the advantage of a leisurely sale to achieve the best price is refuted by the tight time table the Bank sought to impose. Against that revealing background, I turn now to the actual meeting with Mr Marsden on 10 June 1993 and the limited role he was able to play.

Independence of Mr Marsden 376 I should say at the outset that my conclusion on the evidence is that Mr Marsden was not precluded from being an independent adviser by the fact that he had had a lengthy association with the Bank of which the Bank was aware and had himself been a customer of the Bank for many years; see T, 1017.10-.21. There is no suggestion at all in the evidence that Mr Marsden's own client relationship with the Bank was under any kind of strain or rendered him susceptible to Bank pressure if he gave advice contrary to the Bank's interests. At TB 4.315 Mr Powers, the lawyer from Minter Ellison is quoted by Mr Murray as referring to having received a somewhat "hysterical" letter from John Marsden "going into chapter and verse about the Bank's performance in this matter and the length of association Marsdens had been with ANZ etc." But that is very different from attributing lack of independence. Rather it suggests Mr Marsden was seeking to use his prior association with the Bank to advantage the Karams. 377 Nor do I consider that Mr Marsden exhibited any lack of independence in his own correspondence with Mr Murray (TB 5.098-100; 5.139-140). To have expressed as he did to the Bank on 23 August 1993 (TB 5.140) that "… I at least can try and deal in a "hands on" manner with the Karams that will generally assist you", was I infer simply his trying to use the negotiating technique of saying that his involvement with the Karams would in fact assist the Bank, in achieving a sensible result in the interests of both parties. That Mr Marsden was not aware of the actual position of the vulnerability of the Bank's security documents when he said that can be reasonably inferred. Thus earlier in that same letter he says, "I have reluctantly, but honestly, met with the Karams and told them that the day may come when they will have to sell their personal homes and rent houses until the market picks up." Moreover, he goes on say, "I strongly hold the view that the Karams and the Bank have got to work together. I strongly hold the view that the problems the Karams face are simply not self-created problems by the Karams. There's been fault on both sides and I think honesty and integrity means that that's got to be accepted." I do not doubt that Mr Marsden, in attributing fault to the Bank, did so without full knowledge of the detailed circumstances of the Bank's earlier unconscionable conduct as it related to the specific security documents denied to him at the time. He then goes on to say, "I want you to understand when I say that that I am not threatening legal action against the Bank, I'm not getting into a lawyer mode, I'm simply pointing out to you, in what is a difficult situation, what I am trying to do to assist, hoping of course that you will similarly try to assist." Earlier he again refers to the fact that "I also note that our discussions clearly indicated that you would let me have copies of the existing documentation" revealing his position of disadvantage vis a vis the Bank. It is clear that Mr Marsden only received the documentation on 31 August 1993 as late as three months after the meeting on 10 June 1993; see letter from Mr Murray to Mr Marsden in TB 5.160. 378 It is true that the Bank on 31 August 1993 responded that "we advise that it is preferable another solicitor within your firm provide the relevant advice to maintain impartiality". That might reflect a nervousness on the Bank's part, but does not lead me to conclude he was not sufficiently independent to give proper advice. His disability lay rather in his not having the security documents. 379 Moreover when one comes to what occurred at the meeting, there is no suggestion that Mr Marsden conducted himself in a way as to indicate that he was other than independent. 380 Charles Karam gives an account of what occurred in his affidavit of 13 October 1998 from paras 289 to 298. It is consistent with the evidence of the other Karams. Present at the meeting was Mr Marsden and another solicitor Mr Seaton. Mr Marsden said to the parties words to the effect "if you don't sign these documents now, the Bank will go in straight away and close the factory." Charles said, "Well if we have to sign them we have to sign them." Mr Marsden then called Mr Seaton into his office and said to him words to the effect: "I want you to write a letter to the ANZ Bank because the Karams are under high duress and what is happening is they have built their business, it is a family business and put all their hard work into it and they find they've no way out but to sign these documents. So they signed it under duress and any time they get out of the shit, we will sue the ANZ Bank."

384 The acknowledgment is false on its face in stating that the relevant guarantee, mortgages and other documents "have always been intended to secure to the Bank, payment of all present, future, actual and contingent liabilities of the Company to the Bank." [emphasis added]. One only has to think of John's first registered mortgage referred to in paragraph 4 of the acknowledgment. It was given at a time when the Company was not even incorporated or in contemplation, so that the statement could not be true for it at least. 385 The document was also deceptive in its content, especially given the failure by the Bank to produce the documents to be made the subject of the acknowledgment. For the Bank to attempt to rely on it in those circumstances is, in my judgment, unconscionable, in taking improper advantage of the disability in which the Plaintiffs were placed. 386 Moreover the accompanying Solicitor's Certificate, in referring to the question "Do you understand the nature and effect of the acknowledgment and the documents referred to in the acknowledgment and the possible consequences to you of any failure by anyone to fulfil all obligations under those documents or any under any facilities made available to the borrower by the financier?" presupposed that an explanation could sensibly be given by the solicitor. It could not. For the Bank well knew that the solicitor did not have the security documents even to begin such a task and indeed did not have them until 31 August 1993. That meant, for example, that Mr Marsden could not know the terms of the house mortgages. This meant that a vital fact, relevant also to whether they were vitiated by unconscionability, was denied Mr Marsden. Thus his clients could not begin to know "the nature and effect of the acknowledgment" in that context, nor of documents there referred to including the security documents. To require such a certificate was again deceptive and unconscionable in the circumstances. 387 The same Solicitor's Certificate adds as a further question, "Are you signing the acknowledgment freely and voluntarily?" with again each of the signatories needing to answer that question in the affirmative. On the view of matters the Bank contends for, each of the signatories were signing the acknowledgment freely and voluntarily, though under the pressure, not illegitimate, of needing the further accommodation that the Bank would only provide if they did sign it. On the other hand, they could not be said to have signed the acknowledgment freely and voluntarily if they did not understand and could not be properly advised of its true effect. They were moreover, as Mr Marsden's letter attests, faced with the threat of terminating all bank accommodation of which the earlier cheque dishonour was a clear signal, with its inevitable consequence of the business collapsing and enforcement, whether by the Bank or the Karams at the Bank's behest. The overall effect was to take away any rights they might otherwise have had to prevent the Bank from using the mortgage over their personal homes to secure personal guarantees; and for the guarantees in turn to be treated as covering all of the Company's indebtedness. They lost any capacity to negotiate. To sign an acknowledgment "freely and voluntarily" presupposes amongst other things that one is not precluded from an understanding of the rights that one is giving away. Denial of the security documents to the independent adviser beyond any doubt meant that his advice could not provide such an understanding. This is quite apart from the pressure to which they were subjected and the Bank's lack of candour. 388 I conclude that that pressure was illegitimate. I find that the circumstances of the Bank's unconscionable conduct made it illegitimate. It derived from the Bank's exploiting the financial vulnerability of the Company and the Karams in their desperate financial circumstances. Those financial circumstances, though not the Bank's doing, provided the opportunity to bring that pressure to bear to sign the acknowledgments, by the threat to cut off funding thereby collapsing the business, forcing a sell-off of the Bank's securities, preferably through the Karams' selling but otherwise the Bank implicitly threatening to do so. That was the illegitimacy of the pressure on the Karams to sign the documentation and which amounted to economic duress. For "pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct" without the necessity for the will to have been overborne; see Crescendo Management Pty Limited v Westpac Banking Corporation (1988) 19 NSWLR 40 at 45 per McHugh JA. More recently Bridgewater v Leahy (1998) 194 CLR 457 Gaudron, Gummow and Kirby JJ concluded that unconscionable conduct could be found in circumstances where even there was no special disability identified in terms, it sufficing that, as here, the victim, though informed, is by pressure impeded from making a decision to follow the course that would be in his or her best interests.

394 Mr Marsden was proceeding on the basis that the Bank must have anticipated. This was that unless they signed the documentation, the earlier securities would be called up the Bank now having the earlier illegitimately obtained acknowledgments to back up those securities. Only if they did sign the Cross-Deed of Covenant, would the Bank provide the desperately needed on-going financial accommodation for the business. 395 The further conversation that ensued is set out at para 303. It culminates in Mr Marsden saying, "The only way you can come out of this is for your to sign those documents." Mr Marsden said at one point, "I'm going to explain to the Bank the duress that you were under when you signed those documents"; see para 305 of Charles' affidavit. Nada said she wished to get further legal advice. At para 310 Charles says, "John and I did this because it was our lives' work. We have spent all our working lives since we were about 14 and 15 working in this business. John and I were motivated by just trying to keep the business going and not losing it. I would have signed anything that was put in front of me on that day, I felt I had no choice." Mr Marsden is quoted then as saying, "You have two choices, either sign the documents or the factory will be closed on Monday morning"; para 311. 396 Charles says at para 313, "I grew up in a culture [Lebanese] to accept the advice from professional people such as solicitors. When Marsden said that there were only two choices I accepted this implicitly. I did not understand there were any other options available to me or KBF." 397 In the events that happened, notwithstanding the execution on 1 October 1993, Mr Marsden retained the deed "in escrow"; TB 5.278. This was until its delivery to the Bank some time later. 398 While it is true that on this occasion Mr Marsden did have the earlier security documentation from the Bank, it is undoubtedly the case that the earlier acknowledgments were signed under illegitimate pressure amounting to economic duress, for the reasons earlier stated, and were vitiated by unconscionability. This time, further pressure was being exerted to sign yet further intended reinforcement of the Bank's security position. This was recognised for what it was by Mr Marsden; duress. For in the circumstances, though the financial pressure on the Karams to meet their Bank debt was not just of the Bank's making it was accentuated by the security advantage the Bank had unconscionably obtained and by the illegitimate pressure the Bank brought to bear as attended execution of the acknowledgments earlier. The Bank was in October 1993 again seeking to retain, and indeed extend, an advantage earlier unconscionably procured by illegitimate pressure. Once such a process of illegitimate pressure commences, its effect is reinforced by any advantage obtained as a result. If thereafter further advantage by way of additional security is sought and obtained, that advantage will be seen more readily as the product of the same illegitimate pressure or at least influenced by it. And influence is enough. There will thus be a heavy onus on the Bank so advantaged to show that its earlier illegitimate pressure made no contribution to entry into the transaction in question. That onus is not satisfied by showing that the transaction would have been entered into even absent duress; Barton v Armstrong [1976] AC 104 at 119A per Lord Cross. This is more especially when it be understood that duress does not have to rise to the level where the will of the other party is overborne. It is enough if the duress be a reason for entering into the transaction as I am satisfied it was here. Nor, I would add, can it be said that that influence of duress ceased, merely because an independent adviser intervened, this time belatedly given the security documents. All he did was point out the obvious - that the Karams by then had no practical choice but to sign if, having signed the earlier documents now including the acknowledgments, they waited to the Bank to hold back from enforcement or wanted a continuation of banking accommodation essential to their financial survival. It is no answer to say that the Karams could have litigated at that point. They were in no practical position to do so; their own vulnerability precluded that.

The "release" of 1 March 1995 402 The Bank relies upon a further document dated 1 March 1995 being a six page "variation letter" varying the terms of an earlier Letter of Offer dated 4 November 1993 as amended by subsequent variation letters. The Bank relies on it as constituting a complete release of any claims or rights in respect of the guarantees and securities. Though not described as a release, the Bank relies on there being a "directors' acknowledgment that they have no further claims on the Bank in respect of past or present facilities". 403 The Variation Letter is primarily a document confirming the past offering of facilities to the Company, including a continuation, at a concessional rate of interest, of the original facility to purchase the Ingleburn land which had previously expired (see letter dated 18 November 1993 DX5, page 203). That is said to be the consideration for the release provided, in that there had been no formal commitment to continue to make it available. I would conclude however that the consideration failed, being past consideration. The facility had already been made available. This was simply a formalisation of what had occurred, such formalisation being on this occasion subject to a "certificate of acknowledgment" which the Bank now seeks to construe as a release. The Karams had no alternative in any event but to accept the terms, as it is self-evident that the Bank would otherwise have not made the facility available. 404 Under clause 6(a) under the sub-heading "Other Conditions" appears the paragraph relied upon by the Bank: "The facility is subject to directors' acknowledgment that they will have no further claims on the Bank in respect of past or present facilities." 405 The Bank contends that the above provision was plainly intended to prevent any claims being brought against the Bank in respect of any facilities with the Bank, past or present. It further contends that the claims as have been brought against the Bank in these proceedings clearly fall within the ambit of that provision, being claims brought in respect of the facilities provided to the Company in 1989 and 1990 to purchase the Ingleburn land and develop it. The release on the Bank's submission having been given by the Plaintiffs for good consideration, it should be enforced according to its terms and the proceedings against the Bank should therefore be dismissed. In construing the release, I will make the assumption most favourable to the Bank that the consideration was not past, though I conclude later that it was. 406 The principles applicable to construing releases or purported releases can conveniently be set out in a series of propositions:

(8) Most recently in this Court in Amaca Pty Limited formerly known as James Hardie & Coy Pty Limited v CSR Limited [2001] NSWSC 324, Bergin J adopted the principles of construction broadly as outlined above, including the "cautionary principle" and taking into account the purpose of the contract and the circumstances in which made. 407 Thus in determining the construction of the release in the present circumstances, the Court must establish the ordinary meaning of the release, taking into account the terms of the variation letter as a whole, its purpose to confirm the terms of past accommodation, and attributing to its words their natural and fair meaning against the background knowledge reasonably available to the Karams and the Bank at the time of contracting. 408 The first difficulty in the way of the Bank's contention is that the clause as a matter of its proper construction deals only with "further" claims on the Bank and not claims that have already accrued by reason of what has previously happened. The fact that they are past facilities referred to in the clause does not mean that past accrued claims albeit not yet articulated at the time of the variation are thereby embraced. 409 Moreover, the reference is "to facilities" not to the securities for those facilities. That the reference to "facilities" has the narrower sense of monies made available is made clear by paragraph 1 of the letter of offer. This refers to the actual amounts made available under various categories such as overdraft and makes no mention of the security for them. 410 The context of the Variation Letter, altering a letter recording the terms upon which the current facilities had already been made available, is certainly not one where the borrower would expect to find general security releases of the borrower's rights. A reasonable person with the background knowledge of the Karams would not at the time have ascribed to the words used, the wide construction now contended for by the Bank. This is more especially where the release does not disclose or enumerate specific possible claims, consistent with any implied obligation to do so. 411 Accordingly, I would conclude that the letter by its terms does not preclude the Karams from the actions that they have brought. I would also conclude that it was given for past consideration. In these circumstances I do not need to consider whether the Variation Letter was the product of economic duress or still influenced by it.

Limitations 414 It is clear that the claim for relief under the of that Act. The time limited by that section for the commencement of an Trade Practices Act based on statutory unconscionability is prevented by reason of s82(2)action is three years from the date on which the cause of action accrued. The current action was commenced when the original Statement of Claim was filed on 22 April 1997. Therefore accepting that the cause of action which the Plaintiffs allege under the Trade Practices Act must have accrued before 22 April 1994 the action has been commenced out of time. A claim for damages under that Act is based on the representations that were made or said to have been made by officers of the Bank in the period leading up to the purchase of the Ingleburn property at the end of 1989. Any cause of action in respect of those allegations will have accrued when the Plaintiffs first became aware, or with reasonable diligence would have become aware, that they had sustained loss by reason of proceeding to buy and develop the Ingleburn land in reliance on the alleged representation; Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514; Kenny & Good Pty Limited v MGICA (1992) Limited (1999) 199 CLR 413; Sherson & Associates Pty Limited v Bailey [2000] NSWCA 275. It is clear on the evidence that actual or constructive awareness must pre-date 22 April 1994. 415 I would therefore agree with the Bank's contentions that any claim under the Trade Practices Act must be statute-barred. 416 It is noted that the limitation period in s16 of the Contracts Review Act originally pleaded by the Bank in answer to the claim for remedy under that Act is no longer pursued. 417 Insofar as the Plaintiffs claim damages at law, the Bank has pleaded s14 of the Limitation Act 1969 (NSW). The issues raised by that defence are, I agree, the same as those raised in relation to s82(2) of the Trade Practices Act except that the limitation period under s14 is six years not three. However, the action at law will only be out of time if it can be shown that the cause of action in negligence first accrued before 22 April 1991; see T, 65 where that time was the subject of a concession by Counsel for the Plaintiffs. The Bank's submission is that the Plaintiffs became aware, or could through reasonable diligence have become aware of their loss the subject of the present claim in early April 1991 that is just before 22 April 1991. The Bank submits that this was when the fact that the Company was trading at a loss for the first time came to the notice of the directors, in the form of the Management Accounts for the nine months to the end of March 1991 prepared by Mr Le Miere, the internal accountant of the Company; see DX25. Charles was cross-examined about them at T, 664-667. The Accounts show a net loss of $61,425 for the nine months. They are said by the Bank to need to be read in the light of the break even analysis prepared by the Company's accountant Mr Croker on 8 March 1990; DX20. 418 The break even analysis was to the effect that the Company needed to achieve sales for the year ended 30 June 1991 of $2 million in order to break even, after meeting the greatly increased interest costs to the Bank consequent upon the borrowings to buy and develop the Ingleburn site. By the end of March 1991 as the accounts reveal, sales were already $526,000 below budget for the nine months, a situation which continued to the end of the financial year; see Accounts for 30 June 1991, TB 1.395 to 1.409 especially 1.400. The Bank submits this is enough to become aware by the application of reasonable diligence (even if not in fact yet appreciated by the Karams) that by the end of the first week of April 1991 it was reasonably ascertainable by the Karams and the Company that the Company was worse off than if it had not entered into the transaction in 1989 on which the Ingleburn claim is based. The Plaintiffs deny that this loss was reasonably ascertainable, merely from the inability then to break even. I agree however with the Defendant that the inability to achieve increased sales should have been apparent before 22 April 1991 with loss being by then inevitable from the increased interest costs for Ingleburn, as should have been appreciated. 419 The limitation defence raised by paragraph 87(d) of the Defence is resisted by the Plaintiffs on the further ground that it was raised late in the day so giving rise to estoppel against the Bank or waiver. However, the pleading was not an amended defence but a defence to an amended claim and there is nothing that requires the leave of the Court to enable the Bank to raise the issue in the way it has. I agree with that proposition. In any event, the Bank points to the fact that the issue of a general limitation defence was in fact raised as early as on 28 June 2000, immediately after judgment had been given on the Plaintiffs' application to amend; see T, 170. It was only quite recently that the Amended Statement of Claim was then served (20 July 2000) and for that reason the Defence was filed late in the hearing (21 November 2000 four months later). This, according to the Bank, means that the facts are wholly distinguishable from the Commonwealth v Verwayen (1990) 170 CLR 394 and therefore there is plainly no issue of estoppel or waiver. The Plaintiffs were on clear notice of the limitation defence from the moment the Court indicated that the Plaintiffs would be permitted to amend on 28 June 2000. If leave were required to plead a defence, the Bank submits it should be given. 420 I would agree with the Bank's submissions as regards the Plaintiffs' Ingleburn damages claim. As emerges from my judgment later, it will be apparent that I do not consider that the Ingleburn claim can succeed in any event. 421 However, when it comes to considering the Plaintiffs' claim for equitable compensation, I do not agree with the Defendant that the position is analogous to a claim at law for damages or falls into the same category as the Ingleburn claim. The equity of the Plaintiffs to have the security set aside arose only when, in 1993, the Bank threatened to exercise its rights under those securities. While one might at the very earliest find evidence of implicit pressure in 1992 it was certainly not such as to indicate clearly enough the Bank's threat to enforce, only obviated by the Karams eventually doing the selling. 422 I would also accept the Plaintiffs' contention that their claims for equitable compensation is not made the subject of s14 of the Limitation Act by the terms of s23, there being no analogy to a claim at law. Rather that claim is in equity and depends entirely upon unconscionable conduct culminating in the Bank taking advantage of its position to threaten to enforce the securities and its application of economic duress by reason of that unconscionable conduct or illegitimate pressure; compare Bennett v Minister for Community Welfare (1992) 176 CLR 408 at 426-7 per McHugh J. 423 I would also agree that if the Bank, as it does, maintains its cross-claim against the Karams arising out of the subject securities, it must irrespective of any limitation period do equity by redressing the effect of its unconscionable conduct in regard to those securities. 424 Finally, on limitations, I am invited by the Defendant to reconsider my earlier interlocutory decision. (It is now reported as Karam v Australia and New Zealand Banking Group limited (2000) 34 ACSR 545 and has since been followed in relation to s234 of the Corporations Law in Chapman v E-Sports Club Worldwide Ltd (2000) 35 ACSR 462 per Mandie J and in Advent Investors Pty Ltd v Goldhirsch (2001) 37 ACSR 529 per Warren J.) This was in permitting the joinder of the Company as a Plaintiff under the statutory derivative action, drawing upon Pt 20 r4 of the Supreme Court Rules. Having considered again the matters there dealt with I see no reason to depart from the reasons or conclusion that I then reached.

(b) If damages or equitable compensation are prima facie payable is there any basis for limiting that damage or compensation, and what is its measure? 432 I have earlier dealt with the Ingleburn transaction so far as the allegation of unconscionability in relation to the security for the purchase of the Ingleburn property is concerned and the subsequent funding for the construction of a factory upon it. I have set out events specifically relevant to that issue. I now need to deal with the claim brought by each of the Karams personally and by the Company for damages for negligent misrepresentation, breach of fiduciary duty and equitable compensation for unconscionable conduct and breaches of fiduciary duty so far as applicable in each case to the Ingleburn transactions. All of these allegations are defended by the Bank on a number of grounds, both factual and legal. 433 At the risk of some overlap, I set out first the relevant circumstances making findings where necessary on disputed fact and otherwise identifying common ground. 434 It is certainly common ground the factory that had been built on the Regents Park site during 1980 being approximately 6,000-7,000 square feet in size, including offices, had by 1987 become too small, with the result that Charles and John formed the view that they needed to move from the factory at Regents Park to larger premises. They were looking to build a new factory of about 20,000-30,000 square feet (John at T, 425-6) or 20,000-25,000 square feet (Charles at T, 569). 435 By Agreement for Sale of Land dated 5 October 1989 the Company contracted to purchase 7.109 hectares of land at Brooks Road, Ingleburn, being the whole of Lot 701 in DP 788657, from Macarthur. The price stipulated in the contract for the land was $2,300,000; see the agreement DX18. 436 It could not be disputed that the choice early on was made to purchase the larger area of land rather than the other option which was the subject of the Bank's diary note of 19 May 1989 (TB, 1.137 to 1.139) prepared by Mr Barnes, then the Branch Manager. What that note records is that Mr Barnes considered two requests for finance from the Company relating to the Ingleburn property. The first was for the purchase of the whole lot for $2.3 million (with a view to the construction of the factory on the land at a cost then estimated at $700,000. The second option, not adopted in the end but clearly preferred by Mr Barnes, was "to only purchase 2.35 hectares at a cost of $1,034,000". This was clearly a reference to the original option referred to in the documents produced by Macarthur (DX28) and in particular the subject matter of Macarthur's file note of 3 March 1989 (DX28). At the conclusion of the diary note, Mr Barnes has recorded that, while he had assured Charles that the Bank was quite prepared to consider the request for finance to acquire and develop land for the Company's needs, it would not be receptive to his plan to acquire the total parcel of land offered to him, and suggested that Charles discuss the matter further with his accountant, and revert to Mr Barnes in due course. 437 It is clear that had the smaller portion of land been purchased there would still have been enough land to build the larger factory. Nor is there any reason to doubt Macarthur's capacity to bring about a subdivision allowing just the smaller portion to go to the Karams, had they pursued that option at the outset. 438 All of this was taking place against the background of advice which I am satisfied had been received by the Karams, by 27 February 1989, from their external accountant Mr Bill Croker. It consisted of a "detailed cash flow forecast for the five years ended June, 1993" and "various discussions on the same including the purchase of a new factory site, the financing of same and tax implications thereof"; see Marks Croker and Cheetham account dated 27 February 1989, DX36. The reference to a five year cash flow forecast is, I accept, a reference to the document at TB, 1.139, which is one of a number of documents prepared by Mr Croker and sent to the Bank, at TB, 1.121-1.133. The cash flow has been prepared on the basis of an annual interest cost attributable to a loan for the new factory of $300,000. At that time, the cost of the factory was grossly underestimated by the Karams at $700,000. A copy of this recording of cash flow, together with a "five year working profit and loss forecast and five year working capital schedule" appears subsequently to have been sent to the Bank as referred to in Mr Croker's later bill, dated 31 May 1989, also DX36. 439 It is necessary that I turn here to deal with Mr Croker's role. As is clear from the Plaintiffs' original Statement of Claim filed 22 April 1997, paras 61 to 69, the Plaintiffs did contend that Mr Croker, the external accountant, had advised "the Plaintiffs and KBF to purchase 18.75 acres instead of 5 acres, or a smaller site". He had advised "KBF and the Plaintiffs that the worse thing that could happen would be if something happened to the First or Second Plaintiff" and had advised "KBF and the Plaintiffs that if KBF produced 5,000 pairs of shoes per week, it would service a $3.7 million debt to ANZ and other necessary expenses and make a profit". Importantly, he had "advised the Plaintiffs and KBF that it was a good idea to purchase the Ingleburn property and enter into the Contract"; see the particulars of negligence pleaded para 64(vi) to (ix). 440 At para 65 he stated that, "by reason of the aforesaid breach of duty by the Second Defendant the Plaintiffs and KBF entered into the Contract and the Plaintiffs caused KBF to purchase the Ingleburn Property and build and operate a 50,000 square foot factory and the Plaintiffs have thereby suffered loss and damage." 441 Charles was cross-examined about the allegations made against Mr Croker. He initially denied (at T, 586) that Mr Croker had advised him it would be a good idea to purchase the Ingleburn property. When confronted by his own affidavit verifying the allegations in the earlier Statement of Claim, Charles was forced to concede that he had in fact been advised by Mr Croker and that he had relied on that advice when causing the Company to enter into the contract to purchase the Ingleburn property; see T, 592-593. He also accepted at T, 593, that the reason he relied on Mr Croker was because of the latter's access to the Company's trading figures, and the fact he understood the business and had the expertise to calculate the Company's obligations to the Bank into the future. He conceded that, as the accountant of the business, Mr Croker understood the financial side of the business better even than Charles did himself. 442 Subsequently proceedings against Mr Croker were abandoned when the Plaintiffs filed their Amended Statement of Claim and when at the same time KBF or the Company was added as a plaintiff; see the Further Amended Statement of Claim filed 20 July 2000. 443 I should add that while Charles did change his account concerning Mr Croker, there was no lack of candour in his original affidavit of 13 October 1998. There at paras 186 and 187 he states that he said words to the effect "can the Company afford this huge loan" (in relation to the move from Regents Park to Ingleburn). Mr Croker is quoted as answering with words to the effect "if the Company keeps making what it is making at Regents Park, you've got no problems". 444 The Karams put their case, however, on this basis. That reliance on Mr Croker does not preclude reliance by the Karams on the Bank as well, citing Gould v Vaggelas (1985) 157 CLR 215 at 236; Henjo Investments Pty Limited v Collins Marrickville Pty Limited (1988) ATPR 40-850 at 49-154; McMahon v Pommeroy Pty Ltd (1991) ATPR 41-125 at 52, 858, 859. None of these cases were cases on equitable compensation as would result from negligent conduct by a fiduciary, though may apply by analogy to negligent conduct by misrepresentation. In the case of equitable compensation, so far as relevant to the alleged breach by the Bank of its fiduciary duty to the Karams, tests for causality cover a spectrum of stringency. Thus favouring the Plaintiff, there is a wide version of the "but for" test under which a trustee in breach of duty is responsible for any loss to the trust property, even if there is an intervening or concurrent cause of the loss. That test derives from a dictum of Lord Eldon in Caffrey v Darby (1801) 6 Ves Jun 488 at 496; 31 ER 1150 at 1162. It was, however, more recently confined to the traditional non-commercial trust, where there is a fund in trust for a number of beneficiaries; Target Holdings Ltd v Redfern [1996] 1 AC 421 at 434. There is also a slightly narrower "but for" test, applicable where the breach merely facilitates the loss which actually occurs. Then there is the narrowest fiduciary test of all. It requires a clear nexus between the alleged cause of the loss and the scope of the fiduciary's obligations, as may be appropriate in the Target Holdings commercial rather than traditional trust context, though fiduciary duties are involved. 445 The New South Wales Court of Appeal in O'Halloran v R T Thomas & Family Ltd (1998) 45 NSWLR 262 at 274-5, applied the wider "but for" test in the analogous context of a company director misapplying company funds. Spigelman CJ in reaching that result drew on the analysis of negligence in Lord Hoffman's judgment in Environment Agency v Empress Car Co (Abertillery) Ltd (1998) 2 WLR 350 at 356. Spigelman CJ observed: "causation in equity is not … susceptible to the formulation of a single test. It is necessary to identify the purpose of the particular rule to determine the appropriate approach to issues of causation." 446 Gould v Vaggelas (supra) concerned an action in deceit. Henjo Investments Pty Limited (supra) and McMahon (supra) concerned actions under s52 of the Trade Practices Act, where the issue is one of reliance upon the relevant misleading or deceptive conduct. In the context however of negligent misrepresentations, it may well be the case that a stricter test of reliance must be made out before the plaintiff can succeed. 447 Here, the Bank's fiduciary duty, if there be such, arises in a commercial context well outside the confines of a traditional trust. That suggests that the appropriate causality test should either be that for negligence simpliciter, with its resort to common sense notions, or that for a non-traditional trust. Adopting the narrowest "but for" test, the Plaintiffs would have to show that the Bank's representations were "essential" for the Karams to have bought Ingleburn; compare Target Holdings v Redfern (supra) at 277. I would incline to adopt the traditional negligence test of causality, with its recourse to common sense notions. 448 The Bank did not dispute that the Karams' reliance upon Mr Croker need not preclude there also having been reliance on the Bank as well. On that score, the Bank correctly submits that the fact of reliance on another party (Mr Croker) still needs to be kept in mind when testing whether any representations said to have been made by another party, the Bank, were indeed such as were likely to induce the Company and the Karams to have acted upon them. The question is whether the inference may properly be drawn from all the circumstances including reliance on another party, that the Company and the Karams did act also in reliance upon representations from the Bank, if such representations be made out; see Holmes v Jones [1907] 4 CLR 1692 at 1706; Smith v Chadwick [1884] 9 App Cas 187 at 190, 195-6; National Australian Bank v Nobile (1991) 100 ALR 227 at 249; Gould v Vaggelas at 236; Gipps v Gipps [1978] 1 NSWLR 454 at 460; Poseidon Limited v Adelaide Petroleum NL (1991) 105 ALR 25 at 33. 449 Ultimately, the evidence as to reliance on the representations made by the Bank depend upon the credibility of Charles and John. Here, I have found the need to approach their evidence with considerable care and a degree of scepticism. This is not necessarily because of any intention to tell deliberate untruth. Rather it may be found in a psychological defensive process of persuading themselves that the disaster that overtook them from the purchase of the Ingleburn property was not one of their own making. (That factor was less apparent in dealing with the earlier issues concerning security.) 450 I shall start with the evidence given by each of Charles and John and then the way in which it was tested. None of that evidence is supported by any written document. 451 Charles in his affidavit starts with the general statement (para 31) that, "We rely on our Bank Manager and Accountant in our business and if he is good, I would like to speak to him." He then recounts receiving advice from Mr Parmeter in the period of 1976 and subsequently in the 1970's. At para 76 in his affidavit of 13 October 1998 Charles says, "If the Bank Manager said that the company or myself was not able to borrow money then that would be the end of any proposal, that was the way I always operated and was at all material times the way I operated." 452 As I have earlier indicated, Mr Barnes did in fact so advise that the Company should not borrow money for the larger area of the land by making it clearly his strong preference for the lesser area. Yet Charles, contrary to his quoted evidence, did persist in his quest to borrow money eventually finding a more amenable approach from Mr McLachlan. Indeed at para 144, Charles quotes Kevin Barnes telephoning him on about 7 July 1989 with words to the effect: "The Bank will not accept the proposal or any proposal in relation to Macarthur Development as the debt is too high and the Bank doesn't think the company could service the debt and you are relying on the land to sell for the price, which is a high price. We don't want to strangle the business by making it pay higher debts." I observe that advice proved prescient. 453 Charles then quotes himself as replying, "You're probably right, we depend on you guys very strongly for the right advice." He had (at para 149) said, "In my mind I would not buy anything that the Bank did not support and so the Ingleburn property purchase was put off" and refers to his brother John as agreeing (paras 149-152). He then refers to a meeting set up by Mr Croker with Mr McLachlan in or about 14 July 1989 where he quote the following conversation as taking place: "Myself: We have seen a block of 20 acres at Ingleburn which is for sale for $2.3 million. Our manager is Kevin Barnes, who I took to see the property, but the Bank has said it would not support us with this because it is too big and we could not service the debt. We have been advised to seek something smaller.

456 I have earlier referred to the fact that Charles in cross-examination initially denied that Mr Croker ever advised him that it was a good idea to proceed with the purchase, adding to that denial that Mr Croker had asked Charles "to ask Mr Barnes"; see T, 586. Having denied being advised by Mr Croker in cross-examination, inferentially because he may have thought that by admitting reliance he would weaken his case, and maintaining that denial even when first confronted with contrary allegations in his Statement of Claim (T, 589-90), he finally conceded that he was so advised. This was when it was pointed out that his affidavit verifying the Statement of Claim was in direct contradiction to that evidence. He conceded that Mr Croker did indeed advise him as to the proposed purchase of the property and the development of the factory. He then felt compelled to add, "that he was not the only one, he was number two"; see T, 591, 592, 593. 457 None of that assisted Charles' credibility on this issue. The Bank, however, point out that what is reliable, because made against interest, was his concession at T, 601 and again at T, 616-7, that in purchasing the Ingleburn property two matters were important to him. One was that the Bank was prepared to lend the money. The other was that Mr Croker said it was affordable. Further, it became clear that the fact that the Bank was prepared to lend the money suggested to him that the Bank thought that this was a good proposition for him to proceed with. He agreed at T, 617 that that was an assumption that he made from the Bank's agreement to advance the money. 458 It is however well established that a bank's willingness to lend money by itself, properly secured, is not to be taken as an assurance that the purchase was necessarily an advantageous one from the point of view of the customer; see Commonwealth Bank of Australia v Zell (Sperling J, 19 February 1997, unreported) at page 46 and Mahlo v Westpac Banking Corporation (NSWSC Santow J, 6 February 1998, unreported) at page 34. That is equally the position here. 459 I should here turn to John's evidence. He was not directly involved in the discussions but quotes what he said Charles said to him: see paras 97 to 100 of his affidavit of 2 October 1998. The statement at para 127 of his affidavit referring to the signing of the relevant mortgage on 22 December 1989. That "I trusted him" in relation to Mr McLachlan may represent a truthful statement of John's general attitude to his bankers. But it is not of any particular persuasiveness in the present context. In particular, it does not answer the contention that, whilst reliance was ordinarily placed by John and Charles upon their bankers, faced with contrary advice from Mr Barnes, but strongly encouraged by Mr Croker, they simply relied upon the Bank's willingness to lend money. This they saw as indicating that the Bank could see no objection any more to the larger transaction with respect to the Ingleburn land, a transaction both Charles and John were enthusiastic to enter into with its prospect of future capital gain. 460 I am not satisfied that the Bank formally advised the Karams to enter into the Ingleburn transaction. Rather I would infer though that the Bank officers, apart from Mr Barnes, thought the transaction a sensible one but did not take it upon themselves to go so far as to advise the Karams to enter into it. It is quite possible though that they endorsed it favourably; see paras 469 and 487 below. But if they did, that is not the same as to give positive advice intended to be acted upon by the Karams. 461 Even if representations were made which went as far as to urge entry into the transaction (a proposition I do not accept as it goes too far), I am satisfied that, even without such representations, the Karams would have entered into the larger Ingleburn transaction if the Bank were prepared to lend the money. Thus the Karams did not rely upon such representations if made. That Mr Barnes had earlier advised against it is indeed a two-edged sword so far as the credibility of the Karams' evidence is concerned. It showed that the Karams were not so reliant upon the Bank's advice that they would accept it implicitly. Advice from the Bank via Mr Barnes did not put the Karams off the purchase. They instead later went to another Bank officer. When they found he was willing to provide the money, the Karams did not feel the need to heed the earlier negative opinion from Mr Barnes. The Karams were already reinforced in their desire to purchase by their accountant's favourable advice. They were urged on by their own desire to go ahead doing so moreover with the full 7 acres. While the Karams rely upon that change of attitude as evidence that the Bank's officers after Mr Barnes had urged the Karams to take on the transaction which otherwise they would not have done, I am of the view that the evidence rather points the other way. The Bank, at most, were "beckoning them the way that they were going". 462 Moreover, on one quite feasible basis, purchasing the larger parcel of the Ingleburn land was not necessarily an improvident or necessarily unwise transaction; that is, if they early on sold the surplus land and probably also Regents Park, to reduce debt. But this was always provided that the Karams promptly set about procuring a subdivision and selling off the surplus land at either the hoped for capital profit or at least at such price as would reduce borrowings to a more manageable level. That indeed was the course of action that Charles had originally proposed on 30 June 1989 in the Bank's third diary note (TB, 1.154) when Charles phoned Ms Felicity Fairlie at the Bank. It was in the end never carried out, with belated attempts ultimately yielding too little in offers. Early sale was frustrated by the Karams' failure to procure a prompt subdivision which I am satisfied they could have done. 463 Moreover, as at 30 June 1989, before Mr McLachlan's involvement but at the time of Mr Barnes' earlier refusal, Charles states, according to the Bank's diary note, that he had given further consideration to the "land purchase proposal" and had "decided to take the following course" namely:

467 As a further indication that the Karams were not simply passive followers of what the Bank told them, is the fact that there is a diary note of Mr McLachlan on 23 November 1989. This suggests that Charles sought to negotiate a better rate from Mr McLachlan by presenting him with a quote Charles had obtained from another financier, Arbitrage Financial Group. The diary note of 23 November 1989 is at TB, 1.158 and the quote from Arbitrage is at TB, 1.166 to 1.169. While Charles denied referring in discussions with Mr McLachlan to a proposal from Arbitrage, at T, 602, there is no reason to doubt the accuracy of the diary note. 468 Importantly, the mortgage was itself taken out on 22 December 1989, when matters were from the Bank's viewpoint regularised with a formal loan application thereafter dated 17 February 1990 (TB, 1.189 to 1.200 to which reference has earlier been made). Importantly at TB 1.200 Mr McLachlan recorded an intention on the part of the Karams "to sell their existing factory on a one year lease back basis and use the sale proceeds to fund the construction of their new factory" and also importantly, reference is made to the possibility of subdividing part of the Ingleburn land which might not be required and either selling it off or keeping it as an investment. 469 The Karams say that the Bank through Mr McLachlan "strongly recommended" the proposal (McLachlan T, 842-3). Mr McLachlan agrees he considered that the property was a good site, part of a good piece of commercial real estate and an excellent development which would improve in value, these being matters that he would have probably told to the Karams (McLachlan T, 886.26, 887.18, 898.24-.37), he being, as can be accepted, keen to write the business (T, 886.46 to 887.1, 887.41 to 888.5). I accept this might well have been conveyed to the Karams (T, 888.5). But I do not accept that it follows, as the Plaintiffs assert, that the Bank having recommended the proposal to the Karams (if such it did), the Karams for their part relied on the Bank rather than their own judgment to go ahead with the larger transaction which in retrospect proved so disastrous. Recent High Court authority has again pointed to the necessity for not only showing reliance, absent here, but that such reliance was or should have been appreciated by the speaker and that it would be reasonable for the other party (the Karams) so to rely; see Tepko Pty Ltd v Water Board (2001) 75 ALJR 775 citing Barwick CJ in Mutual Life & Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 571. "the speaker must realise or the circumstances be such that he ought to have realised that the recipient intends to act upon the information or advice in respect of his property or of himself in connection with some matter of business or serious consequence.'

475 Paragraph 36 then pleads that "By reason of the aforesaid misrepresentations, breaches of duty of care and breaches of fiduciary duty, the Plaintiffs caused KBF to enter into the contract and execute the Fourth Mortgage and KBF entered into the contract and executed the Fourth Mortgage and the Plaintiffs and KBF have thereby suffered loss and damage." (The Fourth Mortgage is a defined term referring to the first registered mortgage to the Bank from the Company over Ingleburn, dated 22 December 1989 earlier referred to.) 476 Particulars of the loss and damage then include the value of the two homes, the value of the Regents Park property, and, relevantly, "any personal liability including interest and costs incurred under the First Mortgage, Second Mortgage, First Guarantee, Fourth Mortgage, Cross-Deed of Covenant or form 148 or any other document purporting to create a personal liability on the Plaintiffs to ANZ." 477 Insofar as a breach of fiduciary duty is claimed, it can be taken that the claim for equitable compensation contained in the Further Amended Statement of Claim pertains not only to allegations of unconscionability but also to the breach of fiduciary duty; see para 70(j). 478 Turning to the way in which the Plaintiffs seek to substantiate the breach of duty in their written submissions (para 42), it is clear that the gravamen of that claim really centres around para (xii) of the pleaded particulars. It finds its approximate counterpart in para 42.3.7 of the written submissions, a counterpart which is not precisely equivalent but in substance pointing in the same direction. Essentially para 42.3.7 follows a listing of a number of additional factors which should have been considered by the Bank and states, "42.3.7 had these additional factors been considered, McLachlan's figures would have been dramatically different [McLachlan T/s 868/9]; the Karams should then have been informed that servicing the loan would be very difficult, if not impossible [McLachlan T/s 856/11 868/55 Myatt T/s 827/42, 829/6], and that the project was not viable [Barnes T/s 912/29].".

482 In order to succeed at all, the Plaintiffs have first to establish a duty of care as would extend to explaining and advising the Karams and the Company concerning the various matters earlier particularised being those now pressed in the written submissions, with their attempt at substantiation. It is well established that there is no duty upon a financier to provide either a borrower or a third party guarantor with any commercial advice, although if any such advice is in fact tendered, this may suffice for the financier thereby to assume a duty of care; see Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84; Stanton v Australia and New Zealand Banking Group Limited (1987) 9 ATPR 40-755; Cornish v Midland Bank Plc [1985] 3 All ER 513; Beneficial Finance Corporation Limited v Karavas (1991) 23 NSWLR 256. The Plaintiffs' case is that the advice was in fact tendered. 483 The Bank's contention, drawing on the words of Meagher JA in Karavas (supra) at 277 is that the Bank did not presume to offer any advice and assumed no duty of care. The Bank's contention is that the history of negotiations between Charles and Macarthur from early 1989, together with Charles' insistence in the face of Mr Barnes' early resistance to the proposed acquisition of the total parcel of land, together also with the reliance placed by both Charles and John on the advice of their accountant, Mr Croker, and the recognised need as early as 1987 for a new and larger factory and the consequent search for suitable premises all point to the fact that the decision to purchase the Ingleburn site and to construct the new factory was very much the Karams' decision. The Bank contended in reaching that decision, they neither looked for nor received any direct encouragement from the Bank. 484 The Bank's submissions at this point (para 180 of the Bank's written submissions) suggest that something less than advice was given but that, if given, it was not relied upon. The Bank contends that "the Bank officers such as Mr McLachlan may well have expressed general concurrence with the decision but, as was observed in Mahlo v Westpac Banking Corporation (supra) at page 19: "It is not enough that the Bank may have 'beckoned them they way that they were going'; even enthusiastic Bank concurrence in the Mahlos' own decision does not detract from it being their own decision."

485 The first question is whether in fact the Bank tendered any advice sufficient for the Bank thereby to have assumed a duty of care. That question needs to be separated from whether if it did, the advice was indeed relied upon or not, with advice then including both what was said and what should have been said. Finally, there are the questions of whether the Bank realised, or ought to have realised, any reliance was placed on its advisory utterances and the reasonableness of that reliance. 486 Taking the first question, and accepting that the parties were in a relationship of proximity such that a duty of care was capable of being found, while on balance I am not satisfied that all the specific representations were made, I do consider it more likely than not that the following would have been said. 487 First, Mr McLachlan would probably have endorsed the purchase of the property as a good site and a good piece of commercial real estate, being part of an excellent development that would improve in value. This was in circumstances where he was keen to write the business and therefore so expressed himself. But to endorse, or even to recommend in such fashion a transaction which, I am satisfied, the Bank appreciated that the Karams wanted to enter into in any event, is in my opinion, distinct from giving advice as such. One may recommend a course of action to a person who is bent upon pursuing it, without having any sense that the recommendation is advice understood as such, as distinct from enthusiastic concurrence, endorsement, or recommendation. Here, it may be said that the notion of advice cannot be kept separate from whether what was said was intended to be relied upon. One may casually recommend something, even endorse it, knowing that is not intended to be relied upon. All that has a very different quality from that of advice. That, I am satisfied, is what happened here for the reasons I have earlier identified. And, so concluding, that must be fatal to any allegation of breach of duty of care, since at the threshold there is no duty of care in such circumstances. 488 But if I were wrong, and if it were the case that the recommendation crossed the threshold into advice so as to give rise to a duty of care, I am also satisfied that there was no reliance upon that advice or reasonable basis for doing so. The Karams and, through them, their Company, by their earlier evidence made clear that they construed the Bank's willingness to lend as sufficient for them. They looked no further for any advice, their primary reliance being thus placed upon Mr Croker and his advice. In causality terms, in those circumstances, lending of the money, but no more, was a necessary condition for the Karams and the Company to enter into the transaction. But it was not causally significant in answering the question was there negligent breach of the relevant duty. Nor, if I were wrong and there were reliance, do I consider the Bank realised or ought to have realised there was any such reliance by the Karams. Nor would any such reliance be reasonable. 489 There is a possible further question. On the assumption that the Bank had provided sufficient advice to give rise to the assumption of a duty of care, contrary to my conclusion earlier, would the Karams and the Company have entered into the transaction if the Bank had advised against it? In other words, though there was no reliance upon recommendations made, was there in some sense a reliance on recommendations not made; that the Karams relied on the Bank to advise against the transaction if in fact the transaction were imprudent but failed to do so? So in the hypothetical circumstance that it gave the advice it should have done (against entering into the transaction) would the Karams have relied upon that advice and not proceeded with the transaction? 490 This is a difficult question, posing as it does the issue grappled with by Jane Stapleton in an illuminating article "Legal Cause: Cause-in-fact and the Scope of Liability for Consequences" 2001 Vanderbilt Law Review 941 at 963-4 from which I quote (omitting footnotes). "The content of the hypothetical is dependent on what is identified as the tortious conduct - what it is that the plaintiff claims the defendant ought to have done. A plaintiff may be unable to show that she would have used a safety device if it had been supplied by the defendant, but she may have sufficient evidence to show that she would have done so had he supplied it and exhorted her to wear it. In other words, she would lose if the allegation of tortious conduct is merely the allegation of failure to supply the device, but she would win if the allegation were that of failure to supply it and to exhort its use. Put generally, in omission cases we cannot answer the question of fact of historical relevance of tortious conduct until we have chosen the norm of what the defendant was legally obligated to do, if anything."

491 In those terms and in the present context, what is the norm for what the Bank was legally obligated to do? Suppose the answer to that question were that the Bank was legally obliged to advise against the transaction, once any advice were given, if the transaction were clearly imprudent. This would be on the basis that, though not expert on property, the Bank was sufficiently expert on prudential borrowing. Therefore it may be said, the Bank would then be legally obliged to explain any readily apparent risk that the Company may be unable to service the loan, or not unless the borrowing were reduced by early sale of the Regents Park factory and or the surplus Ingleburn land. 492 But the short answer to all this is to be found in two propositions. First it is by no means apparent that the transaction need have been imprudent. There always was the possibility of selling the surplus land. Second, that was sufficiently apparent to the Karams, without need of Bank advice of that. And there is sufficient indication that while the Bank left this to the Karams early on, the Bank was reasonably enough expecting the Karams to act responsibly, meaning selling surplus assets if need be. After all, the Karams could see for themselves what the debt burden had become, when they had failed to subdivide and sell. I have earlier indicated my conclusions regarding the feasibility of earlier subdivision. So even if one accepts that a legal obligation fell on the Bank (as to advising against imprudent transactions) this need not have been such a transaction if the Karams had subsequently acted prudently. 493 That takes me to the second basis of claim against the Bank, namely failure to advise about a readily apparent risk in deferring selling the surplus to reduce debt. Here, I do not consider that it would be reasonable to expect the Bank to advise the Karams as to whether they should, or should not, have a strategy for selling the surplus Ingleburn land. The Bank knew that the borrowers had that in mind selling as an available option. The Bank was, as I have said, entitled to assume sufficient financial acumen on the part of the Karams, assisted as they were by Mr Croker, for the Karams to make their own decision as to timing, familiar as they should have been with their cash flows and increased debt and interest burden. 494 The only indication to the contrary is a diary note of 27 April 1991 (TB, 1.374). But this was some year and a quarter after the original purchase during which time there is no suggestion that the Bank put any pressure against, or otherwise advised against selling the surplus land. At that meeting Mr McLachlan attended with Charles and John. The second paragraph of the diary note reads as follows, "In view of the current climate it has been decided to sit and consolidate it for two years. At that time they would look at cutting up the surplus land or selling it in one lump and reducing their borrowings to a figure of around $2 m. They can service present borrowings and in view of that it would seem pointless to unload assets at the bottom of the market. They are having tenant problems at Regents Park, but expect this to be resolved in early course. Once again there is no need to sell this property in this market."

502 The Bank did not undertake or agree to advise the Karams in their interests as to the wisdom of the transaction, even if the Karams may have assumed otherwise. That negates any fiduciary duty owed to the Karams or the Company. As Mason J observed in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-7 the critical feature of the well-recognised categories of fiduciary relationship is the undertaking or agreement by the fiduciary to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect in a legal or practical sense the interests of that other person. Nor had the Bank come under an obligation to act in "another's interests", viz the Karams'; compare Breen v Williams (1996) 186 CLR 71 at 113 per Gaudron and McHugh JJ. 503 But even if it be accepted that there were such a fiduciary duty owed by the Bank to the Karams or the Company, the misrepresentations relied upon as constituting a breach of that duty have not been made out for the reasons earlier set out. Nor have they been shown to have been relied upon to the knowledge of the Bank in circumstances where it was reasonable to do so. But there is a more fundamental reason, encapsulated in the observation in Pilmer v Duke Group Ltd (2001) 75 ALJR 1067 at 1082-3, "that fiduciary obligations are proscriptive rather than prescriptive in nature"; see the majority judgment of McHugh, Gummow, Hayne and Callinan JJ. It would be to impose without justification a positive legal obligation, beyond mere proscription, if the Bank were obliged to advise the Karams as to the desirability or prudence of a prospective purchase. Thus in Breen v Williams (supra): "In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed."

(c) "practical justice" does not require any other result such as compelling the Karams, as a condition of relief, to apply those house sale proceeds to reducing any part of the Company's indebtedness, they never having been so secured in favour of the Bank or available to it without unconscionable conduct or economic duress (contrast Vadasz v Pioneer Concrete (SA) Pty Limited (1995) 184 CLR 102 at 115 and, under the Contracts Review Act , S H Lock (Australia) Limited v Kennedy (1988) 12 NSWLR 482). 510 The Regents Park proceeds were likewise applied unconscionably and as a result of economic duress in reduction of the Company's total Bank debt. This was when they were only properly available to satisfy the Ingleburn factory construction debt. Subject to what follows, an amount equal to those proceeds of sale of Regents Park so applied must be returned by way of equitable compensation to the Karams, with interest thereon at Supreme Court rates. But practical justice here must recognise that those proceeds were properly agreed to be applied to repay the Ingleburn factory construction debt and actually secured it. Hence to the extent that any amount referrable to the Ingleburn factory construction debt is still outstanding, that should be paid to the Bank from that portion of the equitable compensation, as a condition of the relief. This would be in reduction of any outstanding Ingleburn factory construction debt. 511 However, it would not be appropriate, in awarding equitable compensation for what was unconscionable conduct exacerbated by illegitimate pressure amounting to economic duress, to calculate the Company's Ingleburn factory construction debt so it is increased to take account of any equitable compensation paid. Nor would it be appropriate to increase the Company's non-Ingleburn related indebtedness to take account of any equitable compensation paid in respect of the house mortgages. This is on several bases. First, the equitable compensation to be paid is only referable to amounts paid under economic duress, it is not a refund of such amounts. Second, denying such increase moulds the remedy and relief to achieve practical justice as Vadasz dictates. Third it takes into account the essentially unquantifiable loss suffered by the Karams from the Bank's unconscionable insistence on security rights it did not properly have. But for that insistence, the Karams might well have used the negotiating position it had to secure better terms or other concession. Finally, that result accords with the approach in Aquaculture Corporation v New Zealand Green Mussel Co Ltd (supra) at 301-2. There a majority of the court (Cooke P, Richardson, Bisson and Hardie Boys JJ, Somers J dissenting) could see no reason in principle why exemplary damages by way of equitable compensation should not be awarded, in that case for breach of confidence, where a merely compensatory award would not adequately reflect the gravity of the defendant's conduct. 512 It will be necessary or useful in formulating orders to quantify inter alia the following:

Parties

Applicant/Plaintiff:

Karam

Respondent/Defendant:

ANZ Banking Group Limited & 1 Ors

Legislation Cited (4)

Trade Practices Act 1974(Cth)

Conclusion Contracts Review Act 1980(NSW)

Contracts Review Act 1980(NSW)

Limitation Act 1969(NSW)

Cases Cited (37)

CITATION : Karam v ANZ Banking Group Limited & 1 Ors [2001] NSWSC 709 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 2142/97 HEARING DATE(S) : 20/06/00-22/06/00, 27/06/00-30/06/00, 18/07/00-20/07/00, 02/11/00, 03/11/00, 07/11/00-10/11/00, 14/11/00, 17/11/00, 21/11/00, 01/03/01, 26/04/01, 27/04/01 JUDGMENT DATE : 21 August 2001

COUNSEL : M L D Einfeld, QC/ D B Studdy (Plaintiffs; Cross Defendants) M Walton, SC/ P J Dowdy (First Defendant; Cross Claimant) SOLICITORS : Webster O'Halloran (Plaintiffs; Cross Defendants) Coudert Brothers (First Defendant; Cross Claimant) CATCHWORDS : EQUITY - Banking loans to an incorporated family business earlier carried on in partnership - Borrowers with limited English and technical understanding of financial and legal security matters - Special disability - Unconscionability - Application of Contracts Review Act - Distinction between recommends independent legal advice and inviting borrowers either to take away and read documents or get legal advice - Difficulty of understanding documents - Availability of house mortgages and personal guarantees to secure corporate debt - Construction of house mortgages with form S148 including all monies clause as a guarantee - Inadequate or misleading explanation given by Bank - Relevance to unconscionability - Estoppel - Illegitimate pressure amounting to economic duress in relation to subsequent acknowledgments and cross-deed of covenant - Independent legal advice does not avert that result where adviser not furnished with relevant information including security documents - Continued effect of duress negates effect of subsequent legal advice - Release, effect of and principles of construction - Relevance of fact that security sold by borrowers in these circumstances rather than the bank - Scope of equitable compensation where security sold taking into account gravity of conduct - Limitation issues - Scope for liability of bank in relation to advice or there endorsement of property purchase financed by bank - Negligent misrepresentation, breach of duty of care or breach of fiduciary duty alleged - No such liability in present circumstances - Relevance of reliance and its reasonableness - Issues of causation - Is there any fiduciary duty in particular circumstances - Limitation aspects. - WORDS AND PHRASES - meaning of "advice" Contracts Review Act 1980 (NSW) s7 LEGISLATION CITED : Limitation Act 1969 (NSW) s14 s23 Trade Practices Act 1974 (Cth) s82(2) Advent Investors Pty Ltd v Goldhirsch (2001) 37 ACSR 529 Amaca Pty Limited formerly known as James Hardie & Coy Pty Limited v CSR Limited [2001] NSWSC 324 Ankar Pty Limited v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 Aquaculture Corporation v New Zealand Green Mussel Co Ltd (1990) 3 NZLR 299 Barclays Bank plc v O'Brien [1994] 1 AC 180 Barton v Armstrong [1976] AC 104 BCCL v Ali [2001] 1 All ER961 Beneficial Finance Corporation Limited v Karavas (1991) 23 NSWLR 256 Bennett v Minister for Community Welfare (1992) 176 CLR 408 Blomley v Ryan (1956), 99 CLR 362 Breen v Williams (1996) 186 CLR 71 Bridgewater v Leahy (1998) 194 CLR 457 Caffrey v Darby (1801) 6 Ves Jun 488; 31 ER 1150 Catt v Merrick Australia Limited (1986) 9 NSWLR 639 Chapman v E-Sports Club Worldwide Ltd (2000) 35 ACSR 462 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 Commonwealth Bank of Australia v Smith (1991) 42 FCR 390 Commonwealth v Verwayen (1990) 170 CLR 394 Commonwealth Bank of Australia v Zell (Sperling J, 19 February 1997, unreported) Contracts Review Act, S H Lock (Australia) Limited v Kennedy (1988) 12 NSWLR 482 Cornish v Midland Bank Plc [1985] 3 All ER 513 Crescendo Management Pty Limited v Westpac Banking Corporation (1988) 19 NSWLR 40 Environment Agency v Empress Car Co (Abertillery) Ltd (1998) 2 WLR 350 Fountain v Bank of America National Trust & Savings Association (1992) 5 BPR 11,817 Fry v Lane, Re Fry; Whittet v Bush (1888) 40 Ch D 312 Gipps v Gipps [1978] 1 NSWLR 454 Gould v Vaggelas (1985) 157 CLR 215 Grant v John Grant and Sons (1954) 91 CLR 112 Henjo Investments Pty Limited v Collins Marrickville Pty Limited (1988) ATPR 40-850 Holmes v Jones [1907] 4 CLR 1692 CASES CITED : Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Houghton v Immer (No. 155) Pty Limited (1997) 44 NSWLR 46 Houlahan v Australian and New Zealand Banking Group Limited (1992) 110 FLR 259 ICS v West Bromwich BS [1998] 1 All ER 98 Iletrait Pty Limited v McInnes (NSWCA, 17 April 1997, unreported) Karam v Australia and New Zealand Banking Group limited (2000) 34 ACSR 545 Kenny & Good Pty Limited v MGICA (1992) Limited (1999) 199 CLR 413 Louth v Diprose (1992) 175 CLR 621 Lowe v Lombank Ltd [1960] 1 WLR 196 McMahon v Pommeroy Pty Ltd (1991) ATPR 41-125 Mahlo v Westpac Banking Corporation (NSWSC Santow J, 6 February 1998, unreported) Micarone and others v Perpetual Trustees Australia Limited (1999) SASR 1 Mutual Life & Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556 National Australian Bank v Nobile (1991) 100 ALR 227 National Bank of Australia Ltd v Mason (1976) 50 ALJR 362 Nockton v Lord Ashburton [1914] AC 932 O'Halloran v R T Thomas & Family Ltd (1998) 45 NSWLR 262 O'Rorke v Bolingbroke (1877), 2 App Cas 814 Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187(FC) Pilmer v Duke Group Ltd (2001) 75 ALJR 1067 Poseidon Limited v Adelaide Petroleum NL (1991) 105 ALR 25 Royal Bank of Scotland v Etridge (No. 2) [1998] 4 All ER 705 Salkeld v Vernon (1758) 1 Eden 64, 28 ER 608 Sherson & Associates Pty Limited v Bailey [2000] NSWCA 275 Smith v Chadwick [1884] 9 App Cas 187 Stanton v Australia and New Zealand Banking Group Limited (1987) 9 ATPR 40-755 State Bank of New South Wales v Muir and Anor (1996) BPR 15,483 Target Holdings Ltd v Redfern [1996] 1 AC 421 Teachers Health Investments Pty Limited v Wynne (1996) NSWConvR 55-785 Tepko Pty Ltd v Water Board (2001) 75 ALJR 775 Vadasz v Pioneer Concrete (SA) Pty Limited (1995) 184 CLR 102 Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 (CA) DECISION : See paragraphs 505 to 513.

(1987) 162 CLR 549

(1991) 23 NSWLR 256

(1992) 176 CLR 408

(1996) 186 CLR 71

(1998) 194 CLR 457

(1986) 9 NSWLR 639

(1983) 151 CLR 447

(1991) 23 NSWLR 84

(1991) 42 FCR 390

(1990) 170 CLR 394

(1988) 12 NSWLR 482

(1988) 19 NSWLR 40

(1985) 157 CLR 215

(1954) 91 CLR 112

(1984) 156 CLR 41

(1997) 44 NSWLR 46

(1992) 110 FLR 259

(1999) 199 CLR 413

(1992) 175 CLR 621

(1968) 122 CLR 556

(1991) 100 ALR 227

(1976) 50 ALJR 362

(1998) 45 NSWLR 262

(1994) 11 WAR 187

(2001) 75 ALJR 1067

(1991) 105 ALR 25

(2001) 75 ALJR 775

(1995) 184 CLR 102

(1992) 175 CLR 514

(1986) 5 NSWLR 610

(1956) 99 CLR 362

(1997) 73 FCR 91

(1996) 39 NSWLR 143

(1986) 160 CLR 371

[2000] NSWCA 275

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