Karoly Kocsardi v Elegant Tiles Pty Ltd, Porsan Australia Pty Ltd, National Australia Bank Limited, Edward Morales and Pedro Tejero Morales, Elegant Porcelain Pty Ltd and Elegant Marble and Granite Pty Ltd [1996] FCA 1887 (20 November 1996)

KAROLY KOCSARDI v. ELEGANT TILES PTY LTD, PORSAN AUSTRALIA PTY LTD,

NATIONAL AUSTRALIA BANK LIMITED, EDWARD MORALES AND PEDRO TEJERO

MORALES, ELEGANT PORCELAIN PTY LTD AND ELEGANT MARBLE and GRANITE PTY

Negligence - Trade Practices - Contract - Fiduciary Obligations -

Negligence - banker and customer - unconditional bank guarantee issued in favour of third party - applicant requested letter of credit conditioned upon performance of obligation by third party - interpretation of request - bank giving financial advice as to appropriate instrument - whether negligent advice - availability of independent legal advice - relevance to causation - whether contributory negligence.

Trade Practices - misleading and deceptive conduct - silence - failure to explain unconditional nature of bank guarantee - representation that unconditional bank guarantee the or an appropriate instrument - false or misleading representation within s 53(g) of the Trade Practices Act 1974 (Cth) - whether failure to take reasonable care of own interests - causation.

Contract - implied term - implication not required to give business efficacy to contract.

Fiduciary Obligations - banker and customer - assuming fiduciary duty owed, no evidence of breach.

Evidence - Application of principle in Jones v Dunkel - solicitor's file discovered without claim for privilege - no evidence to support drawing of adverse inference.

Trade Practices Act 1974 (Cth) s 52, s 53(g), s 82

Federal Court of Australia Act 1976 (Cth) s 51A

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

Grubic v Commonwealth Bank of Australia (1993) Aust Contract Reports

San Sebastian Pty Ltd v The Minister [1986] HCA 68; (1986) 162 CLR 340

Hawkins v Clayton (1988) 164 CLR 539

Banbury v Bank of Montreal (1918) AC 626

Potts v Westpac Banking Corporation (1993) 1 Qd R 135 (FC)

Commonwealth Bank of Australia v Smith [1991] FCA 375; (1991) 102 ALR 453 (FC)

Cornish v Midland Bank (1985) 3 All ER 513 (CA)

March v E and M H Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506

Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31 (FC)

Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 (FC)

SWF Hoists and Industrial Equipment Pty Ltd v State Government

Insurance Commission (1990) ATPR 41-045

Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514

O'Hara and Anor v Williams and Ors (unreported, Federal Court of

BP Refining (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266

Secured Income Real Estate v St Martin's Investments Pty Ltd (1979) 155 CLR 596

Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337

Lloyds and Scottish Finance v Modern Cars and Caravans (Kingston) (1966) 1 QB 764 Mudginberri Station Pty Ltd v Australasian Meat Industry Employees Union (1986) ATPR 40-708

Solicitors for the Applicant : John M O'Connor and Company

Solicitors for the Third Respondent : Flower and Hart

1. There be judgment on the application for the applicant against

the third respondent.

2. The third respondent pay to the applicant the sum of

$158,401.34 plus interest at ten percent (10%) per annum from 20

April 1993 to the date of judgment.

3. The third respondent pay to the applicant the applicant's costs

of and incidental to the proceedings against the first and fourth

respondents, to be taxed if not agreed.

4. The third respondent pay the applicant's costs of and

incidental to the application, including reserved costs, if any,

to be taxed if not agreed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

COOPER J On 5 May 1993 the applicant, Karoly Karakan Kocsardi, commenced proceedings in this Court against six named respondents seeking various relief against each of them. The applicant obtained judgment against the first respondent and the fourth respondents on 22 November 1993. The fifth and sixth respondents are companies associated with the first respondent. The second respondent, Porsan Australia Pty Ltd ("Porsan"), has no assets nor any source of income and the causes of action pleaded against it have not been proceeded with before me. The Court has therefore been concerned only with the applicant's action against the third respondent, National Australia Bank Limited ("the Bank").

2. The applicant seeks to recover from the Bank loss and damage allegedly suffered by him in relation to the issue by the Bank of a bank guarantee in the sum of $146,839 on his behalf in favour of the first respondent, Elegant Tiles Pty Ltd ("Elegant"), a company controlled by the fourth respondents, Edward and Pedro Morales ("the Morales"). The applicant alleges that, in the circumstances leading up to the issue of the bank guarantee, the issue of it and in the circumstances in which the guarantee was called upon and paid out on, the Bank, by its officers, acted negligently, in contravention of s 52 and s 53(g) of the Trade Practices Act 1974 (Cth) ("the TPA"), in breach of an implied term of a contract between it and the applicant and in breach of fiduciary duties said to be owed by it to the applicant.

3. On 3 September 1992, Porsan entered into an agreement with Elegant whereby Porsan acquired the exclusive right to market and sell ceramic tiles to be imported into Australia by Elegant ("the distribution agreement"). The distribution agreement, in clause 6, provided for payment in Australia for the tiles to be supplied by Elegant to Porsan. The terms of clause 6 of the distribution agreement are central to these proceedings. Clause 6 provided:-

"6. PAYMENT OF THE PRICE

6.1 The Distributor (Porsan) shall pay the Importer

(Elegant) for the Products (the tiles) in the following

manner, namely:-

6.1.1 by letter of credit upon order of the Products;

6.1.2 the letter of credit will be drawn down to the

extent of seventy-five percentum (75%) of its value upon

delivery and acceptance of the Products at the place

nominated by the Distributor;

6.1.3 the balance twenty-five percentum (25%) of the

letter of credit to be drawn down twenty-one (21) days

after delivery and acceptance."

4. Porsan was established for the purpose of marketing and selling tiles and other products to be supplied to Porsan by Elegant (or its associated companies) under the distribution agreement and other similar agreements. The directors of Porsan were Stephen Thomas Truscott and either Douglas or Mark McCluskey. At the relevant times, Mr Truscott operated a wholesale carpet and floor coverings business, known as Carpet Smart, from premises at 1/33 Machinery Drive, Darra in Brisbane ("the Carpet Smart premises").

5. Porsan was a "two dollar company". It had no assets and no means of paying for tiles and other products to be imported in accordance with its arrangements with Elegant and its associated companies. Mr Truscott's personal finances and those of Carpet Smart were in a parlous state. In an attempt to attract investment funds to the venture to be undertaken by Porsan, an advertisement seeking investors appeared in the Courier-Mail on 5 December 1992. The advertisement was placed by Mr Andrew Mantle, the principal of a firm known as Franchise Solutions. Mr Mantle had been retained by Porsan to assist in the promotion of a franchising group which was to involve Porsan and Carpet Smart. After seeing the advertisement in the newspaper, the applicant telephoned Mr Mantle. The applicant was invited to attend at the Carpet Smart premises to discuss the investment proposal.

6. On 8 December 1992 the applicant and his father met with Messrs Mantle and Truscott at the Carpet Smart premises. Mr Mantle explained the proposal for the importation and sale of tiles and other products. He also made reference to the distribution agreement. During the meeting a proposal was put to the applicant for his consideration. The applicant indicated that he had recently entered into an unconditional contract of sale in respect of a valuable real estate property owned by him at Acacia Ridge which was due to be settled on 29 December 1992. Although the applicant's father attended one or more meetings with his son, he does not speak or understand the English language and in consequence was not called as a witness.

7. On or about 21 December 1992, Kenneth John Perrotta called upon Mr Truscott at the Carpet Smart premises. Mr Perrotta was then and remains an officer of the Bank. At that time Mr Perrotta was employed by the Bank in an experimental position as a "briefcase banker". In that role he called upon businesses and attempted to solicit their custom for the Bank, offering amongst other things a personalised banking service. Mr Perrotta was based at the Toowong and Mount Ommaney branches of the Bank but operated mostly out of his car and from a small unstaffed office in the Sumner Park Industrial Estate ("the Sumner Park office").

8. At the meeting on or about 21 December 1992, Messrs Perrotta and Truscott discussed the financial difficulties being experienced by Mr Truscott personally and in respect of Carpet Smart. Mr Mantle was also present at the meeting. The men briefly discussed the distribution agreement recently entered into by Porsan and the potential sale of imported tiles to companies with which Mr Perrotta was familiar. Although Mr Perrotta formed the view that the Bank would not be interested in the custom of Carpet Smart or Mr Truscott personally, he agreed with Mr Truscott that "this looked like a good venture that he might be entering into."

9. The applicant telephoned Mr Mantle on 23 December 1992 to inform him that he had decided not to proceed with the proposal in the form outlined to him on 8 December. The applicant told Mr Mantle that he would not invest in Porsan unless he was given ownership of the stock purchased by Porsan out of funds provided by him and he became a signatory to Porsan's operating bank account. After discussing the applicant's requirements with Mr Truscott, Mr Mantle telephoned the applicant and informed him that those requirements could be accommodated by Porsan. In a telephone conversation on 29 December 1992, the applicant told Mr Mantle that, subject to the successful completion of the contract for the sale of his real estate property at Acacia Ridge, he would proceed with the investment in Porsan. The contract was due to settle on that day but the applicant told Mr Mantle that settlement might have to be extended. In the event, the date for the settlement of the contract was extended to 29 January 1993. The fact of the extension was communicated to Messrs Mantle and Truscott at a meeting on 7 January 1993.

10. According to each of Mr Mantle, Mr Truscott and Ms Michelle Gibbons, Mr Truscott's defacto wife, Mr Perrotta called upon them at the Carpet Smart premises on at least one occasion between his first meeting with Messrs Truscott and Mantle in late December 1992 and his first meeting with the applicant in early January 1993. They gave evidence of a further meeting with Mr Perrotta at some time on or after 6 January 1993 and before Mr Perrotta's first meeting with the applicant. Their evidence was in substantially the same terms. Mr Truscott's evidence-in-chief, given by way of affidavit, was as follows:-

"31. The next meeting with Perrotta was again held in the

presence of Gibson and Mantle. I had organised this meeting to

tell Perrotta about Kocsardi and what he was prepared to do in

order to assist Porsan by providing start up capital.

32. I know that this meeting was held after 6 January, 1993

because we discussed a letter dated 6 January, 1993 to Kocsardi

which Mantle had drafted. Kocsardi was not at this meeting.

33. I told Perrotta that Kocsardi had some very valuable land

under contract but he did not have any readily available cash.

34. I asked Perrotta whether the National Australia Bank would

be prepared to provide funds to Kocsardi to effect the

arrangement set out in the letter of 6 January, 1993. This

included the sum of $350,000.00 lent against the security of his

land to enable my debt to another bank to be discharged and to

enable security to be given for the payment of the first tiles

shipment under the distribution agreement.

35. Perrotta appeared to be concerned and indicated to me that

he thought that Carpet Smart was trading badly. He was also

concerned that although Kocsardi had property he did not have

ready access to cash to meet the commitments that might be

necessary on borrowed monies. Perrotta agreed at this meeting to

meet Kocsardi to discuss the matters set out in the letter of 6

January, 1993."

11. The letter referred to by Mr Truscott detailed the proposed arrangements between Porsan and the applicant for the applicant's investment in Porsan's business venture.

12. Mr Mantle's evidence was that after the initial meeting on or about 21 December 1992, Mr Perrotta again met with he and Mr Truscott at the Carpet Smart premises. At that meeting, on Mr Mantle's version of events, Mr Truscott outlined to Mr Perrotta the details of the proposed business activities of Porsan, including the nature of the products to be purchased and sold in the course of that business, and handed to Mr Perrotta, amongst other things, a copy of the distribution agreement and a copy of a similar agreement which had been entered into between Porsan and the fifth respondent, Elegant Porcelain Pty Ltd. It was not suggested in cross-examination that the nature of the business of Porsan as revealed by the distribution agreement was not explained to Mr Perrotta. Rather it was suggested that no physical copy of the distribution agreement was made available to Mr Perrotta on that occasion. I find the evidence given by Mr Mantle as to the circumstances in which the distribution agreement was shown to Mr Perrotta and the basis of his recollection of what occurred to be persuasive.

13. Mr Truscott also recalled handing a copy of the distribution agreement to Mr Perrotta at the meeting and that he and Mr Perrotta discussed the payment conditions set out in the distribution agreement.

14. Mr Perrotta swore an affidavit, which was tendered into evidence, responding to the affidavit evidence of Messrs Truscott and Mantle and Ms Gibbons. Mr Perrotta's evidence was that he met with Messrs Mantle and Truscott only once, being the meeting on or about 21 December 1992 referred to above, before he met the applicant for the first time. Mr Perrotta denied the substance of the evidence of Messrs Mantle and Truscott and Ms Gibbons. Specifically, he denied that he had ever been given a copy of the distribution agreement, despite, he said, requesting from the applicant details of the applicant's agreement with Mr Truscott on a number of occasions, and he denied that the distribution agreement was ever discussed with him. When cross-examined on this issue, Mr Perrotta repeated his denial that he was ever given a copy of the distribution agreement, but conceded that he may have met with Messrs Truscott and Mantle on more than one occasion prior to meeting the applicant.

15. Neither Mr Mantle, Mr Truscott nor Ms Gibbons stood to gain or lose from the honesty or otherwise of their evidence. Nor were they shown by cross-examination or reference to the contemporary documentation to be mistaken in their recollection of events. I accept their evidence. It is generally corroborative of the evidence given by the applicant.

16. I do not accept Mr Perrotta's evidence on the critical issues as reliable unless that evidence is supported by documentary or other objective evidence. Mr Perrotta, the Bank's authorised representative, was present in court whilst the applicant and the witnesses called on the applicant's behalf gave their evidence. Significantly, after his having heard the evidence given by and on behalf of the applicant, Mr Perrotta's evidence under cross-examination was different in some significant respects from his evidence-in-chief which was given by way of affidavit. Further, despite professing in his affidavits to an independent recollection of relevant events, Mr Perrotta conceded in cross-examination that he had no such recollection and was, for the most part, relying for his evidence on diary notes and memoranda which he said were prepared by him at the times in question.

17. I find that Mr Perrotta met with Messrs Truscott and Mantle on at least two occasions before he was introduced to the applicant. I find that a copy of the distribution agreement was given to Mr Perrotta and the terms of it, including the payment conditions, were discussed with him at a meeting which occurred after 6 January 1993 and before Mr Perrotta's first meeting with the applicant. I also find that the proposal contained in the letter dated 6 January 1992 but written 6 January 1993 was discussed as Mr Truscott described in his affidavit.

18. Mr Perrotta is also in substantial disagreement with the applicant as to what occurred in the dealings he had with the applicant. As I have said, unless supported by other objective or documentary evidence, I do not accept the evidence of Mr Perrotta as reliable. The evidence of the applicant was generally corroborated. Further, he was cross-examined by counsel for the Bank for three days. During that cross-examination I formed the view that the applicant was an honest man, innocent in the ways of the commercial world, who was striving to accurately recall events which took place more than three years before. It also became clear that the acquisition by him of valuable land holdings occurred as the result of a combination of good luck and family generosity rather than any particular commercial acumen or experience on the part of the applicant. Mr Mantle in cross-examination described the applicant as "not what you would call a business literate", a description with which I would agree. Where the evidence of the applicant and Mr Perrotta is in conflict, I have preferred the evidence of the applicant unless contradicted by the contemporaneous documentation or other reliable objective evidence.

19. There is a conflict between Mr Perrotta and other relevant witnesses as to the number and dates of meetings at which Mr Perrotta and the applicant were present prior to the issue of the bank guarantee in late January 1993. According to Mr Perrotta, he met with the applicant on 11, 13 and 15 January 1993. The applicant, Messrs Truscott and Mantle and Ms Gibbons recalled meetings on 12 and 15 January 1993. Mr Perrotta sought to support his recollection of the number and dates of the meetings by reference to documents he said were prepared by him at the relevant times. His recollection of a meeting on 11 January 1993 was confirmed to him by reference to a property inspection form dated, in his handwriting, 11 January 1993. Similarly, Mr Perrotta had reference to a note prepared by him and dated 13 January 1992 (an obvious mistake) to confirm his recollection of a meeting with the applicant on 13 January 1993.

20. The property inspection form does not support Mr Perrotta's evidence. The only part of the form completed by Mr Perrotta on 11 January 1993 made no reference to any real property description or residential address, or indeed any other information which the evidence establishes that Mr Perrotta did not already possess before he met the applicant. On 11 January 1993 Mr Perrotta wrote on the form, addressed to the manager of the Bank's Acacia Ridge branch, his own branch reference and telephone number and the date and nothing more. Mr Perrotta's evidence was that the real property descriptions were added later by someone other than him. The property inspection was a "roadside" inspection and was made on 12 January 1993. The information entered on the form by Mr Perrotta on 11 January 1993 was information which had already been conveyed to him by Mr Truscott and/or Mr Mantle, namely, that the applicant had agreed to invest in Porsan and that he had real estate property at Acacia Ridge under contract. I prefer the evidence of the applicant, Messrs Truscott and Mantle and Ms Gibbons that Mr Perrotta and the applicant met for the first time on 12 January 1993. That evidence is supported by the existence of two letters prepared by Mr Perrotta on the applicant's behalf after the first meeting and a note to the applicant prepared by Mr Mantle recording a number of matters discussed at the meeting. The letters and the note bear the date 12 January 1993.

21. Similarly, I do not accept Mr Perrotta's evidence that he met with the applicant for a second time on 13 January 1993. The note prepared by Mr Perrotta bearing that date and upon which his evidence was based is not in the nature of a diary note recording events occurring on that day, but is in the nature of an aide memoire to Mr Perrotta, prepared subsequent to his first meeting with the applicant on 12 January 1993. I accept the evidence of the applicant and his witnesses that Mr Perrotta and the applicant met on only two occasions, 12 and 15 January 1993, at the Carpet Smart premises before the issue of the bank guarantee later that month, and I so find.

22. At the meeting on 12 January 1993, in addition to the applicant and his father and Mr Perrotta, Messrs Truscott and Mantle and Ms Gibbons were present. The applicant was introduced to Mr Perrotta as an investor in Porsan and as the source of the funds required to pay for the first shipment of tiles. Mr Perrotta outlined to the applicant his role at the Bank and the service he was able to provide. The applicant provided details of his financial circumstances to Mr Perrotta, including sufficient information in relation to the real estate property at Acacia Ridge to enable Mr Perrotta to organise for a "kerbside" valuation of the property to be undertaken that day. The applicant also told Mr Perrotta that there were existing borrowings from Custom Credit Corporation ("Custom Credit"), secured against the applicant's property. An overdraft facility in an amount of between $15,000 and $20,000 (subsequently agreed at $40,000) as a means of paying out the applicant's indebtedness to Custom Credit was discussed. Mr Perrotta was impressed by the applicant's financial standing and was keen to have him and his family as customers of the Bank.

23. According to the applicant, he and Mr Truscott discussed the distribution agreement, and the payment conditions provided for in clause 6, with Mr Perrotta. At the time of the discussion, Mr Perrotta had a copy of the distribution agreement in front of him. The applicant's account of the 12 January 1993 meeting continued:-

"12. I had already talked to Truscott about the payment terms

under the distribution agreement. This was important to me as I

did not have any cash to pay for the tiles until my land had

sold. I was particularly interested that I did not have to pay

for the tiles when they were ordered and it seemed that I would

always have something that I could say was mine, either my land,

the money from my land when it sold or the tiles.

24. I told Perrotta what I knew about the distribution agreement

and the terms of payment. I explained that only 75% of the price

was payable when the tiles were delivered and 21 days later,

after we had inspected the tiles, the further 25% had to be paid.

25. At this time I did not have any way of getting the letter of

credit that the distribution agreement referred to. At the

meeting with the Morales on 8 January, 1993 they had said that

they wanted to be sure that the order that Truscott had already

given them could be paid for as the distribution agreement

required.

26. This was why Truscott had suggested that I meet Perrotta.

27. I told Perrotta that I wanted to do what was necessary to

make sure that Porsan could get its first order of tiles under

the distribution agreement. If I did not use the exact words

'letter of credit' it was because the distribution agreement was

there and was being discussed with Perrotta.

28. I told Perrotta that I would have enough money to pay for

the tiles when they got to Australia but that this was not what

the Morales wanted.

29. Perrotta said that a bank guarantee could be given to the

Morales when the contract for my land had settled. This was to

later change.

30. I did not ask for the Bank to provide a bank guarantee in

favour of Elegant Tiles Pty Ltd for approximately $146,000.00.

The use of a bank guarantee instead of a letter of credit to make

24. In cross-examination, the applicant was firm in his recollection that the distribution agreement and payment conditions therein were discussed with Mr Perrotta and that he had not asked Mr Perrotta for a bank guarantee because he did not know what it was. He was familiar with the term "letter of credit" only by reason of the fact that it was used in the distribution agreement and, because a bank guarantee was suggested by Mr Perrotta, the applicant thought that a bank guarantee would perform the same function as a letter of credit in securing payment for the tiles in accordance with clause 6 of the distribution agreement.

25. The applicant's evidence on these issues was supported by that of Messrs Truscott and Mantle and Ms Gibbons. Each of them gave evidence to the effect that the applicant and Mr Perrotta discussed the distribution agreement and payment conditions at the meeting on 12 January 1993. Mr Truscott and Ms Gibbons gave evidence that the term "bank guarantee" emanated from Mr Perrotta. Mr Mantle's evidence did not touch on this point.

26. Mr Perrotta's evidence-in-chief recounted meetings with the applicant on 11, 13 and 15 January 1993, where I have found that meetings took place on 12 and 15 January 1993. I have taken the references by Mr Perrotta to events occurring on 11 and 13 January 1993 as being references to events on 12 January 1993. Mr Perrotta's first affidavit relevantly contained the following:-

"7. When I went into Truscott's office, there was another

gentleman present whom he introduced as Karoly Kocsardi. I had

not met or heard of Kocsardi before. Truscott told me that

Kocsardi had agreed to become his partner in the tile joint

venture which he had previously mentioned to me. Kocsardi told

me that that was so. As my diary note indicates, Kocsardi told

me that he and Truscott proposed to enter into "partnership" in

relation to the tile business, although it was clear that what

was in fact intended was the formation of a company and the issue

of shares to Truscott and Kocsardi. He requested the Bank's

assistance with the provision of a bank guarantee in favour of

Elegant Tiles Pty Ltd in the sum of approximately $146,000.00.

.....

9. At this stage, it seemed to me that Kocsardi and Truscott

( and especially Kocsardi) were really seeking reassurance that

the Bank would stand behind their proposed venture. My

impression was they wanted something in writing from the Bank to

show the Morales. As the diary note records, I noted that

Kocsardi 'requests our assurance that we assist with finance, if

necessary to see his business arrangements proceed.' I told

Kocsardi and Truscott that the Bank would not be interested in

taking security over the Acacia Ridge property while it was under

contract. In fact, Kocsardi was not at that time seeking any

advance of funds from the Bank, as he expected to receive

settlement proceeds of approximately $450,000.00 on or about the

25th January 1993. However, I advised them that the Bank would

be prepared to give a bank guarantee and provide an overdraft

facility. In the event that the settlement proceeded, the

guarantee would have been secured against the settlement

proceeds; in the event that it did not proceed, it would have

been secured against the properties. ...

27. The note (Exhibit "C") to which Mr Perrotta refers in his affidavit is the note which I earlier indicated was in the nature of an aide memoire, rather than a contemporaneous account of events which took place at the time it was written.

28. Notwithstanding the assertion in paragraph 7 of his affidavit that the applicant "requested the Bank's assistance with the provision of a bank guarantee in favour of Elegant Tiles Pty Ltd in the sum of approximately $146,000", it is clear that the suggestion of a bank guarantee came from Mr Perrotta and not the applicant. It is also clear that some question of a documentary letter of credit arose at the meeting. Mr Perrotta in his evidence confirmed that the reference "DOCY L/C" in his notes refers to such a document.

29. In a further affidavit, Mr Perrotta denied any knowledge of a distribution agreement or the terms contained in such an agreement.

30. Mr Perrotta's oral evidence, given after he had heard the evidence given by the applicant and his witnesses, differed in significant respects from his evidence-in-chief. Whilst Mr Perrotta repeated his denial that he had seen or discussed a distribution agreement, his evidence as to the circumstances in which the term "bank guarantee" came to be used was different from that contained in his affidavits. Mr Perrotta's oral evidence on this point is best encapsulated in the following passage from the transcript:-

"MR LITSTER: You knew, did you not, at that stage that what was

required in order for an order to be placed was some document

confirming that payment could be made when the tiles arrived, did

you not?---I was told what was required by the bank was a letter

to the Morales to give them comfort that there was money

available.

Then why did you not - - -

HIS HONOUR: Just a moment - was that described to you as a

letter of credit?---No. It was described as a letter.

Do you know what a letter of credit was?---Do I know what a

letter of credit - yes, certainly.

Yes; all right.

MR LITSTER: You say - - -

HIS HONOUR: And is - I just want to be quite clear on this - is

it your evidence that they were asking for a letter confirming

that these people had the money and would be able to pay when

the tiles arrived?---That's right.

Yes; thank you.

MR LITSTER: Why, in those circumstances, did you give them a

document that was essentially $146,839 cash?---I didn't give it

to them at that stage.

Well, you gave it to them at some stage?---Yes., I gave it to

them on 28 January.

I see. Why did you give it to them on 28 January? Why did you

give them that sort of document on 28 January?---That was the

document that they requested in the - at the end result.

At the end result?---That's right.

So they did not request of you in the first instance - - -?---No,

they didn't.

- - - a letter of - a bank guarantee, they requested a letter of

comfort?---That's right.

Right - okay. So we have on the first occasion you met Mr

Kochardy, he says, 'I want a letter of comfort. The Morales are

scared, they want to know they will get paid'?---That's right.

That is what you say your evidence is now?---That's right.

I see. When did they ask for a bank guarantee?---When they said

31. I do not accept Mr Perrotta's evidence that the distribution agreement and/or the terms of clause 6 therein were not discussed with him on 12 January 1993. The purpose of Mr Perrotta attending at the Carpet Smart premises on 12 January 1993 was to meet the applicant. The applicant was introduced to him as the investor in Porsan and the person providing the funds for the first shipment of tiles. Mr Perrotta was to provide, in the first instance, the necessary banking support to enable the first shipment of tiles to be imported and paid for. In those circumstances, and having regard to the applicant's innocence in matters of international trade, the only reference point for a request by the applicant for the Bank's assistance was the distribution agreement and, more particularly, clause 6 of it. I accept the applicant's evidence, supported by that of Messrs Truscott and Mantle and Ms Gibbons, that, on 12 January 1993, the applicant discussed the distribution agreement with Mr Perrotta and explained to him the payment conditions provided for in clause 6 as providing the framework for the applicant's request for assistance from the Bank.

32. There are two other circumstances which persuade me that Mr Perrotta was aware of the existence of the distribution agreement and its contents not later than the meeting of 12 January 1993. The first is the pleadings filed by the Bank. The second is the evidence given by the then manager of the Bank's Eagle Street branch.

33. The applicant, by paragraph 13 of his statement of claim, pleaded against the Bank that, on 19 January 1993, the applicant and Porsan had sought a letter of credit for the importing of tiles by Elegant. One of the particulars given was that Mr Truscott provided to Mr Perrotta a copy of the distribution agreement providing for Porsan's requirements for importing tiles. This allegation was made in the statement of claim filed 19 August 1993.

34. The Bank filed its defence on 21 September 1993. The instructions given to the solicitors for the Bank came from Mr Perrotta. By paragraph 7 of the defence the Bank pleaded:-

"7. On or about 12th January 1993, the applicant requested

the third respondent to provide financial assistance for the

purpose of enabling himself and one Stephen Truscott

('Truscott') to establish a business as distributors of

ceramic tiles imported into Australia by the Morales family

(and, in particular, the fourth respondents) through its

entity, the first respondent.

Particulars

The request was initially made during the course of a meeting

on or before 12th January 1993, between the applicant,

Truscott and Kenneth John Perotta (sic) ('Perotta') (sic),

the manager of the Mt Ommaney Branch of the third respondent,

at Truscott's office at Sumner Park."

In response to paragraph 13 of the statement of claim, the Bank pleaded in paragraph 11:-

"11. In relation to paragraph 13 of the Amended Statement of

Claim, the third respondent:

(a) repeats and relies upon paragraphs 7 to 10 hereof;

(b) denies that the applicant requested of the third respondent

a letter of credit;

(c) denies that the applicant, or any person acting on the

applicant's behalf, ever provided to Perotta (sic), or to any

other person acting on the third respondent's behalf, a copy of

the Distribution Agreement;

(d) says that Perotta (sic) requested of the applicant a

copy of the Distribution Agreement, but no copy of the

Distribution Agreement was ever provided to the third

respondent;

(e) admits that the applicant provided to Perotta (sic) details

of the security he offered to secure the financial assistance

sought from the third respondent;

(f) otherwise does not admit the matters therein alleged."

(Emphasis added)

The Bank amended paragraph 11(d) by leave granted on 23 February 1995 to insert the words "Perrotta or the Mt Ommaney Branch of" after the word "to" in the last line of the original subparagraph. Although the defence was further amended at trial, no attempt was made to alter paragraph 11(d). When confronted with the allegation in paragraph 11(d) in cross-examination, Mr Perrotta at first claimed the paragraph should read "partnership agreement" but when pressed on the matter could offer no explanation as to how the allegation came to be made in the pleading. It is important to note that the allegation in paragraph 11(d) is to be read with paragraph 11(c) which is a denial relating to the provision of a copy of the distribution agreement. I do not accept that the word "distribution" in paragraph 11(d) should be read as "partnership".

35. Gregory John Wasmund, who was at the relevant times the manager of the Bank's Eagle Street branch, also gave evidence. Mr Wasmund was introduced to the Morales in September 1992 when they transferred their personal and company bank accounts to the Eagle Street branch. In early January 1993 the Morales requested a $100,000 overdraft facility so that they could pay the Spanish supplier of the tiles to be imported pursuant to the distribution agreement. The Morales told Mr Wasmund that they were obtaining a bank guarantee from the applicant to "protect their interests in the proposed transaction." Mr Wasmund telephoned Mr Perrotta on a number of occasions in order to satisfy himself that a bank guarantee in favour of Elegant would be issued on the applicant's behalf and to ascertain when the guarantee would be issued.

36. On 2 February 1993 Mr Wasmund received a letter from George Mylonas and Associates, the Morales' solicitor, formally applying for the overdraft facility and setting out the purpose of the facility. The letter referred to the distribution agreement entered into between Elegant and Porsan and a similar agreement with respect to porcelain bathware. Copies of both agreements were enclosed with the letter "for your file". Relevantly the letter stated:-

"Both agreements provide for payment of 75% of invoice on

delivery of goods and the balance 21 days later.

Our client is seeking an overdraft facility of $100000.00

until 30th April 1993 by which time the minimum bathware

orders will have been paid in full and the tile orders paid

at least to 75%. It is offering as security the bank

guarantee of $146839.00 presently held. In order to properly

secure the bank it will be necessary for the bank to receive

an irrevocable letter of direction to Porsan Australia Pty

Ltd with respect to payment of the sum of $146839.00."

37. On 11 February 1993 Mr Wasmund prepared an "Application for Line of Credit" on behalf of the Morales. The security for the proposed short-term overdraft facility was to be the bank guarantee in favour of Elegant which had been issued to the applicant. Under a heading "Security", Mr Wasmund wrote:-

"The matter of taking security in the form of the guarantee has

been discussed with State Securities. Their advice is that

whilst it is possible at law to assign the bank guarantee, it is

not really a first class security. The main concern is that it

is difficult to ... (indistinct) ... the conditions under which

the document was issued thus enabling us to call it up or more so

whether our customer can call it up. I have checked with the

issuing branch and their records clearly indicate that

their customer is obliged to pay 75% of the contract

amount upon delivery and the balance 21 days later.

Should they not perform then our customer is quite

entitled to call up the guarantee. We are heavily reliant

on the guarantee by bank as directors position is not strong and

could not be relied upon at this point in time to meet any call

under their personal guarantee."

(Emphasis added)

38. Although Mr Wasmund could not recall the conversation with the "issuing branch" there recorded, there can be no doubt that the branch was the Mount Ommaney branch of the Bank and that the records were either those of the applicant or Porsan. The only person dealing with the applicant and Porsan in respect of its business dealings with the Bank was Mr Perrotta who, I find, was the source of the information contained in the Bank's records and conveyed to Mr Wasmund. That information records the terms of payment provided for in clause 6 of the distribution agreement and that recourse to the security was only in the event of non-performance by the buyer. Although the inquiry recorded by Mr Wasmund may have taken place as late as 11 February 1993, the information which Mr Perrotta, or the Mount Ommaney branch through Mr Perrotta, possessed, must have been acquired at the meeting on 12 January 1993 at the latest. There is no evidence to suggest that Mr Perrotta acquired knowledge of the payment terms in clause 6 of the distribution agreement at any time after 12 January and before Mr Wasmund's inquiry.

39. I accept the applicant's evidence that, at the meeting on 12 January, he asked Mr Perrotta to provide a letter of credit as required by clause 6 of the distribution agreement. I also accept his evidence that Mr Perrotta said words to the effect of "what you are talking about here is a bank guarantee" or "what you need here is a bank guarantee." The applicant was not familiar with the term "bank guarantee". He knew that the distribution agreement called for a letter of credit and, although he was unsure as to the precise nature of that document, he knew it would serve the purpose provided for in clause 6 of the distribution agreement. The applicant's evidence that the term "bank guarantee" emanated from Mr Perrotta was supported by that of Mr Truscott and Ms Gibbons and confirmed by the evidence of Mr Perrotta under cross-examination.

40. Mr Perrotta's evidence that the applicant had requested a "letter of comfort" and that he (Mr Perrotta) said words to the effect of "what you are talking about here is a performance bond - bank guarantee" was not put to the applicant or the others present at the meeting. What emerges from the evidence of Mr Perrotta set out above is that he formed the view that the applicant and the others present did not understand the nature of the documentation required and he took it upon himself to interpret the applicant's request and to advise him that a bank guarantee was the, or an, appropriate document. I reject Mr Perrotta's evidence that, at the meeting on 12 January 1993, he explained to the applicant that performance bonds and bank guarantees are highly volatile documents which could be produced to the bank payable on demand. Such a warning is inconsistent with the documentation Mr Perrotta brought into existence after 12 January 1993, from which it is clear that Mr Perrotta held the view that the guarantee was only payable against delivery of the tiles by Elegant in Australia. Further, if Mr Perrotta had given a warning in the terms stated by him in evidence, I am satisfied, for reasons which I discuss below, that the applicant would not have proceeded with the transaction.

41. Consequent upon the applicant and the others accepting Mr Perrotta's advice that a bank guarantee was the document required, Mr Perrotta prepared two letters in the applicant's name. Each was dated 12 January 1993. The first was addressed to the manager of the Bank's Mount Ommaney branch and was expressed to be from the applicant:-

"Dear Sir,

As you are aware I wish to apply to NATIONAL AUSTRALIA BANK

LIMITED for a Bank Guarantee in favour of Elegant Tiles Pty Ltd

for $145,839 (One Hundred and forty five Thousand eight Hundred

and thirty Nine Dollars).

I will also require (a) small overdraft facility to clear an

existing loan with Custom Credit Corporation, Melbourne Office

and consideration for the sum of $20,000 would be appreciated.

To secure such borrowing I offer a registered First Bill of

Mortgage over my property at Lot 10 RP 95458 County/Stanley

Parish/Yerongipilly (sic) (Area 6 acres 2 Roods 15.4 perches).

Please note that the above property is currently mortgaged to

Custom Credit Corporation, Melbourne Office with a payout figure

of approximately $13,318.86 plus legal costs for release and

solicitors costs to attend such release.

I hereby authorise and request that your (sic) arrange for the

necessary release of the Custom Credit Corporation Mortgage in

terms of the attached authority addressed to same and that you

collect all relative (sic) documents from the finance companies

(sic) solicitors.

I confirm that there are no other encumbrances attaching to the

title of the security offered which would delay registration of a

fresh Bill of Mortgage over the property to your bank.

Please debit any costs for registration/ stamping/ application

purposes/ solicitors costs etc to my new current account with

your branch."

42. The second letter was addressed to the Property Securities Department at Custom Credit. In it the applicant requested a release of the mortgage held by Custom Credit upon an undertaking to pay the balance owing "at settlement". The letter also requested that all relevant documents be forwarded to Mr Perrotta.

43. Mr Mantle prepared a note to the applicant subsequent to the meeting on 12 January 1993. The note raised concerns expressed at the meeting in relation to the extension of the settlement date on the contract for the sale of the Acacia Ridge property and the failure of the purchaser to pay a deposit. The Bank was not prepared to lend against the property while it was under contract and the applicant did not have sufficient funds to support his proposed investment in Porsan absent the sale proceeds. It was resolved that the purchaser's solicitor should:-

"a) confirm in writting (sic) his clients request for an

extension.

b) confirming in writting (sic) that settlement will be on the

29 (sic) of January 1993.

c) Advise the Spanish in writting (sic) that the property will

settle on the 29th and that funds will be deposited into the

National Australia Bank (Mount Ommaney Branch) to put up a bank

guarentee (sic). The developers (sic) solicitor should do this

as a show of good faith as the developers (sic) delay with

settlement has caused you to be placed in a situation of not

satisfying your arrangements with the Spanish and endangering the

contract with them."

44. One of the issues in these proceedings is the level of involvement of the applicant's solicitor, Ian Skinner, in the applicant's dealings with the Bank. Mr Perrotta's evidence was that at a meeting on 13 January 1993 (which I have taken to refer to the meeting on 12 January) the applicant told him that as Mr Skinner "was handling all matters between he (the applicant) and Truscott, all paperwork would need to be passed before Mr Skinner before any documents could be signed to give effect to the decisions made at the meeting." According to the applicant, he gave Mr Skinner's name and contact details to Mr Perrotta at the meeting on 12 January 1993 against the possibility that a mortgage over the property at Acacia Ridge was required. The applicant was adamant that Mr Skinner's involvement did not extend beyond dealings with the applicant's real estate. I will return to this aspect of the case later in these reasons.

45. Mr Perrotta gave evidence that on the morning of 14 January 1993, he attended at the Carpet Smart premises and gave to the applicant the two letters he had prepared and dated 12 January 1993. No matters of relevance were discussed. Mr Perrotta also gave evidence that he telephoned Mr Skinner from Mr Truscott's office and told him that he had prepared the letters and that Mr Skinner could expect to see them shortly. According to the applicant the letters were left for him at the Carpet Smart premises. It is not in dispute that the applicant received those letters from Mr Perrotta prior to 15 January 1993, nor is it controversial that Mr Skinner saw those letters prior to 15 January. Nothing turns on how the applicant obtained the letters.

46. On 14 January 1993 Mr Perrotta wrote to Mr Skinner as follows:-

"I refer to our telephone discussion 14th January, 1993 wherein

it was advised that Mr Kocsardi has approached the bank for

finance assistance to the extent of approximately $170,000.

Security offered to the bank is a First Bill of Mortgage over the

above property which we believe is currently under contract for

Sale to one Didar Mohammed.

We believe that Mr Mohammed is in breach of the Contract of Sale

and that his solicitors have requested an extension of the

settlement date until the end of January, 1993.

To enable the bank to assist Mr Kocsardi we will require:

1. Full particulars of title sufficient to complete fresh

mortgage documentation in favour of the National Australia Bank.

(Copy of any recently completed searches).

2. Full details of any encumbrances that may exist. We are

aware of two existing mortgages and a Variation of Mortgage on

the title and we have provided Mr Kocsardi with a Release Request

for Custom Credit Corporation Limited and directed him to seek

your assistance with release of the 2nd Bill of Mortgage in

favour of the Australia and New Zealand Banking Group.

3. We require an acknowledgement from the solicitor for the

purchaser stating that they are aware of further dealings with

the title subject to the existing Contract of Sale.

National Australia Bank will assist Mr Kocsardi with finance to

clear the existing borrowing with Custom Credit Corporation

Limited - said to be $13,318:86. We are advised that no debt

exists at the Australian and New Zealand Bank (sic) Group and

that the relative (sic) discharge of mortgage should be available

locally.

The writer shall assist with contracts for Custom Credit

Corporation, Melbourne - Re Execution of discharge of Mortgage

by its Attorneys.

Mr Kocsardi has been requested to confirm the above and seek your

47. The "proposal" referred to in the penultimate paragraph was that contained in a letter from Mr Truscott to the applicant dated 6 January 1992, but written 6 January 1993 (Exhibit 11), which related to the applicant taking a shareholding in Porsan, becoming a director of that company and purchasing a house property in which Mr Truscott and Ms Gibbons resided. This was the letter discussed by Mr Perrotta at the second meeting between himself and Messrs Mantle and Truscott. The proposal did not relate to the applicant providing money to Porsan to buy the tiles from Elegant nor did it involve the applicant obtaining a letter of credit, bank guarantee or other instrument from the Bank.

48. The applicant and Mr Perrotta again met at the Carpet Smart premises on 15 January 1993. The applicant's father, Messrs Truscott and Mantle and Ms Gibbons were also present. The applicant had shown Mr Skinner the two letters dated 12 January 1993. Mr Skinner had recommended some changes to the letter addressed to the Bank and had recommended that the applicant obtain from Mr Perrotta a letter detailing the terms and conditions of the Bank's approval of any loan arrangement. Ms Gibbons re-typed the letter to the Bank to incorporate the changes suggested by Mr Skinner. The applicant signed the letter addressed to Custom Credit, which was sent via facsimile on that day. The letter to the Bank which Ms Gibbons had re-typed was difficult to read and it was left for Mr Perrotta to re-type it again.

49. Mr Perrotta indicated that he had decided to approve the provision of the facilities to the applicant, subject to the Bank being satisfied as to the securities. Mr Perrotta also told the applicant that he required a formal application and wished to discuss other matters with him on a "banker to client" basis. On Mr Perrotta's suggestion, the applicant and his father accompanied Mr Perrotta to the Sumner Park office.

50. According to the applicant, he and his father were driven to the Sumner Park office in Mr Perrotta's car. The applicant gave the following account of a conversation which took place in Mr Perrotta's car on the journey to the Sumner Park office:-

"My father's - and our - our - the weak link in this whole thing

was the international nature of the business. When we were

driving with Mr - when Mr Perrotta drove us to his office on the

15th, we discussed also not just that - it was an opportunity for

us also to ask him questions. Now, what we asked was about his

experience. He told us he was a business manager. He was a bank

manager of some 20-odd years standing. He told us and my father

asked me - well, I asked him, then, what about the nature of his,

being international and so forth. Mr Perrotta said he was - he

was competent in these matters and also that National Bank being

a big bank had an international section where they had

specialists who deal with these things all the time, not a

problem. On that basis, yes, there was absolutely not even a

thought in my mind to take this to a lawyer."

51. Mr Perrotta's recollection was that he drove in his car and the applicant and his father followed in their car. However, he did not dispute that a conversation to the effect of that recounted by the applicant took place between them on 15 January 1993.

52. It is common ground that at the Sumner Park office, Mr Perrotta asked the applicant questions about his financial circumstances and filled in a Bank document entitled "Customer Particulars" from the information provided by the applicant. Mr Perrotta and the applicant discussed the payout of the applicant's then existing indebtedness to Custom Credit. The applicant requested that the overdraft facility to be provided be increased from $20,000 to $40,000. Mr Perrotta acceded to that request. Mr Perrotta asked the applicant whether he was happy with the transaction and whether he trusted Mr Truscott. The applicant answered affirmatively. According to Mr Perrotta, he told the applicant that it was not the practice of the Bank to give business advice but merely to provide finance against satisfactory security and capacity to pay. The applicant denied that Mr Perrotta made the above statement about the Bank's practice. I accept the applicant's evidence over that of Mr Perrotta on this issue. The inquiries by Mr Perrotta as to whether the applicant was happy with the transaction (whether it be the proposed transaction with the Bank or the proposal put by Mr Truscott) and as to whether the applicant trusted Mr Truscott were neither objectively nor logically an occasion to make the disclaimer which Mr Perrotta said that he made. Nor does the evidence disclose anything asked by the applicant which would generate such a response.

53. Mr Perrotta also gave evidence that the applicant said that everything Mr Perrotta prepared for his signature was to be placed before Mr Skinner. According to the applicant, he told Mr Perrotta that he wanted Mr Skinner "to look at any documents the Bank wanted me to sign which would affect my property." Whether or not the applicant's statement was qualified in the way that he claims, submission of documents to the solicitor was not a course which was unfailingly undertaken by the Bank in its dealings with the applicant. For example, the mortgage documents which the Bank required the applicant to sign were, on the evidence, never submitted to Mr Skinner as the applicant's solicitor for his consideration and advice.

54. At the end of the meeting Mr Perrotta told the applicant that "subject to the securities being executed and put in place the facility was approved."

55. Subsequent to the meeting on 15 January 1993 Mr Perrotta prepared a number of documents. He re-typed the letter which Ms Gibbons had prepared. The letter was dated 15 January 1993 and was addressed to the manager of the Bank's Mount Ommaney branch from the applicant. The letter was left at the Carpet Smart premises for the applicant's collection and was signed by him and forwarded to the Bank.

56. Mr Perrotta also prepared an "Application for Line of Credit" on the applicant's behalf. Under a heading "Purpose of Borrowing", Mr Perrotta inserted the following:-

"Provide Bank Guarantee for importing purposes of -

Ceramic Tiles/Spain $146.839

Payout existing mortgage to Custom Credit Corp.

Melbourne on security offered - $ 14.000

Margin for Legals/Stamp Duty/Bank, plus capt

until land is sold - $ 26.000

Continuation of existing NAB - Bankcard Limit $ 2.000

Total $188.839"

In the space reserved for general comments and observations Mr Perrotta wrote:-

"The security offered - (Lot 10 RP 95458 - Beudersert (sic) Rd

Acacia Ridge Qld) has been on the market for the past twelve

months - asking price $750.000. The property is zoned Res A and

considered to be good residential land.

The property is currently under Contract for Sale - $450,000 to

one Didar Mohammed - known developer of Brisbane, however whilst

the Contract is said to be Unconditional the settlement date has

expired - 29th December, 1993 and extensions are being sought by

Mr Mohammed due to a beakdown (sic) in his financial arrangements

with a partner. We are advised by the selling agents PRD/Toowong

that Mohammed is very keen to proceed with the purchase and they

believe that settlement is as close as 3/4 weeks. Mr Mohammed

has also contracted to purchase two other properties from the

Kocsardi family - 1 x $75.000 (Res A neighbouring the subject

security, and 1 x $900.000 (Res A Darcy Road, Norman Park).

Copies of the Unconditional Contracts for Sale are attached with

settlement due 31/3/93.

PURPOSE

Applicant has entered into business arrangements with Mr Steve

Truscott/New Coy - Porsan Australia Pty Ltd.

The Company will be importing ceramic tiles/bathroom/kitchen

ceramics from Spain via an Australian based Coy - Elegant Tiles

Pty Ltd - customers of our 167 Eagle St, Brisbane Branch

(Principals - Edward and Pedro Morales).

Mr Kocsardi has agreed to finance the first eight containers of

ceramics costing - $146.839 and is required to lodge a Bank

Guarantee with the Spanish connection for similar amount.

The Spanish care for all importing/exchange rate risk etc

and Kocsardi is billed in Australian dollars.

We are advised that the Spanish have four large factories in

57. Mr Perrotta's comments display a far greater knowledge of the nature of Porsan's business and its relationship with the applicant than he would concede in his evidence. Further, the use of the phrase "call date for the Bank guarantee in say six weeks" and the phrase "(t)he Spanish care for all importing/exchange rate risk" show that he knew the guarantee to be conditional upon delivery of the tiles by Elegant to Porsan in Australia.

58. On 20 January 1993, Mr Perrotta's assistant, Ian Donald Marshall, sent to Mr Skinner via facsimile a copy of the letter dated 14 January 1993 from Mr Perrotta to Mr Skinner, a copy of the letter dated 15 January 1993 from the applicant to the Bank and a copy of the letter from the applicant to Custom Credit dated 12 January 1993. The letters were sent under cover of a note which read:-

"For Ian Skinner

Re : Sale Kocsardi to Mohammed

Lot 10 on RP 95458."

Also on 20 January 1993 Mr Perrotta wrote to Mr Skinner via facsimile as follows:-

"Re: Karoly Kocsardi

Property Lot 10 RP 95458/Acacia Ridge

Approval in principal (sic) for the following facilities has been

given to Mr Kocsardi:

BANK GUARANTEE/ $146,839 in favour of Elegant Tiles Pty Ltd

OVERDRAFT FACILITY $40,000. A/c Karoly Kocsardi.

The above borrowing is subject to the bank obtaining clear title

on property described - Lot 10 RP 95458/Acacia Ridge and upon

confirmation that the Contract For Sale between Mr Kocsardi and

Mr Didar Mohammed over the subject property is proceeding with

all the necessary deposits lodged and funds clear.

Formal Letter of Approval will be given when the bank

requirements have been completed.

The bank will also require an Undertaking from Mr Kocsardi's

solicitors stating that any requisitions that may issue as result

of lodging discharged mortgages in favour of existing mortgagees

will be attended.

We shall leave it to you to lias (sic) with Mr Kocsardi."

Mr Skinner replied to Mr Perrotta's letter the same day:-

"We refer to your facsimile letter received by us today for which

we thank you and in response to the matters raised by you we

advise as follows:-

The purchaser Didar Mohammed is not legally represented in the

sale and purchase and thus far has attended his own conferences

and handled his own negotiations. The last promise from the

purchaser to the vendors was that the deposit would be paid on or

before 21 February 1993 and the vendors are awaiting this event.

We have been advised by Mr Mohammed personally that he wishes to

complete the sale and purchase and he may be willing to provide a

letter of commitment addressed to the National Australia Bank

Limited advising of his intention in that regard and

acknowledging that the subject transaction with the National

Australia Bank has been entered into.

We now enclose photocopy Certificate of Title Volume 5490 Folio

31 obtained by us on 19 January 1993 which identifies the

encumbrances on the subject land.

We also enclose photocopy facsimile received by us today from the

ANZ Bank Lending Centre relating to the missing Release Mortgage

to the ANZ Bank.

We do not envisage any difficulties in obtaining alternate

documentation to facilitate the release of the ANZ Mortgage and

the Caveat has lapsed and accordingly can be removed from the

title upon payment of a lapsing fee.

We note that the letter under reply is not a formal approval of

the facility and in view of the pressing time constraints in this

matter would you please advise whether you are able to release an

approval letter setting out the terms and conditions upon which

funding would be made available to our client so that we may

address those conditions and seek instructions."

59. By 20 January 1993 matters had become pressing. The contract for the sale of the applicant's real estate property had not settled and did not look like doing so. Those interested in Porsan were under pressure from Elegant and the Morales to provide evidence that they could pay for the first shipment of tiles which, it was claimed, had been ordered from Spain by Elegant. The applicant was contacted by Mr Truscott on or about 25 January 1993. Mr Truscott told the applicant that there was a "real risk of losing the stock purchase and the exclusivity arrangement if Porsan did not perform in relation to the first shipment from Elegant."

60. Mr Truscott and the applicant agreed that Mr Truscott would immediately pay out the applicant's indebtedness to Custom Credit in respect of the Acacia Ridge property to enable the applicant to offer the property unencumbered as security for the bank guarantee and overdraft. Mr Truscott was to be repaid out of the applicant's $40,000 overdraft.

61. On or about 26 January 1993 the applicant informed Mr Perrotta that the sale of his property at Acacia Ridge would not proceed due to default by the purchaser. The next day the following letter, signed by the applicant but prepared by Mr Truscott, was sent to Mr Skinner:-

"Re: 1344 Beaudesert Road

Acacia Ridge

Please be instructed as follows :

1. Kindly terminate my contract with Didar Mohammed forthwith

as relates to the above property.

2. I have arranged a bank guarantee and small overdraft to be

secured over the above property.

3. Stephen Truscott arranged for this discharge of the Custom

Credit mortgage on Monday. I will arrange for the releases and

certificates of title to be delivered this afternoon.

4. Kindly prepare to settle with National Australia Bank

tomorrow. The bank requires:

(A) Both certificates of title

(B) Custom Credit release

(C) ANZ release

(D) Withdrawal of caveat

(E) Letter of confirmation that contract has been

terminated.

(F) Letter of undertaking from you on our behalf to answer

requisitions as might issue in respect of the releases

I am attending at the bank to open the necessary accounts.

The guarantee will be issued in my name and is part of my

arrangements and investments with the Truscott family.

Would you fax me your letters to NAB mentioned in (E) and (F)

above as soon as possible so I may deliver copies to the bank

this afternoon."

62. The applicant attended at the Mount Ommaney branch of the Bank on 27 January 1993. Mr Perrotta was not there but the applicant collected from Mr Marshall (Mr Perrotta's assistant) letters of approval for the overdraft facility and the bank guarantee, a document entitled "Guarantee By Bank - Indemnity and Request" ("the request"), which on the reverse side contained a blank bank guarantee expressed to be a "specimen only", and a letter to the Bank in his name prepared by Mr Perrotta acknowledging that the facility to be provided was a bridging facility pending sale of the real estate property and undertaking to immediately place the properties back on the market with a view to an early cash settlement and to "meet market price on the land."

63. In the afternoon of 27 January 1993 Mr Marshall sent a facsimile to Mr Skinner. The facsimile consisted of a cover sheet, upon which Mr Marshall had written "Re Kocsardi: Approvals as follows", and four other pages. Of those four pages, it is not in dispute that three of them were the two page overdraft facility approval letter and the one page bank guarantee approval letter. Mr Marshall's evidence as to which other document he sent to Mr Skinner was controversial. The cover sheet indicates that the facsimile was sent from the Mount Ommaney branch of the Bank. The facsimile machine at the Bank has encoded the message as having been sent at 15:10 hours. The copy obtained on discovery from Mr Skinner's file has been encoded as received at 14:58 hours. That the clock on Mr Skinner's facsimile machine is running twelve minutes behind that of the Bank's machine is important when a facsimile sent on 27 January 1993 from Mr Skinner to Mr Marshall is considered. That facsimile is encoded by Mr Skinner's machine as having been dispatched at 15:05 hours. In fact, the letter was sent after receipt of the facsimile from Mr Marshall at 14:58 hours (as per Mr Skinner's machine).

64. The facsimile cover sheet from Mr Skinner to Mr Marshall said:-

"I refer to my telephone conversation with you and now

enclose copy of the original letter which will be delivered

to you with the documentation referred to therein.

Would you please confirm that it is acceptable to your bank."

65. The copy of the original letter referred to by Mr Skinner, which was also sent as part of the transmission, was addressed to the Manager, Mount Ommaney branch to the attention of Mr Perrotta. It said:-

"We refer to the above matter and to our last correspondence to

you on the 20th January 1993.

We also have received your conditional letter of approval

addressed to our client relating to the facility you are to

provide to him.

We have now received instructions to terminate the contracts over

the subject land with Mr Didar Mohammed and acting on those

instructions we have given notice by mail today to the purchaser.

In the event that the purchaser renews an offer on the subject

land this can be considered by our client on its merits.

We confirm that there are three encumbrances registered over the

subject lands namely a Bill of Mortgage to Custom Credit

Corporation Limited, a Bill of Mortgage to the ANZ Bank and a

caveat.

As instructed we now enclose the following documents:-

1. Copy letter of termination to the purchaser relating to the

land lot 9 Beaudesert Road, Acacia Ridge;

2. Copy letter of termination to the purchaser relating to the

land lot 10 Beaudesert Road, Acacia Ridge;

3. Original Certificate of Title volume 5640 folio 226 relating

to the land lot 9 Beaudesert Road, Acacia Ridge;

4. Original Certificate of Title volume 5490 folio 31 relating

to the land lot 10 Beaudesert Road, Acacia Ridge;

5. Duplicate Bill of Mortgage G813755 relating to both the

above lot 9 and lot 10;

6. Release form 7 signed CPR relating to lot 9;

7. Release form 7 signed CPR relating to lot 10;

8. Form G relating thereto;

9. Original letter ANZ bank to our client dated 19th January

1993 and original form G relating thereto executed 20th January,

1993;

Arrangements are being made with the caveator of caveat no

J176485B for a request to withdraw the caveat to be executed and

we anticipate that this will be done in the next two days. Upon

receipt of the request to withdraw the caveat properly executed

66. When counsel for the Bank showed Mr Marshall the two approval letters and the request, Mr Marshall agreed that the four substantive pages of the facsimile to Mr Skinner were made up of the approval letters and the front page of the request. However, under cross-examination, Mr Marshall acknowledged that he had no independent recollection as to what documents he sent to Mr Skinner and that, after being shown the two approval letters by the Bank's legal representatives, he had volunteered that the fourth page was the front page of the request. When confronted with a copy of the letter to the Bank from the applicant (prepared by the Bank) acknowledging that the facility was a bridging facility pending sale of the applicant's property and undertaking to immediately place the properties back on the market and to "meet market price" and asked whether a copy of that letter was the fourth page of the transmission, Mr Marshall said, "That could have been the case as well." As to which copy document had been sent, Mr Marshall's final position under cross-examination was that, "Either scenario could have occurred." In re-examination, Mr Marshall was shown Exhibit 29 which has the request on one side and the form of bank guarantee on the other side. When asked which of the two documents, Exhibit 29 or Exhibit 37 (the acknowledgement letter), he was more likely to have sent as the fourth substantive page of the facsimile, Mr Marshall replied, "In terms of what we were doing it would be more likely to have sent the guarantee."

67. I am satisfied that Mr Marshall had no recollection of what document constituted the fourth page of the facsimile transmission to Mr Skinner on 27 January and that he was attempting to reconstruct the events by reference to the context of the other approvals. The strongest circumstances in favour of the request being sent to Mr Skinner is that execution of it is referred to in the letter of approval of the guarantee facility as a condition of that facility. I am satisfied that Mr Marshall's response in re-examination was based on this fact if he meant "guarantee" to mean the request as opposed to the form of guarantee on the reverse side of Exhibit 29.

68. Counsel for the Bank submitted that the applicant's failure to call Mr Skinner as a witness entitled the Court to draw an inference adverse to the applicant, namely that the fourth page of the transmission was a copy of the request (Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298). Such a principle could operate against a solicitor for a party, it was submitted, if, as in this case, discovery and inspection of the solicitor's file had occurred which operated as a waiver of legal professional privilege. The submission was based upon the decision of the Full Court of the Supreme Court of South Australia in Grubic v Commonwealth Bank of Australia (1993) Aust Contract Reports 90-033.

69. The principle in Jones v Dunkel is not directed to overcoming any deficiency in the evidence tendered by a party (Jones v Dunkel at 305, 308, 312, 319). Its purpose is to allow the finder of fact more confidently to draw any inference from the facts proved by direct evidence when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness and the evidence provides no sufficient explanation of the absence (at 308). The absence of the person who may have proved the contrary had he or she chosen to give evidence is a circumstance to be taken into account in favour of drawing the adverse inference (at 312, 320 - 321). The principle is facilitative, not mandatory, in its operation to allow the inference to be drawn.

70. In the instant case, the only direct evidence is that four pages together with the cover sheet were transmitted by Mr Marshall to Mr Skinner and that three of those pages were the approvals. Mr Marshall's concession that the fourth page may equally have been the letter of acknowledgement or a copy of the request at best leaves his evidence on this point as no higher than a matter of equal probability that he transmitted either one or other document to Mr Skinner. The Bank submitted that Mr Skinner, as the recipient of the transmission, ought to have been in a position to give direct evidence as to the actual document received and, he having not given evidence and his absence not being explained, the Court ought to draw the inference that he received a copy of the request and not a copy of the letter of acknowledgement.

71. Even taking into account that Mr Skinner did not give evidence as to the document received when he could have done so, the weight of the evidence is against Mr Marshall having sent a copy of the request to Mr Skinner as part of the facsimile on 27 January 1993. That the facility to be provided to the applicant by the Bank was a bank guarantee and overdraft was settled as early as 12 January 1993. The only thing which had prevented an earlier issue of the bank guarantee was the difficulty encountered in relation to the title to the property offered by the applicant as security. The correspondence passing between the Bank and Mr Skinner and the applicant and Mr Skinner to this point was directed principally towards dealings in the real estate property which the applicant was offering as security and, in particular, to ensuring that the applicant's title to that property was unencumbered. There was no objective reason why, in the circumstances then obtaining, Mr Perrotta or Mr Marshall would have thought it necessary that Mr Skinner see the request. The sequence and context of the communications to Mr Skinner on 27 January 1993 suggest that the relevant documentation passed to Mr Skinner dealt with nothing more than the approval of the facilities and the conditions attaching to the approvals. The last communication in the sequence was the letter of Mr Skinner in draft form sent to Mr Marshall for approval as sufficient to satisfy the Bank's requirements. That letter acknowledged receipt of "your conditional letter of approval addressed to our client relating to the facility you are to provide to him." It was sent after receipt of the facsimile from Mr Marshall. The only sequence of documents which fully discloses all of the conditions attaching to the approval are the two page letter of approval of the overdraft facility, the one page letter of approval of the bank guarantee, which includes the terms and conditions of the request by reference, and the letter of acknowledgment and undertaking in relation to the "loan approval dated 27th January 1993." The undertaking to immediately re-list the properties for sale and to meet the market on price was an essential component in the conditions required by the Bank to approve the facilities and objectively, one which Mr Skinner ought to have been aware of as it affected the applicant's ability to deal with or to refuse to deal with his interest in the real property. Further, the written acknowledgement that the facility offered was a bridging facility pending sale of the real estate and the written undertaking to re-list the properties for sale and to meet the market on price operated as qualifications to the approval letters forwarded under cover of the fax. Each approval on its face related to the facility being available until 31 January 1994, not for some shorter period. Objectively and logically, communication of these qualifications to the approvals was necessary to disclose fully the Bank's conditions of approval. Without disclosure of the letter of acknowledgement and undertaking the two other approvals ex facie were misleading or likely to mislead as to the true terms upon which the Bank was willing to provide the facilities.

72. I am satisfied that it is more probable than not that the fourth substantive page of the facsimile sent to Mr Skinner was a copy of the letter from the applicant acknowledging that the facility to be provided was a bridging facility pending sale of the real estate property and containing the undertaking, and I so find.

73. On 28 January 1993 the applicant and Mr Truscott attended at the Bank's Mount Ommaney branch and met with Messrs Perrotta and Marshall. Mr Perrotta handed to the applicant mortgage documents in relation to the applicant's property at Acacia Ridge. The mortgages related to both parcels of land owned by the applicant at Acacia Ridge. Previously, discussions between Mr Perrotta and the applicant had concerned only one of the parcels and the applicant expressed his concern and surprise about the Bank's requirement for a mortgage over the second parcel. Mr Perrotta telephoned Mr Skinner and told him of the Bank's requirement. The applicant also spoke to Mr Skinner and subsequently agreed to the inclusion of the second parcel of land. There was no suggestion that the applicant and Mr Skinner discussed anything other than the Bank's requirement that a mortgage be granted over the second parcel of land. The mortgage documents as presented and without further reference to Mr Skinner were signed by the applicant and witnessed by Mr Perrotta at the Mount Ommaney branch.

74. The applicant gave Mr Perrotta the request, which had apparently been signed by the applicant the day before (27 January). In the "Purpose of Guarantee" block "supply of ceramic tiles" had been typed by Mr Perrotta or at his direction. The request was, and is, incomplete, in that there is no indication as to whether the bank guarantee to which the request refers is "endorsed hereon" or "attached hereto".

75. According to Mr Perrotta, after the applicant handed him the request, he (Mr Perrotta) said words to the effect of:-

"This is a bank guarantee. It can be called upon at any time

by Elegant Tiles and can even be called upon without notice

to you. Do you understand that?"

Mr Perrotta's evidence was that the applicant said "Yes" and told him that Mr Skinner had looked at the documents obtained from the Bank on 27 January 1993.

76. The applicant denied that Mr Perrotta had said the words quoted above and denied that he had told Mr Perrotta that Mr Skinner had looked at the documents. Mr Truscott was also present with the applicant at the Mount Ommaney branch on 28 January 1993. He was emphatic that the conversation recounted by Mr Perrotta did not take place.

77. I do not accept Mr Perrotta's evidence. Having regard to the importance of the payment conditions in clause 6 of the distribution agreement as providing some security for the applicant's investment, it is inconceivable that a comment by Mr Perrotta to the effect that the bank guarantee could be called upon by Elegant at any time and without reference to the applicant would have passed without comment from the applicant. The applicant had requested from Mr Perrotta a document which would perform the function required by the terms of clause 6 of the distribution agreement. Mr Perrotta told him that the document he required was a bank guarantee. The fact that the tiles had to be delivered before any obligation to pay for them arose was a matter of critical importance to the applicant. Any suggestion by Mr Perrotta that the document presented to the applicant could be called upon at any time by Elegant would have caused the applicant considerable concern. When Mr Perrotta's evidence was put to him in cross-examination, the applicant said:-

"... ---I'm sure it wasn't said. I would have - if - if I had

heard that, boy - and Mr Truscott too, I mean there's no way in

the world that we would have - I would have signed it.

But you had already signed it, Mr Kochardy?---No.

Had already signed the letter of - the - the request of - - -?---

I did not - I did not sign something to - to an unconditional

situation.

What, you say you did not appreciate at the time that it was

unconditional.?---No, of course not. The - as far as I was

concerned - - -Is it - sorry?---Yes, Yes. Well, the bank - the

bank had prepared the documents that - that were to reflect our

arrangements under the terms of distribution agreement. That was

the only thing that I - I was prepared to sign."

78. Further, a note prepared by Mr Perrotta on 12 March 1993 shows that as at that date he was of the view that the guarantee could only be called upon after the tiles had been delivered to the satisfaction of Porsan. The note accords with Mr Perrotta's oral evidence to the effect that he always understood that the bank guarantee would be called upon by Elegant when the tiles were delivered and with the other documentation brought into existence by Mr Perrotta (eg, the comments written by Mr Perrotta in the "Application for Line of Credit" following the meeting on 15 January 1993).

79. As I have said earlier in these reasons, on 11 February 1993, the Morales applied to the Eagle Street branch of the Bank for a line of credit. In the event, the application prepared by Mr Wasmund was declined by his superior, Rex Wulff, on 16 February 1993.

80. Shortly after the fate of the application was communicated to the Morales, Ronald Angelo Favaloro, who was employed by Elegant and its associated companies, offered an unregistered first mortgage over an investment property owned by him and a personal guarantee as additional security for the overdraft facility. On this basis, Mr Wasmund re-submitted his earlier application, amended to include the additional security. The re-submitted application was approved on 25 February 1993.

81. On 10 March 1993 Mr Wulff wrote to the Bank's Securities and Legal Services Department asking if the Bank could "safely lend" against the bank guarantee and if not, seeking advice as to "what action Mount Ommaney should take when the guarantee is presented." Mr Wulff's memorandum contained the following:-

"Customer wants the Bank to advance monies against the

security of the Bank Guarantee.

My view is that if the tiles are not delivered then we can

not call up the guarantee. The risk is therefore that if the

tiles aren't delivered we are left with the debt and no security.

The customer and his solicitor are of the view that the

guarantee can be called up at any time and if we don't oblige

with O/D then they propose to call up the guarantee and use

the funds received to fund their business."

82. The Bank, in an answer to an interrogatory tendered into evidence by the applicant, stated that the addressee did not receive the memorandum and that therefore it was not responded to.

83. Subsequent to the issue of the bank guarantee on 28 January 1993, the applicant's relationship with Porsan and Mr Truscott deteriorated over the issue of ownership of the tiles to be imported. The applicant also had difficulties with the Bank in relation to the mortgages offered by him as security for the facility provided by the Bank.

84. On 10 February 1993, Mr Marshall wrote to Mr Skinner requesting that an executed release of the mortgages held by the ANZ Bank over the properties at Acacia Ridge be procured urgently and forwarded to the Bank. Mr Skinner replied by letter dated 18 February 1993:-

"We refer to the above customer and to your letter dated the 10th

February 1993 which was received by us on the 12th February,

We confirm that we act on behalf of Mr Kocsardi and we will take

instructions from him in relation to the matter raised in your

letter.

We place on record that the terms and conditions recorded in our

letter to you of the 27th January 1993, upon which the

documentation was delivered to you, were rejected by your Mr

Perrotta on the 28th January 1993, notwithstanding that they were

sanctioned by you in a telephone conversation on the 27th January

1993 and our counter-part letter was signed by you on the 28th

January 1993.

As you are aware our client has taken the facility from your bank

on the specific basis that title to the goods, the subject of the

covenants contained in the Bank Guarantee, vest in him and we are

instructed that you hold the documentation evidencing this

ownership.

So that our client may consider his position further would you

forward to us as a matter of urgency the documentation you are

holding (including shipping documentation, invoices,

declarations, etc) evidencing ownership of the subject shipment."

85. The reference to Mr Perrotta in the second paragraph of the letter is a reference to the additional mortgage required by Mr Perrotta on 28 January 1993 when the applicant attended the Mount Ommaney branch as set out above. The signed indorsement of Mr Marshall referred to appears on Exhibit 22 and it states:-

"We hereby acknowledge receipt of the abovementioned terms

and documents this 28th day of January 1993."

86. The following day (19 February), Mr Skinner wrote to Mr Truscott in Mr Truscott's capacity as "The Manager, Porsan Australia Pty Ltd":-

"As you are aware we act on behalf of Mr Karoly Kocsardi of 10

Lawrence Street, North Ipswich who over recent weeks on our

instructions has been negotiating with you for the establishment

of a joint venture company which was to be capitalised with

financial assistance from our client.

We confirm our client's oral advices to you that he now wishes to

withdraw from these discussions and that he does not propose to

take the negotiations with you any further.

As an interim measure our client made available to the National

Australia Bank certain land owned by him as security for the

provision by the National Australia Bank of a Bank guarantee in

favour of Elegant Tiles Pty Ltd. Our client executed a first

Bill of Mortgage over the properties on the basis that all the

right title and interest in and to the tiles which were the

subject of the Bank Guarantee vested in him.

We are advised by the solicitors for Elegant Tiles Pty Ltd that

because the tiles have been supplied pursuant to a supply

contract with your company and that the invoices for the shipment

have already been delivered your written consent will be required

for the purpose of re-invoicing the shipment to ensure that title

to the goods passes to our client.

Accordingly would you please make immediate arrangements for your

written consent to be supplied to Elegant Tiles Pty Ltd which

will enable new invoices to be raised for the shipment.

In view of the urgency of the matter we are instructed to request

your immediate response."

87. By letter dated 23 February 1993 Mr Perrotta replied to Mr Skinner's letter of 18 February 1993:-

"Re: Karoly KOCSARDI your letter 18/2 ref IRS:JC:N88L

We refer to your letter of 27/1/1993 and the undertakings by Mr

Ian Skinner acting on behalf of Mr Kocsardi.

We also refer to our letter of 14th January 1993 wherein we

enclosed copies of letters from Mr Karoly Kocsardi addressed to

Custom Credit Corporation Limited (requesting release of

Mortgages), and letter to National Australia Bank seeking

assistance to the extent of:

1 x Performance Bond/Bank Guarantee in favour of Elegant Tiles

$146,839.00

Overdraft Facility $40,000.00

Bank Securities:

1st Registered Bill of Mortgage over Properties at Acacia Ridge

Please note that the Bank was not involved in placement of orders

with the overseas supplier, but rather this was a matter between

Mr Kocsardi and Mr Steve Truscott of Porsan Australia Pty Ltd.

Hence, the Bank holds no documentation for invoicing or shipping

arrangements.

To enable the Bank to proceed with registration of its Mortgage

documents, please attend to the release form 7 from the ANZ Bank

and forward it to this office in terms of your undertaking."

88. On 1 March 1993 Mr Skinner sent the following letter to George Mylonas of Mylonas and Associates, the solicitors for Elegant and the Morales, by facsimile transmission:-

"We confirm that we act on behalf of the abovenmaned (sic) Karoly

Kocsardi who recently provided first mortgage security to the

National Australia Bank which in turn provided a Bank Guarantee

to Elegant Tiles Pty Ltd for whom we are instructed you act. The

provision of security to the National Australia Bank by our

client, was undertaken by him on the specific basis that all

right title and interest in and to the titles which are the

subject of your client's invoice 001 dated the 28th January 1993

to Porsan Australia Pty Ltd vested in our client.

We note your oral advices to our Mr Skinner stating that because

your client's invoice has already been delivered in respect of

the shipment of tiles, you will require the written consent of

Porsan Australia Pty Ltd to re-invoice the shipment.

Would you please advise us as a matter of urgency:-

1. The current situation with respect to the shipment in so far

as its whereabouts are concerned.

2. Whether the principal agreement between Elegant Tiles Pty

Ltd and Porsan Australia Pty Ltd has been terminated and if not

whether your client proposes to do so.

3. What documentation your client requires to enable the

shipment to be re-invoiced to our client.

We are instructed that your client is aware of the gravity of the

situation and our client has now discontinued his negotiations

with the principals of Porsan Australia Pty Ltd for the

establishment of a long term business relationship.

Would you kindly let us have your urgent response."

(Original emphasis)

"We refer to your correspondence of the 1st instant.

Our clients distribution Agreement with Porsan Australia Pty Ltd

provided for a minimum quantity of 100000 square metres of tiles

to be purchased by 3rd March 1993. Steps were (sic) yesterday to

terminate the Agreement by giving the relevant default notice.

We anticipate that the Agreement will be terminated on the 6th

April 1993.

We are unaware of the basis on which security to the National

Australia Bank was undertaken by your client. However your

client was aware that the bank guarantee was given as security

for tiles purchased by Porsan Australia Pty Ltd.

Our client is aware of your clients predicament and will assist

if possible.

A written direction from Porsan Australia Pty Ltd to deliver the

goods to your client would be sufficient to complete our clients

contractual obligation to Porsan Australia Pty Ltd. Our client

would then draw on the guarantee as to 75% on delivery and the

balance 21 days later.

The shipment is presently en route with arrival in Australia

anticipated during the week commencing the 22nd instant. The

containers would be expected to be available for delivery in

Brisbane within 3 to 4 days of arrival."

89. Mr Skinner again wrote to the Bank on 10 March 1993. The letter, so far as is relevant, stated:-

"We place on record that our client has consistently over the

last several weeks sought from you assistance in ensuring that

title to the subject shipment of tiles vested in him and he has

been declined that assistance on the basis that the commercial

transaction between Porsan and our client was none of the bank's

business. Our client hereby confirms that the very basis upon

which he proceeded with the transaction was in the expectation

that he would obtain ownership of the tiles and this was a fact

which was well known to your bank. Evidence from independent

witnesses seems to verify this.

Our client is not prepared to accept that your bank has no

responsibility in the matter to ensure he gets title to the

tiles. Our client's instructions are clearly that it is and

always was a condition of providing the security to your bank

that he obtained title to the tiles.

In view of the close relationship between your Mr Perrotta and Mr

Truscott of Porsan and the very basis upon which our client came

to be introduced to your bank and signed all the relevant

documentation our client contends that you have an obligation to

ensure that he obtains title to the tiles in consideration for

your entitlement to security over his land."

90. In evidence Mr Perrotta stated that he believed that, as between the applicant and Porsan, the applicant was "the rightful owner" of the tiles. However, he maintained that, as between those two entities, the question of title to the tiles played no part in the Bank's dealings with the applicant.

91. On 12 March 1993 Mr Perrotta prepared a handwritten note purporting to recount some of the difficulties encountered by the Bank in its dealings with the applicant after the issue of the bank guarantee on 28 January. Mr Perrotta wrote:-

"Bank requires: Original Equitable Mortgage dated 30/6/87

between Kocsardi and Lazar together with Form 6.

Reason: The original Withdrawal of Caveat not stamped and

nothing can register until the document is registered.

George Mylonas contacted. He has also been lead (sic) astray by

Ian Skinner/Sol for Kocsardi. Mr Mark McClusky (sic) Sol for

Truscott also aware of all proceedings and will work with the

Bank to see this matter corrected.

Bank Solicitor - Chris Wilson will lodge a Caveat on behalf of

the Bank today to halt all further transactions on our security

pending the matter going to Court.

The writer will prepare B and D D and request that demand be

served on K Koscari (sic) for full recovery of all debt.

Limit at Mt Ommaney to be cancelled and A/c stopped to all debit

and credit operations.

Bank will probably be called upon to meet the G'tee

$146.000, however this will only occur when Porsan Aust

P/L receive the goods, in good order.

We understand that Koscardi (sic) still has no shares in Porsan

Aust P/L and the fact that he ordered the tiles in that name

places him at risk. The Bank was told on a number of occassions

(sic) that matters between Porsan Aust P/L and Karoly Koscardi

(sic) where (sic) between the two parties and that the Bank were

not required to know the full particulars. Mr Koscardi (sic)

stated this on more than one occassion (sic).

With no knowledge of law Koscardi (sic) used the Bank G'tee with

Elegant Tiles P/L. The Bank should not be involved in litigation

between the two parties - Koscardi (sic) - Porsan Aust P/L.

Our dealings are straight forward, and we hold solicitors

undertaking to correct any problems with title."

(Emphasis added)

92. On 19 March 1993, the Morales, in company with Mr Favaloro and another person, attended at the Bank's Mount Ommaney branch for the purpose of calling upon the bank guarantee. At this time, the tiles had not arrived in Australia and indeed the tiles never arrived in Australia.

93. The Morales presented a rough document, which purported to be a written demand for payment under the bank guarantee, to the relieving manager, Geoff Bush. The document was treated by Mr Bush as insufficient to operate as a demand for payment under the bank guarantee. The Morales were taken into the manager's office by Mr Bush who handwrote an appropriate notice of demand for execution by them.

94. Mr Perrotta was present at the Mount Ommaney branch on this day. He was concerned "because the way these characters were carrying on, they were a little bit strange." Mr Perrotta telephoned the Bank's District Office and was referred to Chris Wilson, the Bank's attorney. Mr Wilson told Mr Perrotta that the Bank was not obliged to pay on the spot and that he should speak to the Bank's solicitor before paying out on the bank guarantee. Later that day Mr Perrotta spoke to the Bank's solicitor who told him that the Bank was obliged to pay out the sum demanded by the Morales pursuant to the bank guarantee. Consequently, on 19 March 1993, $146,839 was credited to the sixth respondent's account at the Eagle Street branch of the Bank and the same amount was debited to the applicant's account at the Bank's Mount Ommaney branch.

95. The Morales were not asked whether the tiles had been delivered, notwithstanding that Mr Perrotta, having spoken to Mr Truscott the week before the demand was made, knew at the time of his conversation with Mr Truscott that the tiles had not arrived. Mr Perrotta's evidence was that, at the time the Morales made the demand, he believed that the tiles had in fact been delivered. On 19 March 1993 the Bank's solicitors wrote to Mr Skinner. The letter in part stated:-

"We refer to your letter of 8 March 1993.

The guarantee issued by our client to Elegant Tiles Pty Ltd is an

unconditional guarantee.

We understand that demand under the guarantee was made on our

client today and that in accordance with the terms of the

guarantee payment has been made to Elegant Tiles Pty Ltd without

reference to your client.

The guarantee was not expressed to be conditional upon your

client obtaining title to the tiles, nor was our client involved

in the placement of the order for the tiles.

Our client denies that it was a condition of your client's

banking arrangements that your client would have title in the

subject tiles vested in him. To the contrary, the guarantee was

handed to your client who then provided it to Elegant Tiles Pty

Ltd on his own initiative. ..."

96. The applicant sold the property over which the Bank had been granted mortgage security on 26 March 1993 and from the proceeds of sale paid the Bank $190,762.39.

97. The applicant alleged that, in the circumstances of the case, the Bank breached a duty of care owed to him by:-

(i) Issuing an unconditional guarantee in circumstances where a conditional letter of credit was necessary to protect the interest of the applicant;

(ii) Advising the applicant that the bank guarantee would suffice for the purposes of clause 6 of the distribution agreement;

(iii) Failing to inquire of the applicant or the second respondent (Porsan) as to whether the tiles had been delivered to either one or other of them; and

(iv) Paying on the bank guarantee notwithstanding that the Bank had no confirmation from the applicant or the second respondent of delivery of the tiles.

98. Counsel for the Bank submitted that, in the circumstances of the instant case, the Bank owed no relevant duty of care in relation to the provision of the bank guarantee. Counsel submitted that the evidence went no higher than to establish that Mr Perrotta volunteered the bank guarantee as the commercial instrument which the Bank was prepared to offer in the circumstances. That, without more, it was submitted, did not give rise to a duty of care on the part of the Bank.

99. Counsel's characterisation of Mr Perrotta's role in the transaction in question does not accord with the evidence nor with the factual findings I have made. The evidence shows that the applicant's requirements for financial assistance were explained to Mr Perrotta by reference to clause 6 of the distribution agreement which provided for payment of seventy-five percent of the purchase price upon delivery of the tiles and the balance twenty-one days later. Mr Perrotta knew that the applicant was "naive in the terms that bankers use" and did not understand the term "bank guarantee". In those circumstances, Mr Perrotta told the applicant that "what you are talking about here is a bank guarantee" or "what you need is a bank guarantee". Mr Perrotta interpreted the applicant's requirements and advised that a bank guarantee was an appropriate document to satisfy those requirements. I find that Mr Perrotta knew that the applicant was relying upon him in his capacity as an experienced banker to advise him as to what banking instrument was required to satisfy the terms of clause 6 of the distribution agreement and that it was objectively apparent that the applicant would rely on the advice and act in accordance with it. In those circumstances the relationship went beyond the normal banker/customer relationship. It was a special relationship which constituted a sufficient relationship of proximity to give rise to a duty of care (San Sebastian Pty Ltd v The Minister [1986] HCA 68; (1986) 162 CLR 340 at 355; Hawkins v Clayton (1988) 164 CLR 539 at 576, 592 - 593).

100. In advising the applicant that a bank guarantee was an appropriate document to secure payment for the tiles in accordance with clause 6 of the distribution agreement, the Bank, through Mr Perrotta, owed a duty to the applicant to take reasonable care in providing such advice. The courts have consistently held that if a bank undertakes to advise it must exercise reasonable care and skill in giving the advice (see Banbury v Bank of Montreal (1918) AC 626 at 654; Potts v Westpac Banking Corporation (1993) 1 Qd R 135 at 138, (FC), 145; Commonwealth Bank of Australia v Smith [1991] FCA 375; (1991) 102 ALR 453 at 475 - 476 (FC); Cornish v Midland Bank (1985) 3 All ER 513 (CA)).

101. The duty owed by the Bank, through Mr Perrotta, to the applicant was twofold. Firstly:-

"... to carry out its customer's instructions and to act in

banking transactions with reasonable care and skill so as to

protect the interest of the customers. The level of care and

skill which must be exhibited is that of the reasonably competent

banker acting in accordance with accepted current practice: see

Selangor United Rubber Estates v Craddock (No 3) (1968) 1

WLR 1555; (1968) 2 All ER 1073; Karak Rubber Co Ltd v

Burden (No 2) (1972) 1 WLR 602; (1972) 1 All ER 1210 and W S

Weerasooria, Banking Law and the Financial System inAustralia

(2nd ed, 1988), ch 17."

(Foti v Banque Nationale de Paris (1989) 54 SASR 354 at 427). Secondly, having chosen to give advice as to the nature of the documentation required by clause 6 of the distribution agreement, not to negligently misstate the position or fail to communicate information where such failure leads to the explanation being inadequate in all the circumstances (Cornish v Midland Bank at 517, 520, 521).

102. In issuing the unconditional bank guarantee to the applicant, Mr Perrotta did not consult the Bank's policy manual in relation to bank guarantees. The policy manual, which was tendered into evidence, relevantly provided:-

"100 INTRODUCTION

A guarantee is an undertaking or promise whereby one party agrees

to be answerable for the payment of a debt or the performance of

some act by another party, who must be legally bound to pay

the debt or perform the act.

(Original emphasis)

...

102 POLICY

To be acceptable to the bank the proposed guarantee should

provide:

. No obligation on the bank for other than payment of money.

. A specific limitation on the amount of the bank's liability.

. A clear statement of the circumstances under which

payment by the bank will be required.

. For termination by the bank, if necessary by payment of

money."

(Emphasis added)

103. The policy manual provides some evidence of what was required of a reasonably competent banker acting in accordance with accepted current practice in the circumstances in which Mr Perrotta was placed.

104. The duty of care imposed upon Mr Perrotta (for the Bank) in the circumstances required that he either issue a financial instrument reflecting the terms of clause 6, such as a letter of credit or a bank guarantee which provided "a clear statement of the circumstances under which payment by the bank will be required" (ie a conditional bank guarantee conditioned in accordance with the terms of payment contained in clause 6 of the distribution agreement), or that he explain to the applicant that the bank guarantee proposed to be issued was unconditional and could be called upon by the favouree (Elegant) at any time without notice to the applicant and without the need to establish delivery of the tiles.

105. Mr Perrotta failed to discharge that duty. His evidence that he had provided such a warning to the applicant, which evidence I rejected, suggested to me that by the time of the hearing Mr Perrotta was aware that an explanation in those terms should have been given. The Bank, through Mr Perrotta, was negligent in the circumstances set out in (i) and (ii) above (particulars (iii) and (iv) to paragraph 25 of the amended statement of claim).

106. The content of the duty of care owed by the Bank in paying out on the guarantee is to be determined by its obligations under the guarantee. That is, the Bank was under a duty of care to take all reasonable steps to ensure that it did not pay out otherwise than in accordance with its mandate to pay. The applicant and the Bank have both conducted this case on the basis that the Bank was legally obliged to pay out the sum of $146,839 on demand without notice to the applicant and irrespective of whether or not the tiles were delivered to Porsan or the applicant. Having taken advice from its solicitors that it was obliged to pay in the circumstances which confronted it, the Bank was under no duty to make inquiry as to the delivery of the tiles and/or to refuse to pay out other than upon confirmation of delivery. If the Bank had made the inquiry and discovered that the tiles had not been delivered it would not have been entitled, on the basis upon which the case was conducted before me, to refuse to pay out having regard to its obligations under the guarantee. The Bank was not negligent as alleged in terms of (iii) and (iv) above (particulars (i) and (ii) to paragraph 25 of the amended statement of claim).

107. On the third day of the trial counsel for the Bank sought and was granted leave to further amend the Bank's defence to add paragraph 20A. The amendment pleads that any loss suffered by the applicant was caused or contributed to by negligence on the part of the applicant in:-

(a) Failing to seek or obtain the advice of a competent legal practitioner or other person experienced in the financing of contracts for the international sale of goods in relation to his dealings with the Bank, in circumstances in which he had no previous experience in transactions of that kind, in particular:-

(i) refraining from seeking such advice prior to executing the two approval letters and the request;

(ii) failing to comply with Mr Perrotta's request that facilities and supporting securities should first be approved by Mr Skinner.

(b) Failing, prior to obtaining a bank guarantee guaranteeing the obligations of Porsan to Elegant, to enter into an enforceable agreement with Porsan, secured by the personal guarantees of the directors of Porsan, whereby, in consideration of the applicant obtaining a bank guarantee to secure payment for the first shipment of tiles, Porsan:-

(i) agreed that ownership of the shipment of tiles would vest in the applicant;

(ii) assigned to the applicant all of its rights under the distribution agreement in respect of the first shipment of tiles; and

(iii) indemnified the applicant in the event that the Bank was called upon by Elegant to pay upon the bank guarantee.

108. Counsel for the Bank submitted that any causal connection which might otherwise have existed between the negligence of the Bank and any loss suffered by the applicant was broken by the availability to the applicant of independent legal advice and the applicant's deliberate course not to seek such advice in relation to the bank guarantee.

109. In March v E and M H Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506, Deane J said ( at 522):-

" ... Causation in the context of the elements of the tort of

negligence is not the same thing as the 'scientific term

descriptive of sequence in physical phenomena' (Clerk and

Lindsell on Torts, 16th ed (1989), par 1-103; and see,

generally, the various papers in 'Symposium on Causation in the

Law of Torts', Chicago-Kent Law Review, vol 63 (1987) esp

Professor Wright, 'The Efficiency Theory of Causation and

Responsibility: Unscientific Formalism and False Semantics', pp

553ff). For the purposes of the law of negligence, the question

of causation arises in the context of the attribution of fault or

responsibility whether an identified negligent act or omission of

the defendant was so connected with the plaintiff's loss or

injury that, as a matter of ordinary common sense and experience,

it should be regarded as a cause of it (cf Barnes v Hay (1988)

12 NSWLR 337, at p 339)."

110. As a matter of ordinary common sense and experience, the loss suffered by the applicant in the instant case was caused by the negligent omission of the Bank to provide the financial instrument requested of it or to adequately explain the unconditional nature of the instrument issued. The applicant relied on Mr Perrotta to provide him with the appropriate instrument. Mr Perrotta failed to do so, causing the applicant's loss.

111. Similarly in relation to the plea that the applicant was negligent in failing to protect his own interest by seeking the legal advice available to him. It was Mr Perrotta's negligence which exposed the applicant to the risk of the loss ultimately suffered by him. As a matter of logic and common sense, it cannot be said that any negligence of the applicant in falling to seek legal advice was the cause of the loss suffered by him where the Bank's negligence generated the very risk which it is said the applicant was negligent in failing to take account of (see March v Stramare at 518 - 519 per Mason CJ). If Mr Perrotta had discharged the duty of care owed through him by the Bank no question would have arisen as to the necessity of the applicant obtaining legal advice. Had the appropriate document been issued, there would have been no need to obtain legal advice and no loss would have been suffered. Had an appropriate explanation of the bank guarantee been given by Mr Perrotta, the applicant would not have proceeded with the transaction.

112. The plea that the applicant was contributorily negligent or caused the loss suffered by him by failing to enter into an enforceable agreement with Porsan also fails. The agreement as pleaded and set out above would not have protected the applicant from the loss which he suffered. Personal guarantees of the directors of Porsan or any indemnity from Porsan against non-delivery of the tiles would have been of little or no real value for they were not persons of substance or worth. Any agreement vesting ownership of the tiles in the applicant would not have protected the applicant against non-delivery of the tiles, which is what in fact occurred. If the applicant had taken an assignment of Porsan's rights under the distribution agreement in respect of the first shipment of tiles and Elegant had called upon the guarantee without delivering the tiles, the applicant would have been left in the same position as he is in now. His remedy would have been a cause or causes of action against Elegant, which in the events which have in fact occurred, is worthless.

113. At times it appeared that the Bank sought to make out a case that Mr Skinner advised the applicant as to the approval letters from the Bank and the terms of the request and advised him generally in relation to the banking transactions, or, that I should infer that he did because of Mr Skinner's failure to give evidence that he did not give such advice. Although it was not expressly put, there was a suggestion in the submissions of the Bank that such advice was given and relied upon and that the causative chain was thereby broken.

114. During the cross-examination of the applicant the following exchange occurred in relation to the approval letter for an overdraft facility from the Bank to the applicant dated 27 January 1993 (Exhibit "U" to Mr Perrotta's affidavit), the approval of bank guarantee letter dated 27 January 1993 (Exhibit "V"), the specimen form bank guarantee (Exhibit "W") and the request (Exhibit "X"):-

"HIS HONOUR: Is it suggested the relevant documentation was ever

sent to Mr Skinner?

MR BRANDIS: Oh, yes.

HIS HONOUR: Where does that appear in the affidavit? The

relevant documents seem to be U - - -

MR BRANDIS: I am not sure that it does, your Honour, but - - -

HIS HONOUR: - - - U, V, W, and X; they seem to be the relevant

banking documents.

MR BRANDIS: Yes, that is here. It is in paragraph 42, your

Honour. I might say, as well, that the discovery of Mr Skinner's

file on Friday reveals a fax from Perrotta to Skinner on 27

January, or a fax cover sheet which seems to marry up with the

documents prepared by Perrotta for Kochardy's signature on 28

January.

HIS HONOUR: Well, that paragraph does not say that the bank sent

them. The import of that is that Mr Kochardy may himself have

taken the documents to Mr Skinner.

MR BRANDIS: Yes. Or that he had the documents from Mr Skinner.

HIS HONOUR: Well, I am really asking you what your case is; are

you saying that the bank conformably with apparently this

instruction, sent the documents U to - U, V, W, and X to Mr

Skinner?

MR BRANDIS: Your Honour, all I can say is that it appears from -

our difficulty is that Mr Perrotta was not there on the 27th, but

it appears from a fax which has now been discovered by - from Mr

Skinner's file that, in fact, the documents were received.

MR LITSTER: If my friend is going to give evidence from the bar

table, perhaps he should hand the document up.

HIS HONOUR: No, it is all right. Well - - -

MR BRANDIS: Well, I am responding to a question I have been

asked.

HIS HONOUR: Yes, responding to a question. Presumably he will

prove it up in due course.

MR BRANDIS: I might say that it is not our case that Mr

Skinner read the documents. We do not know that and he has

115. In his final submissions, counsel for the Bank returned to the subject. He said:-

"... Finally, your Honour, in part 7 of our outline we comment on

the significance of the failure to call Mr Skinner, who was in

court through every minute of the trial.

The case is, with respect, on all fours, and factually very

similar, to Grubick (sic), a copy of which has been included in

the bundle of authorities. Privilege as to the solicitor's file

was in this case waived, as your Honour will recall, when it was

produced on the Friday before the commencement of the trial. In

those circumstances we are entitled to have regard, or to rely

upon the inferences your Honour should draw, in accordance with

the rules in Jones v Dunkell (sic), Mr Skinner obviously could

have illuminated the question, he need then have been called, and

need only have been asked one question, did you review the

documents issued by the bank or give Mr Kochardy any advice in

relation to them.

And, if his answer had been, no, then subject only to the issues

of credit, that would have been the end of the matter. But he

was not, and the failure to call him, in those circumstances, as

in Grubick's (sic) case the failure to call the solicitor there,

plainly invites an adverse inference ...

...

MR LITSTER: Could I ask my friend to identify the inference that

he asks to be drawn about the failure to call Mr Skinner.

HIS HONOUR: Well, as he put it, and I have put down here, I

ought to draw an adverse inference, namely, that he did review it

and that he gave advice.

MR LITSTER: If that is the extent of the inference that is not

the bank's case. The bank has never alleged Mr Skinner read the

documents, and it is not being conducted on that basis. And I

refer your Honour to my submissions on that point, where Mr

Brandis, at page 166 of the transcript, and submissions appear at

section 7 of the reply, Mr Brandis quite plainly put it on the

116. There is no issue raised upon the pleadings that Mr Skinner gave to the applicant any relevant independent legal advice. That is, there is no issue that Mr Skinner gave advice as to what banking facility was required by the terms of clause 6 of the distribution agreement, as to the terms or effect of the request which the applicant (apparently) signed on 27 January 1993, as to whether the bank guarantee which was issued satisfied that requirement of clause 6, as to the operation or effect of that bank guarantee or as to any other matter touching on the provision by the Bank of the guarantee. The issue pleaded on causation and contributory negligence was to the contrary; that the applicant failed to seek advice from a competent legal practitioner and in particular failed to obtain Mr Skinner's approval to the facilities and securities offered and required by the Bank (para 20A(a) of the further amended defence).

117. The submission that the decision in Grubic v Commonwealth Bank of Australia bears such similarities with the instant case that the failure to call Mr Skinner requires that an adverse inference be drawn against the applicant on the issue of causation and contributory negligence requires that two questions be addressed. Firstly, what was the finding sought to be challenged by the appellant in Grubic, and secondly, what inference is sought to be drawn in the instant case.

118. In Grubic, the appellant, at trial and on appeal, disputed that Ms Biggs of Cleland and Co Solicitors was at any time relevant to the matters in issue acting as other than a "transactional conveyancing solicitor." As such, it was disputed that Ms Biggs was giving independent legal advice as to the terms of a guarantee which the Commonwealth Bank required to support an advance to be made to a purchaser from the appellants. The submission was that Ms Biggs acted for both vendor and purchaser and was thereby, to the knowledge of the Bank, in a position of conflict of interest. Thus, it was submitted, she was not an independent legal adviser to the appellants.

119. The file of Ms Biggs was discovered and privilege was waived. From the material discovered, the trial judge concluded that Ms Biggs had acted only as the appellants' solicitor and had advised Mr Grubic on different aspects of the transaction, including advice concerning the terms of the guarantee, which advice pre-dated the signing of the guarantee. The trial judge found that Ms Biggs had prepared not only the documents relating to the conveyance but also had advised the appellants generally. The Full Court thought that the trial judge was correct. The adverse inference which was drawn from the failure to call Ms Biggs was that she acted for the appellant alone and not for both vendor and purchaser, the discovered documentation allowing the inference to be drawn that another solicitor, a Mr Maidment, was acting for the purchaser. In those circumstances the advice given was independent legal advice.

120. The present case differs substantially from Grubic. Although discovery has been given of Mr Skinner's file without a claim of privilege, no document has been tendered into evidence which, in my opinion, supports an inference that, prior to the issue of the bank guarantee, Mr Skinner was retained to advise on the banking facility proposed by the Bank for the purposes of clause 6 of the distribution agreement or to approve the terms of the bank guarantee which Mr Perrotta advised the applicant was the appropriate facility. The documents tendered by the Bank show that prior to the breakdown of relations between the applicant, Porsan and Mr Truscott concerning title to the tiles, Mr Skinner had not, as between the applicant and the Bank or the applicant and Porsan, concerned himself with the terms of the bank guarantee. Rather, the matters in respect of which Mr Skinner acted and advised were the conveyance of the properties to the third party purchaser, the state of the applicant's title to the lands offered to the Bank as security and the steps necessary to remove any encumbrances on those titles. The alterations made to the documents dated 12 January 1993, which Mr Perrotta prepared for signature by the applicant, were details as to title and encumbrances. Mr Skinner's correspondence with the Bank prior to the issue of the guarantee was concerned with providing the documentation necessary to clear the title to allow for registration of the Bank's security and with undertaking to do what was required to answer any requisitions from the Titles Office. So far as the relationship between the applicant and Mr Truscott and/or Porsan was concerned the advice being given to the applicant was in relation to the proposal put by Mr Truscott in the letter of 6 January 1993 which, I remarked above, did not concern the provision of a bank guarantee by the Bank. Having regard to the findings of fact which I have made and the material discovered from Mr Skinner's file, there is no direct evidence that Mr Skinner gave any advice to the applicant prior to the issue of the bank guarantee as to the terms of the request signed by the applicant on 27 January 1993 or as to the terms or effect of the unconditional bank guarantee which issued in favour of Elegant on 28 January 1993. Nor is there any direct evidence that Mr Skinner advised the applicant as to the type of bank facility appropriate to satisfy the requirements of clause 6 of the distribution agreement. Nor does the evidence, which I accept, and the findings of fact, which I have made, allow the drawing of an inference that Mr Skinner gave the applicant such advice. The failure to call Mr Skinner cannot remedy that deficiency in the evidence.

Trade Practices Act Claims

121. The applicant's claims under the TPA are pleaded in paragraphs 17, 18 and 20 of the amended statement of claim:-

"17. Further, the Bank by Mr Perrotta advised, informed and

represented to the Applicant that a bank guarantee was a document

which would provide the necessary security for the requirements

of the distribution agreement.

18. The Bank through Mr Perrotta omitted to inform the Applicant

that the guarantee was:-

(a) unconditional as to its terms;

(b) could be drawn up at any time by the First Respondent; and

(c) did not provide the protection of a conditional letter of

credit as envisaged by Clause 6 of the distribution agreement.

.....

20. In so advising and informing the applicant as alleged in

paragraph 17 and in remaining silent as alleged in paragraph 18

notwithstanding the said duty the Bank:-

(a) engaged in conduct that was misleading and deceptive in

breach of s 52 of the TPA; and

(b) made false representations in breach of s 53(g) of the TPA."

122. In providing the bank guarantee, the Bank by Mr Perrotta knew, at the least, that it was to be used in connection with the supply of tiles by Elegant to Porsan or the applicant. In the circumstances, there was no reason for the Bank to think that the applicant intended that payment would be made to Elegant without performance on its part by supplying the tiles. Indeed, the evidence of Mr Perrotta and the contemporaneous documentation reflect a belief that payment under the guarantee would not be required without delivery of the tiles. In those circumstances, the applicant could reasonably have expected that the Bank would state that the document it issued as a bank guarantee was not conditioned on performance and was payable on demand. Even the Bank's policy manual in relation to guarantees required that the guarantee should provide "a clear statement of the circumstances under which payment by the bank will be required."

123. To remain silent and to fail to warn the applicant that the bank guarantee, although intended to operate to secure the obligation to pay for the tiles, was only conditioned upon demand by Elegant and not upon supply of the tiles by it, was conduct which was misleading or deceptive or likely to mislead or deceive within s 52 of the TPA. The vice of the conduct in the circumstances which existed was that the applicant would believe that the guarantee could not be called upon until the tiles had been supplied by Elegant and with that mistaken belief would place Elegant in a position to make demand against the guarantee notwithstanding non-supply of the tiles. Having regard to the transaction the guarantee was intended to support, the issuing of an unconditional bank guarantee payable on demand was a circumstance which gave rise to a reasonable expectation that the unconditional nature of the guarantee would be brought to the attention of the applicant. Accordingly, to remain silent, as I have found Mr Perrotta did, was conduct in contravention of s 52 of the TPA (Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31 at 31 - 32, 40 - 41, 46; Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 465).

124. Section 53(g) of the TPA provides:-

"53. A corporation shall not, in trade or commerce, in connexion

with the supply or possible supply of goods or services or in

connexion with the promotion by any means of the supply or use of

goods or services -

...

(g) make a false or misleading representation concerning the

existence, exclusion or effect of any condition, warranty,

guarantee, right or remedy."

125. The applicant, in paragraph 20 of the amended statement of claim, alleged that by the statements pleaded in paragraph 17 and the silence pleaded in paragraph 18 the Bank made false representations in breach of s 53(g) of the TPA.

126. The features of the letter of credit specified in clause 6 of the distribution agreement were that it could only be "drawn down to the extent of seventy-five percentum (75%) of its value upon delivery and acceptance of the Products at the place nominated by the Distributor." Further, the balance of the purchase price (25%) could only be drawn down twenty-one days after delivery and acceptance.

127. Where the applicant had asked the Bank for a bank facility with these features, the advice by Mr Perrotta that what was required was a bank guarantee and the provision by the Bank of a bank guarantee in the form in fact supplied constituted a representation by the Bank through Mr Perrotta that the effect of, or the rights given by, the bank guarantee were the same as those given by the letter of credit provided for in clause 6 of the distribution agreement. A representation to that effect was manifestly false or misleading. The representation may be categorised as a false or misleading representation concerning the effect of a guarantee or as one concerning the existence of a right to claim payment under the security provided by the applicant to Elegant (see the analogous situation of a right to claim under a contract of insurance: SWF Hoists and Industrial Equipment Pty Ltd v State Government Insurance Commission (1990) ATPR 41-045 at 51,608).

128. I am satisfied that the breach of s 53(g) alleged by the applicant has been made out.

129. The test for causation of loss or damage in consequence of conduct in contravention of Part IV of the TPA is that articulated in March v Stramare (Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525). Counsel for the Bank submitted that there was no conduct causative of loss or damage on the part of the Bank for the same reasons as were advanced on the question of negligence, with which I have dealt with above. The submission similarly fails in relation to the causes of action under the TPA.

130. Insofar as the Bank's plea of contributory negligence on the part of the applicant or failure to take reasonable care of his own interests is concerned, the view I expressed in O'Hara and Anor v Williams and Ors (unreported, 21 May 1996) at 45 is apposite:-

"... Even assuming that the applicants failed to take reasonable

care of their own interests, a finding that an applicant did take

such reasonable care is not a necessary foundation of a right to

relief pursuant to s 82 of the Act (Neilsen v Hempston

Holdings Pty Ltd (1986) 65 ALR 302 at 309). This is not a

case, assuming the opportunity as alleged was provided, where the

applicants could be said to have been so negligent as to support

a finding that the representations complained of were not the, or

a , real inducement to the applicants entering into the contract

(cf Argy v Blunts and Lane Cove Real Estate (1990) 26 FCR

112 at 191)."

131. The applicant relied on Mr Perrotta's advice as to the appropriate financial instrument to secure payment for the tiles in accordance with clause 6 of the distribution agreement. Mr Perrotta had held himself and the Bank out as being experienced and expert in transactions of the kind contemplated by the applicant. It cannot reasonably be said that the applicant failed to take care of his own interests by relying upon Mr Perrotta's advice without obtaining further financial advice from his solicitor. The applicant relied upon the advice and representations of Mr Perrotta to sign the request and to receive the bank guarantee and deliver it to Elegant. Further, the applicant executed the Bill of Mortgage in favour of the Bank over his land as security to support the bank guarantee (and overdraft) in reliance upon such advice and representations. I am satisfied that the applicant suffered loss and damage "by" the Bank's contravention of s 52 and s 53(g) of the TPA (s 82(1)).

132. The contract between the applicant and the Bank is pleaded in paragraph 14 of the amended statement of claim:-

"14. On or about 25 January, 1993 the Bank through Mr

Perrotta agreed to provide financial assistance (services

within the meaning of the TPA) on the security ('the finance

agreement')."

133. The applicant pleaded that it was an implied term of the finance agreement that the assistance to be provided by the Bank was in the nature of a conditional letter of credit containing terms similar to those set out in clause 6 of the distribution agreement.

134. The requirements for the implication of a term into a contract were stated by the majority of the Judicial Committee of the Privy Council in BP Refining (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 as follows (at 283):-

"(1) It must be reasonable and equitable; (2) it must be

necessary to give business efficacy to the contract, so that

no term will be implied if the contract is effective without

it; (3) it must be so obvious that 'it goes without

saying'; (4) it must be capable of clear expression; (5)

it must not contradict any express term of the contract."

That statement was adopted by Mason J, as he then was, with the concurrence of the other members of the High Court in Secured Income Real Estate v St Martin's Investments Pty Ltd (1979) 155 CLR 596 at 606 (see also Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 347 per Mason J; 404 per Brennan J).

135. The term pleaded by the applicant does not satisfy the relevant test. It is unnecessary to imply a term to the effect that the financial assistance to be provided be by way of conditional letter of credit reflecting clause 6 of the distribution agreement into the finance agreement to give business efficacy to it.

137. Paragraph 19 of the amended statement of claim contained the following:-

"19. In purporting to conclude the finance agreement with

the Applicant, who was inexperienced in international trade,

the Bank had a duty:-

(a) to inform the applicant that the manner in which the Bank

proposed to perform the finance agreement was fundamentally

different to the request made of it by the Applicant; and

(b) to explain to the Applicant the possible consequences of

such difference."

138. Breach of the alleged duty was pleaded in paragraph 25 of the amended statement of claim. Counsel for the applicant submitted that, in the circumstances set out in the particulars to paragraph 25, the Bank acted to prefer the interests of Elegant and to prefer its own interests over the interests of the applicant.

139. Even assuming, for the sake of argument, that the Bank owed to the applicant a fiduciary duty in the terms pleaded, there is no evidence that the Bank acted to prefer its own interests or those of Elegant in making the payment under the bank guarantee. In my view, that the Bank sought and acted upon independent legal advice before paying under the bank guarantee negatives any suggestion of breach of fiduciary duty in the manner alleged by the applicant. There is no basis to suggest that if the legal advice had been other than it was, the Bank would have done other than act in accordance with that advice in the discharge of its obligations under the guarantee.

140. The applicant's claim for loss occasioned by breach of fiduciary duty on the part of the Bank fails.

141. The applicant is entitled to recover the loss suffered by him by reason of the Bank's negligence and/or contravention of s 52 and/or s 53(g) of the TPA. In the instant case the quantum will not vary as between the causes of action.

142. The applicant claimed by way of damages the value of the bank guarantee together with bank fees and charges and legal fees associated with the transaction. These amounts total $158,401.34. The Bank did not take issue with the quantum claimed and I am satisfied the applicant suffered loss in that amount.

143. The applicant also claimed to be entitled to recover as damages from the Bank the costs of the action against Elegant and the Morales as costs incurred in an attempt to mitigate the applicant's loss. I am satisfied that, in the circumstances, the costs of that action are properly recoverable. It seems to me that the purpose of those proceedings was, in the first place, to gain injunctive relief preventing Elegant and the Morales from applying the funds obtained pursuant to the bank guarantee. When that action failed to have the desired effect, the applicant proceeded to judgment. Such costs are properly recoverable as damages, being costs reasonably incurred by the applicant in an attempt to mitigate the loss suffered by him (Lloyds and Scottish Finance v Modern Cars and Caravans (Kingston) (1966) 1 QB 764 at 782 - 783; Mudginberri Station Pty Ltd v Australasian Meat Industry Employees Union (1986) ATPR 40-708 at 47,734).

144. The applicant also claimed interest on the sum of $158,401.34 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), at a rate of ten percent per annum from 20 April 1993 to the date of judgment. I am satisfied that the rate and the period are both reasonable and appropriate. Costs

145. The applicant has succeeded in the action. Although the applicant failed on certain issues, those issues did not in any material way prolong the length of the trial or add to the costs of it. The time taken and costs and expenses incurred related to the principal issues on which he succeeded. Accordingly, the applicant should have his costs against the Bank on a party and party basis without deduction or discount.

1. There be judgment on the application for the applicant

against the third respondent.

2. The third respondent pay to the applicant the sum of

$158,401.34 plus interest at ten percent (10%) per annum from 20

April 1993 to the date of judgment.

3. The third respondent pay to the applicant the applicant's

costs of and incidental to the proceedings against the first and

fourth respondents, to be taxed if not agreed.

4. The third respondent pay the applicant's costs of and

incidental to the application, including reserved costs, if any,

to be taxed if not agreed.