Macquarie Bank Limited v Lin

TRADE AND COMMERCE - TRADE PRACTICES AND RELATED MATTERS - CONSUMER PROTECTION - MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT - REPRESENTATIONS - IN GENERAL - where the family trustee company of which the defendant and his parents were directors became a shareholder in a development company and the defendant became a director of that company - where the development company entered into a fixed fee facility and guarantee agreement with the plaintiff bank for a loan for a development project - where the defendant, together with the other directors of the development company, provided an unlimited personal guarantee to the plaintiff bank - where the defendant provided to the bank a solicitor's certificate of independent legal advice prior to providing the guarantee - where the obligations of the development company were not met under the agreement - where the plaintiff bank claimed its debt from the defendant - where the defendant claimed that he entered the agreement on the basis of misleading or deceptive representations made by the plaintiff bank as to the limit of his liability and the financial prospects of the development project - whether the representations were made by the officers of the plaintiff bank - whether the bank engaged in conduct that was misleading or deceptive - whether the defendant understood his liability was unlimited

TORTS - NEGLIGENCE - WHERE ECONOMIC OR FINANCIAL LOSS - CARELESS ADVICE, STATEMENTS AND NON-DISCLOSURE - PARTICULAR PERSONS AND SITUATIONS - BANKS AND FINANCIAL INSTITUTIONS - whether the bank was negligent in making the alleged representations to the defendant

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - PENALTIES AND LIQUIDATED DAMAGES - GENERAL PRINCIPLES - where the original agreement was varied to extend the termination date - where the fixed fee payable to the plaintiff bank was altered from $750,000 to $375,000 plus $25,000 per month after the termination date - where the interest payable also accrued at an increased rate after the termination date - whether the additional $25,000 per month a "penalty"

TORTS - NEGLIGENCE - ESSENTIALS OF ACTION FOR NEGLIGENCE - WHERE ECONOMIC OR FINANCIAL LOSS - CARELESS ADVICE, STATEMENTS AND NON-DISCLOSURE - PARTICULAR PERSONS AND SITUATIONS - PROFESSIONAL ADVISORS - where the defendant provided an unlimited personal guarantee to the plaintiff bank - where the defendant provided to the bank a solicitor's certificate of independent advice prior to providing the guarantee - whether the solicitor had properly advised the defendant as to the effect of the guarantee

EQUITY - TRUSTS AND TRUSTEES - CONSTITUTION AND CLASSIFICATION OF TRUSTS GENERALLY - IMPLIED TRUSTS - RESULTING TRUSTS - WHERE INTENTION PRESUMED - REBUTTAL OF IMPLICATION - PRESUMPTION OF ADVANCEMENT - where the plaintiff bank brought proceedings against the defendant to enforce personal guarantee - where the defendant had, registered in his name, a large, luxurious residence - where the bank had relied upon the defendant's ownership of the house in accepting the guarantee and financing the development - where the parents of the defendant brought a separate action against him for a declaration that he held the house on resulting trust for them - where the plaintiff bank joined as a defendant to the action - where the parents caused the house to be purchased - where the house was paid for from accounts not held in the parents' names - whether the parents provided the purchase monies - whether the presumption of advancement rebutted

ESTOPPEL - ESTOPPEL IN PAIS - THE REPRESENTATION - IN GENERAL - where the defendant represented to the plaintiff bank that he beneficially owned the house - where the defendant held the house on resulting trust for his parents - where the parents had attended a meeting with representatives of the bank prior to the development project commencing - where the parents were directors of the trustee company which took a share in the development company - whether the parents were "complicit in, alternatively permitted or suffered" the defendant's representations to the bank that the defendant was the beneficial owner of the house - whether the parents were estopped from asserting their claim to the house vis a vis the bank

Trade Practices Act 1974 (Cth), s 52

AMEV-UDC v Austin [1986] HCA 63; (1986) 162 CLR 170, cited

Australian Securities Commission v Marlborough Goldmines Ltd [1993] HCA 15; (1993) 177 CLR 485, cited

Brown v Brown (1993) 31 NSWLR 582, followed

Charles Marshall Pty Ltd v Grimsley [1956] HCA 28; (1956) 95 CLR 353, cited

Commonwealth v Verwayen (1990) 170 CLR 394, cited

Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1914] UKHL 1; [1915] AC 79, applied

Esanda Finance Corp Ltd v Plessnig [1989] HCA 7; (1989) 166 CLR 131, cited

Franklin v Manufacturers Mutual Insurance Ltd [1935] NSWStRp 62; (1935) 36 SR(NSW) 76, cited

Giumelli v Giumelli (1999) 196 CLR 101, cited

Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641, discussed

Murphy v Overton Investments Pty Ltd [2001] FCA 500; (2001) 112 FCR 182. discussed

O'Dea v Allstates Leasing System (WA) Pty Ltd [1983] HCA 3; (1983) 152 CLR 359, cited

Port of Brisbane Corporation v ANZ Securities Limited (No 2) [2002] QCA 158; [2003] 2 Qd R 661, applied

Standard Chartered Bank Australia Ltd v Bank of China (1991) 23 NSWLR 164, cited

Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507, discussed

Valbirn Pty Ltd v Powprop Pty Ltd [1991] 1 Qd R 295, cited

Voss v Suncorp-Metway Ltd (No 2) [2003] QCA 252; [2004] 1 Qd R 214, cited

Waltons Stores (Interstate) Ltd v Maher (1987-1988) 164 CLR 387, discussed

Williams v Frayne [1937] HCA 16; (1937) 58 CLR 710, discussed

Zenith Engineering Pty Ltd v Queensland Crane and Machinery Pty Ltd [2000] QCA 221; [2001] 2 Qd R 114, cited

R G Bain QC with A W Duffy for the plaintiff in S1035 of 2001 and for the second defendant in S7421 of 2001

G J Gibson QC with K A Barlow for the defendant in S1035 of 2001 and for the first defendant in S7421 of 2001

M J Liddy for the fifth third parties in S1035 of 2001

J C Bell QC with P P McQuade and D J Kelly for the plaintiffs in S7421 of 2001

Hogan Besley Boyd Commercial Lawyers for the plaintiff in S1035 of 2001 and for the second defendant in S7421 of 2001

Lowes and Co for the defendant in S1035 of 2001 and for the first defendant in S7421 of 2001

Allens Arthur Robinson for the fifth third parties in S1035 of 2001

James Conomos lawyers for the plaintiffs in S7421 of 2001

Would the alleged representations have been misleading or deceptive, or negligent?

Would the alleged representations as to the project have mattered to Konrad?

[1] In 1999 and 2000, Macquarie Bank Limited lent money for the construction of units and houses on land near Coolum Beach on the Sunshine Coast. The development was called "Papillon Villas", and the developer, which was Macquarie's borrower, was Merlin Pacific Developments Pty Ltd ("MPD"). The development, as originally agreed to be financed by Macquarie, involved some 48 units and houses to be built over five stages. But before the completion of Stage 1, which involved 17 units, the development was experiencing serious cost overruns and delays. By November 2000, Stage 1 had not been completed and MPD was in default of its obligations and on 22 November 2000 Macquarie went into possession of the site. Macquarie caused Stage 1 to be completed and sold the units and houses together with the remaining land which was to have been used for the subsequent stages. There was still a debt owing which Macquarie claims is in an amount now exceeding $9,000,000.

[2] There are two proceedings which have been tried together. In S1035 of 2001, Macquarie claims its debt from a guarantor of MPD, Mr Konrad Lin. He was introduced to this project by Macquarie and became a director of MPD. A family trustee company, of which he and his parents were the directors, took a 25 per cent shareholding in MPD.

[3] He claims that he is not liable, or should be relieved from his liability, under his guarantee because it was procured by misrepresentations by Macquarie. Broadly speaking, the misrepresentations were of two kinds. First he says that Macquarie made him believe that his liability as a guarantor would be limited to an amount of $1 million. Secondly, he says that Macquarie misrepresented the financial prospects of the project, causing him losses through his liability as a guarantor and in other respects.

[4] Mr Konrad Lin has joined as a third party a firm of solicitors, Clapin Pagliaro, who were retained to advise him as to the legal effect of his guarantee. He claims that they negligently failed to advise him that the guarantee was relevantly unlimited, rather than limited to a liability of $1 million as he says he then believed. He says that he received no advice or, alternatively, no proper advice. If he is liable to Macquarie as it claims, he says that he should be effectively indemnified by the solicitors by an award of damages. When the guarantee was given, Macquarie required Konrad Lin to provide a certificate from solicitors to the effect that he had been properly advised as to its effect. Mr Clapin signed such a certificate and Konrad Lin provided it to the Bank. The solicitors' case is that he was properly advised.

[5] Prompted by Konrad Lin's allegation that he received no advice from Clapin Pagliaro, Macquarie has made an alternative claim against Konrad Lin, which is that he defrauded Macquarie, by representing that he had received advice from the solicitors. So Macquarie says that if it cannot enforce its guarantee, it can recover the same amount as damages for deceit. In turn, this alternative claim has inspired a further claim by Konrad Lin against the solicitors. He says that if he is liable in tort (in deceit) to Macquarie, then the solicitors are obliged to indemnify him or make an appropriate contribution, on the basis that they also owed a duty of care to Macquarie, which they breached by failing to adequately advise him.

[6] The other proceedings involve a contest between Macquarie and the parents of Konrad Lin. I shall now refer to them as Mr and Mrs Lin and to their son as Konrad, as counsel did throughout the hearing. Mr and Mrs Lins' claim is to the beneficial ownership of the house in which they live at 62 Wynnum Road, Norman Park. They caused it to be purchased in 1994 for a price of $6,800,000 in the name of Konrad who remains its registered owner. They claim that they provided all of the purchase money and that he holds it for them upon a resulting trust.

[7] After Macquarie issued its proceedings against Konrad, and out of an apparent concern that it would look to the house to satisfy any judgment, Mr and Mrs Lin issued these proceedings. They sued not Macquarie but Konrad. Over their objection, Macquarie successfully applied to be joined as a defendant to their claim, which is for declaratory relief and an order that Konrad transfer the house to them. Konrad has never contested their claim, but Macquarie does, denying that Konrad holds the house on trust for them. In particular, it denies that they provided the purchase monies and it argues that if they did, Mr and Mrs Lin intended Konrad to be a beneficial owner, not a trustee. There is an issue as to whether the presumption of advancement can be rebutted, in circumstances where Konrad was a 17 year old schoolboy when he became the registered owner. Alternatively, Macquarie says that it is entitled to the benefit of an estoppel against Mr and Mrs Lin, which precludes them from asserting any entitlement to the house as against Macquarie.

[8] With the agreement of all parties the evidence in one proceeding was received also in the other, except for such evidence as was the subject of a specific objection by Konrad or, more often, by Mr and Mrs Lin.

[9] Save for the estoppel issue, the proceedings between Mr and Mrs Lin and Macquarie turn upon the facts which occurred well prior to the Papillon Villas project and Macquarie's financing of it. It is convenient to discuss then the evidence in relation to whether the house is held by Konrad as a trustee before dealing with Macquarie's estoppel case against Mr and Mrs Lin, for which there is some overlap with the evidence which is relevant to the other proceedings.

[10] Mr and Mrs Lin were born in Taiwan, he in 1951 and she in 1952. Neither speaks English and each gave evidence through an interpreter. Mr Lin has a primary school level of education and no formal trade qualification. In his early twenties he went to work for his cousin's construction and property development business in Taiwan through which he made his fortune. He worked there from 1974 until 1989 when he retired due to ill health. In the 1980s he made investments in shares and real estate in Taiwan and in a tuna fishing business. Mrs Lin worked in a sales office in Taiwan until the early 1980s when she gave up work coinciding with the birth of her youngest child. They have three children: Konrad who was born in 1976, a daughter, Lulu, born in 1978, and another daughter, Lily, born in 1983.

[11] In 1989 Mr and Mrs Lin decided to migrate to Australia and Mrs Lin and Konrad have lived in Brisbane since that year. It seems that for a while the daughters remained at school in Taipei where Mr Lin remained to look after them. The Lins retained their family home in Taipei where Mr Lin's aging mother also lived. In 1989 Mr and Mrs Lin bought a house at Calamvale, of which they became the registered owners. They also bought three investment properties at Belmont and Gumdale, again in their own names.

[12] By late 1993 Mr and Mrs Lin, their three children and Mr Lin's mother were all living in the Calamvale house. Mr and Mrs Lin were looking to move the family to another house. Mr Lin said that one reason for moving was to be closer to the children's schools, but it was clear that they were looking for a bigger and more luxurious residence. Plainly any new house was to be for the accommodation of Mr and Mrs Lin, their children and Mr Lin's mother.

[13] Through a real estate agent, Mr Hsu Cheng Guang, they were taken to the house at 62 Wynnum Road, Norman Park. It had been built by its then owner, Mr Keith Lloyd, on a prominent position alongside the Brisbane river. It is a large and noticeable house. Mr and Mrs Lin at first offered to buy it for $6,300,000 before agreeing on the price of $6,800,000, which some evidence suggests was then a record for a Brisbane house.

[14] What happened on the Lins' first inspection of the house was, they say, of particular importance to the present case. On entering the large foyer area, they noticed a metal plaque which is still fixed on the iron balustrade of the stairs leading from that area. The plaque is situated so as to be seen by persons as they enter the house. It has an oval shape, is about 40 cm in length and bears the letters "KBL" which are Mr Lloyd's initials. There is a similar, although smaller, plaque installed in a fixed bed head in the main bedroom, which is also still present.

[15] According to the evidence of Mr and Mrs Lin, they were very affected by the plaque, because the letters "K" and "L" corresponded with the initials of their son's English name. Mr Lin said that they believed that this was:

"a good omen given by God and ... that if we were able to buy this house, we would consider using my son's English name to sign the contract and by doing this we can maintain this good luck ... the future generations would maintain that good luck and would have a better future in Australia and would be able to make a bigger contribution."

Mrs Lin's evidence was to the same effect. They each said that they saw the letter "B" on the plaque to be significant as corresponding with the word "building", so that the letters KBL would refer to "Konrad Lin Building". In the way in which the letters were arranged on the plaque, it is possible that Mr and Mrs Lin read the letters as "KLB" rather than "KBL".

[16] There is some support for this in the evidence of Mr Hsu, the real estate agent. He recalls that on entering the house, Mr Lin looked at the plaque and asked Mr Hsu "Is it KLB?" and that when Mr Hsu said it was, Mr Lin seemed "very satisfied" and nodded his head. Mr Hsu said that Mr Lin asked him to prepare the contract in Konrad's name because "Mr Lin reckon that is good luck because Konrad Lin's initial is matched to Mr Lloyd's symbol". That evidence of Mr Hsu was challenged but I accept it. There is no obvious reason for Mr Hsu to give false evidence to support Mr and Mrs Lin; for example there is no evidence that he has any existing or prospective business association with them. Nor is it so improbable that Mr Lin would have said to Mr Hsu that this was his reason to have the contract in Konrad's name. Statements such as that related by Mr Hsu are admissible even in favour of the party who made them, because they are made at a point relative to the purchase as to make them effectively part of the transaction: Charles Marshall Pty Ltd v Grimsley [1956] HCA 28; (1956) 95 CLR 353; Jacobs' Law of Trusts in Australia (6th ed) at [1213].

[17] Konrad was not involved in any negotiations towards the purchase. They were conducted by Mr and Mrs Lin. In response to their offer of $6,300,000 the vendor counter offered $8,000,000 saying, in a letter to Mr and Mrs Lin, that he had rejected an offer of cash and property which effectively represented $6,750,000. Mr and Mrs Lin then offered $6,800,000 which the vendor accepted. When offering $6,300,000 they had submitted a contract signed by Konrad, and they had Konrad initial the changes to that contract for their offer of $6,800,000. They did not consult Konrad as to the price or any other term of the purchase. He was simply asked on occasions to sign as the purchaser. I accept the evidence of Konrad and Mr and Mrs Lin to that effect. I accept also the evidence of Konrad and his parents that they did not discuss with him the basis upon which he would own the house.

[18] Mr and Mrs Lin instructed an employee of a firm of solicitors, Ms Chiang, who speaks Mandarin, to act in the purchase. Ms Chiang's firm opened the file in Konrad's name. I accept her explanation that this was because the firm's usual practice was to open a conveyancing file in the name of the party on the contract, and that it was not the result of some instruction from Mr and Mrs Lin. Konrad had no dealings with the solicitors. They were instructed to attend to the conveyance to Konrad, without being told why the purchase was in his name. The settlement of the purchase and the registration of the transfer were uneventful. Settlement occurred on 15 February 1994 and Konrad became the registered owner, free of any registered interest. Prior to the settlement, there was some question concerning a jetty which required Ms Chiang to obtain instructions, which she obtained from Mr Lin. She did meet Konrad, but only in the course of his signing the necessary documents, including a stamp duty declaration that he was acquiring the property as his principal place of residence. The solicitors were given no instructions as to the existence or otherwise of a trust.

[19] Mr and Mrs Lins' evidence is that the certificates of title were kept in a safe in the house, the keys to which were kept by Mrs Lin and that only they had access to its contents. I accept that evidence which was not challenged. Instead, it was suggested to Mr Lin that he kept the title deed in the safe, out of the reach of Konrad, "better that [Mr Lin's] wishes [as to the house] were obeyed", which he denied. It was part of Macquarie's case that whilst the Lins intended Konrad to be the beneficial owner, still it was their intention that Konrad would do with the house what they said. There is a tension between these two intentions to which I will return. In 1997, Mr Lin removed the certificate of title from the safe to enable the house to be mortgaged to BankWest for a loan to the trustee of the Lin family trust, Pao Lin Investments Co Pty Ltd. That was not inconsistent with the Lins' evidence that they had possession of the title deeds and Konrad did not.

[20] As the contract required, a deposit of $315,000 was paid to the selling agent. It was paid by $1,000 in cash and a subsequent payment of $314,000. The cash was given to the agent at the Lins' house at Calamvale, on the occasion when they submitted their offer of $6,300,000. I accept that the $1,000 came from a pool of cash which Mrs Lin kept at the house. I also accept that it belonged to Mr and Mrs Lin.

[21] The balance of the deposit ($314,000) was paid to the agent by a cheque drawn on an account at the Commonwealth Bank at Sunnybank. The account was in the name of Mr Lin's mother, Ms Chen Mei Lin, who is now deceased. On 25 November 1993, the account had a credit balance of $66,256 until $299,995 was deposited on that day. This was an interest bearing passbook account. The passbook entry records that deposit as "INTL FUNDS", signifying that it was by a transfer from overseas.

[22] On settlement, the balance of the price was paid by a bank cheque purchased with funds in the purchaser's solicitors' trust account. The adjusted purchase price paid at settlement was $6,485,754.59. Earlier that day the sum of $6,496,655.59 was paid to the solicitors' trust account, by a bank cheque purchased with funds from another passbook account at the Commonwealth Bank at Sunnybank. That account was in the name of Miss Hsing-Suei Lee, who is Mr Lin's niece and who has always lived in Taiwan. On the day before settlement, $6,499,995 had been deposited to that account and (again) the passbook describes the deposit as from "INTL FUNDS".

[23] The case for Mr and Mrs Lin is that the funds from each of these passbook accounts belonged to them and not to the account holder. I accept that Mr and Mrs Lin caused the account in his mother's name to be opened and that they, and not Mr Lin's mother, operated it. Mr Lin said that he caused the account to be opened "using my mother's name because my mother was afraid of not having money while she was living in Australia". This suggests that at least some of the funds in the account did belong to Mr Lin's mother. However, of the $314,000 drawn from that account to pay the deposit, $299,995 had been paid into the account only on the previous day, and I accept that Mr and Mrs Lin caused that deposit to be made. The source from which that deposit was made will be discussed. But I accept that the $299,995 deposited to the passbook account on 25 November 1993 was then under the control of Mr and Mrs Lin. So, too, were the funds already to the credit of that account. Perhaps Mr Lin intended that his mother would have some benefit from this account, although it is also likely that Mr and Mrs Lin had another purpose for opening and operating an account in another name, consistently with some accounts being in Ms Lee's name, as I will discuss. Mr Lin's mother was then aged and unwell. She died in January 1995. She lived in the Lin house at Calamvale and there is no evidence to suggest that she had any substantial assets of her own, at least apart from this account. Mr Lin's evidence is that he had built his own fortune from a humble background. I infer that the circumstances were such that Mr Lin's mother could not have claimed, as against them, a right to operate the account, and the common understanding was that it was to be operated according to their directions.

[24] Ms Lee has never claimed any interest in the passbook account in her name from which the settlement funds were drawn. I find that this account was at all times operated and controlled by Mr and Mrs Lin who treated the account as theirs. Between Ms Lee and Mr and Mrs Lin, she was bound to act according to their directions.

[25] There is no document, such as a bank statement or accounting records which evidences the transfers to these passbook accounts. I find that that the funds transferred in each case came from an account or accounts in the name of Ms Lee, which the Lins maintained at the National Australia Bank in Hong Kong. I thereby accept the evidence of Mr and Mrs Lin in that respect. Ms Lee was called in the case of Mr and Mrs Lin. Her evidence is that she allowed her name to be used for various Hong Kong bank accounts operated by Mr and Mrs Lin, at their request, but that she did not operate the accounts. She could not say whether the deposits to the passbook accounts at Sunnybank came from a Hong Kong account in her name.

[26] Ms Lee identified an application[1] signed by her for the opening of a bank account with the National Australia Bank at Hong Kong. I accept her evidence that the document shows Mr and Mrs Lins' home address in Taipei as the account holder's address, and the signatures of Mr and Mrs Lin as those of the persons authorised to operate the account. There are some documents bearing Mrs Lin's signature which evidence her operation of this account in late 1990.[2] I accept also Ms Lee's evidence that she did not receive documents from the National Australia Bank which record the operation of this account, such as bank statements, and that she has no records in relation to it. Mr and Mrs Lin say that documents such as bank statements were sent to them but that Mrs Lin's practice was to quickly discard them. Whether in truth there was such a practice, I am prepared to accept that Mr and Mrs Lin no longer have records in relation to this account other than those few documents which they have disclosed. I am also satisfied by evidence from the National Australia Bank that with the passage of time it no longer has records in relation to the account. However, there are still a few documents which indicate that the account held substantial funds. In particular there are two documents dated 18 January 1991[3] which refer to this account and are addressed to Ms Lee but at the postal address which was the Lin house in Taipei. They record a conversion of US$3,403,614.95 to 453,872,054 Japanese yen, and a deposit of those yen for a period of 90 days from 22 January 1991. Although these documents constitute but two of what must have been many documents in relation to the account, they support the evidence of Mr and Mrs Lin that there was the equivalent of millions of Australian dollars kept in this interest bearing account. There was no substantial challenge to their evidence that the funds which were transferred to the passbook accounts at Sunnybank came from this Hong Kong account or some successor to it. What was strongly challenged was their evidence that they owned these funds. I find that the deposits to the Sunnybank accounts were from funds in this account, or an account which replaced it, at the National Australia Bank at Hong Kong. And I find that funds in that account were at all times under the control of Mr and Mrs Lin. Between the account holder Ms Lee and Mr and Mrs Lin, the circumstances were such that Ms Lee held those funds according to their directions.

[27] The case for Mr and Mrs Lin is that the house is held for them upon a trust which results, that is to say which is implied, from their having paid for it. They bear the onus of proving that they did pay for it. Macquarie argues that they have not discharged that onus, and that in particular, I should be unpersuaded that the particular funds which passed through the Sunnybank passbook accounts were funds to which Mr and Mrs Lin were entitled. It is not suggested that Ms Lee was entitled to any of the funds in her Hong Kong account or her Sunnybank passbook account, and nor did I understand Macquarie's ultimate argument to suggest that it was Mr Lin's late mother who was the true owner of the funds paid as the contract deposit from the account in her name. But Macquarie submits that it is at least as likely that the true owner was some other person or entity, and not Mr and Mrs Lin, so that they have failed to prove this essential element of their case.

[28] Mr and Mrs Lin sought to explain the Hong Kong account in Ms Lee's name in this way. They gave evidence of the prevalence of crimes, including kidnapping, against wealthy families in Taiwan. They were fearful that if they were perceived to be wealthy they or their children would be at risk. They said that they were concerned that some persons working in a bank in Hong Kong might have associations with criminal elements in Taiwan, to whom they would pass on the information that millions of dollars were held by Mr and Mrs Lin. For this reason they said that they put their money into an account opened in Ms Lee's name, so that the funds would not be associated with them. I do not accept that explanation as true. As I have mentioned, Mr and Mrs Lin signed documents in relation to this Hong Kong account which identified them as authorised signatories and which specified their residential home address in Taipei as effectively that of the account holder. The type of person of whom they say they were concerned, who might have been working for the bank in Hong Kong and with access to the records of this account, might have readily traced the ownership of the funds to their house. Moreover, Mr and Mrs Lin do not appear to have attempted to disguise their wealth in the way they have lived in Australia. The noticeable and very expensive house at Norman Park was obviously the Lin family home. Mr and Mrs Lin drove expensive cars and Mr Lin was active in an organisation of Taiwanese business people in Brisbane, called the Taiwanese Australian Business Association (Qld) Ltd. The Lins have often gone back to Taiwan for extensive periods, and they still have what was the family home in Taipei. Apparently they were not concerned by the appearance of their wealth in this country and the possibility that it would put them at risk in Taiwan. A related question is their explanation or otherwise for opening and operating bank accounts in Brisbane in the name of Ms Lee or Mr Lin's mother. Notably, Mr Lin did not offer the same explanation for the account in Ms Lee's name here which he gave for the Hong Kong account.

[29] But the rejection of their explanation for having an account in Ms Lee's name does not mean that they fail to prove that the money in the account was theirs. There could be another explanation, although not volunteered by them, for why they would represent that these large interest bearing cash deposits belonged to someone else. One possibility is that they wished to evade their liability for Australian income tax on the interest. In Macquarie's cross-examination of Mr and Mrs Lin, particular attention was paid to their tax returns in relevant years, and it is demonstrated that the Lins did not declare any income from the Hong Kong deposits or from the (Sunnybank) passbook accounts in the names of Ms Lee and Mr Lin's mother. Mr and Mrs Lin said, in effect, that they were unaware that this income had to be declared. Understandably Macquarie did not press for a finding that they believed it should be declared as their income, because that would be consistent with the funds being their funds. In my view, however, it is a probable explanation for the accounts in Ms Lee's name, and probably also that in Mr Lin's mother's name, that the Lins were attempting to evade taxation. There are other possible explanations, of which some, but not all, are consistent with the Lins being beneficially entitled to these funds.

[30] For Macquarie it was strongly argued that I should infer the funds belonged to one or more companies with which the Lins were or had been associated in their various enterprises in and out of Taiwan. It was submitted that the Lins are likely to have simply uplifted funds from a company or companies in circumstances by which, at least according to Australian law, they would be susceptible to remedies at the suit of the true owner, such as that of a constructive trust. There is little evidence as to the businesses conducted by the Lins or with which they were associated. The relevant records would date back to the 1980s and it is understandable that records were destroyed or lost with the passage of time, the cessation of businesses and the migration of the Lin family to Australia.

[31] However, there are a number of circumstances which suggest that, contrary to Macquarie's argument, Mr and Mrs Lin had not come to control these funds in circumstances in which they were obliged to account to others. The first is that there is no indication of any claim ever having been made to the money by any company, creditor or other person. As I have said, the Lin family's wealth in Australia has been quite conspicuous and as I will discuss, this very valuable house has been either unencumbered or (later) mortgaged for only a relatively small sum. Secondly, whilst the Lins have moved to Australia, they have maintained a property in Taiwan and regularly return there. And their movement to Australia was not sudden: Mrs Lin and Konrad moved here for some time in advance of Mr Lin and Konrad's sisters whilst they finished their primary schooling.

[32] Mr Lin's evidence is that the Lins received the monies which they deposited to the Hong Kong account as follows:

"You've owned companies through which you've carried on business on a regular basis throughout your business life, haven't you, Mr Lin? -- Yes.

Do you still have companies trading in Taiwan and holding property in Taiwan? -- Before I migrate to Australia I closed up my companies.

Well, you still have property in Taiwan, don't you? -- I had one house in Taiwan.

What happened to the money from the companies when you closed them in Taiwan? I take it they had valuable assets and the company was realised by closing up the companies? -- I sold the asset first before I closed the company, so when I closed the company there wasn't any asset left.

Well, what happened to the company's property? -- I sold them all, including desk and chairs.

What happened to the money? -- As I had planned to - for migration well before that, I had been dispose - or treat my asset in certain ways. Otherwise where could I get the money in Australia?

Did you put the money from the Taiwanese companies into some Australian companies? -- No, it's not the case. When I sold my asset in Taiwan I transferred the money overseas.

Into what account? -- In the end it end up in NAB account, then transferred to my niece's account.

So we're clear, Mr Lin, you have spoken of closing up the companies and selling off assets, but the companies themselves still exist. The names still exist and the companies still exist in Taiwan, don't they? -- No.

Mr Lin, think carefully about what you're saying, because you came to Australia - you emigrated from Taiwan in 1989, I think you said? -- Yes.

And you are saying to his Honour that you had closed your companies under this plan you had and sent the proceeds to the accounts in Hong Kong by the time you emigrated to Australia? -- Yes."

[33] Assuming that the monies used for this house were generated by businesses owned wholly or in part by the Lins, there are several alternative possibilities as to how those funds came under their control. One of those, broadly speaking, is that suggested by Macquarie, which is that the funds were misappropriated: they were either stolen or misused in circumstances which would attract equitable or other remedies under Australian law. Another is that Mr and Mrs Lin came by them legitimately either as dividends or as distributions upon a valid reduction of capital or winding up. A further possibility is that the funds were appropriated by the Lins in circumstances where, absent the consent of all of the shareholders of the relevant company, they would have been liable to the company for some breach of duty, but that all members of the company had consented and the company was solvent. Yet another is that the funds were borrowed, so that whilst the Lins might have been obliged to repay the lender, the relevant monies were the property of Mr and Mrs Lin when used in this purchase. On many of the possibilities then, the funds were the Lins' at the time, although they were generated by the successful businesses of companies. Especially having regard to the passage of time and the absence of any evidence of anyone else claiming the funds, in my view it is more probable than not that the Lins were in control of these funds in circumstances in which they were not themselves trustees. The generality of Mr Lin's evidence is concerning. However, the absence of records after this time is not so unlikely and, if so, it could be difficult for him to give a detailed account. I am persuaded that more probably than not, the funds which they caused to be channelled through the passbook accounts for the purchase of this house were their funds beneficially so that they have proved this element of their case.

[34] There is an alternative basis upon which I would conclude that Mr and Mrs Lin provided the purchase monies in the sense required for the implication of a trust. The monies in the solicitors' trust account which were used to purchase the bank cheque delivered to the vendor were held by the solicitors as trustees. They were obliged to act according to their clients' instructions. Although the solicitors' file was opened under Konrad's name, in truth the solicitors' clients were Mr and Mrs Lin. Unless and until the solicitors became aware that some third party, and not Mr and Mrs Lin, was entitled to funds which the Lins had caused to be paid to their trust account, the solicitors held those funds, and in turn the bank cheque purchased with them, as trustees for Mr and Mrs Lin: see Port of Brisbane Corporation v ANZ Securities Limited (No 2) [2002] QCA 158; [2003] 2 Qd R 661 at 677-681 per McPherson JA with whom Davies JA and Mullins J agreed. In that case, an employee of the Port Corporation stole monies which he caused to be deposited to the trust account of ANZ Securities Limited, a stockbroker. The employee had caused a company to represent to ANZ Securities that as a new client, it had deposited the monies to the trust account. Before ANZ Securities learnt that the funds had been stolen, and that their true owner was the Port Corporation, it had paid out the amount in the account. The Court of Appeal held that ANZ Securities was not liable for a breach of trust to the Port Corporation. The trust under which it held the funds was a trust for the client company, and ANZ Securities could not be liable for a breach of duty or breach of trust until aware of the true entitlement to the funds. In the meantime the broker had been authorised and bound to act according to its client's instructions and the trust by which it was bound was a trust for the client.[4]

[35] So as to the $314,000 paid as a deposit in the present case, at the time those funds were held in the account of Mr Lin's mother, she could not have asserted a claim to them against Mr and Mrs Lin. As I have found, if she had been minded and able to operate the account, she could have done so only according to the Lins' direction. She was a trustee for them unless and until she became aware of some other person's beneficial entitlement. Similarly, when the funds for settlement were transferred from the Sunnybank account in Ms Lee's name, she could not have asserted a claim to them against Mr and Mrs Lin. The same applies to the Lee account at the National Australia Bank in Hong Kong. And as I have said, the solicitors held the funds in their trust account for their clients, Mr and Mrs Lin. In each case, the relevant funds were held under a trust, in which the account holder was a trustee for Mr and Mrs Lin. Given that trust, what then is the relevance of a sub-trust, if any, to which Mr and Mrs Lins' interest was subject?

[36] Artificial though it may seem in the present context (where Konrad does not resist his parents' claim to the house) the question is still whether, when the house was purchased, Konrad became a trustee for his parents. Assuming for the moment that the presumption of advancement is rebutted, in principle there is the same reason to imply a trust from the fact of payment of the price by or on behalf of Mr and Mrs Lin, whether or not they were themselves subject to obligations of trusteeship or other equitable obligations in relation to the monies paid. The existence of any such obligations, and the facts from which they existed in a particular case, could be relevant to whether, for discretionary considerations, equitable relief should be refused to a person who paid for the property with funds subject to those obligations. In the present case, equitable relief could be refused if its effect would be to assist the Lins in some wrongdoing; but there is no evidence that it would. The interest of any person having relevant rights against them is likely to be assisted by the enforcement of the trust which they seek to prove.

[37] To deny the operation of the presumption of a resulting trust in circumstances where the payer of the purchase monies was in some respects a trustee could lead to unjust outcomes in many cases. In not all of those cases will the party who has paid the purchase price and who seeks to enforce the trust be a wrongdoer. Where that person is a wrongdoer, the equitable principles affecting the discretion to grant or refuse relief would provide ample protection against the imposition of a resulting trust which might further the wrongdoing. In summary, the existence of any trust or other equitable obligations owed by Mr and Mrs Lin in relation to the relevant funds is not fatal to their claim. Had I not been persuaded that the funds were probably theirs beneficially, I would have concluded still that they had provided the purchase price in the relevant sense, because the funds were held by Ms Lee, Mr Lin's mother or the Lins' solicitors on trust for the Lins, whether or not the Lins were themselves trustees.

[38] When this house was purchased, Konrad was a 17 year old school student living with and wholly supported by his parents. The presumption of advancement applies and it is for Mr and Mrs Lin to rebut it.[5] If that presumption is rebutted, it is presumed that their intention was to have Konrad hold the house on trust for them, unless it is established otherwise. It is for Mr and Mrs Lin to rebut the presumption of advancement, and if they do so, it is for Macquarie to rebut the presumption of the resulting trust. There is an overlap between the facts and circumstances which are relevant to those presumptions.

[39] Especially in the context of 1993, an amount of $6,800,000 was a very large sum by any standard to give a 17 year old by way of parental provision, even allowing for the fact that Mr and Mrs Lin were wealthy. Mr Lin gave evidence to the effect that this house constituted almost all of their accumulated capital. I do not accept that: it is clear that they had other property. Mr and Mrs Lin do not appear to have worked since coming to Australia and Mr Lin said that he had retired before he left Taiwan. The Lins appear to have lived comfortably, educating their children at private schools and owning expensive cars. They have made frequent returns to Taiwan for extensive periods, staying in the family house they have kept in Taipei. They have been able to maintain this large house in Brisbane. Undoubtedly they had what most people would consider to be substantial wealth beyond the money they used for this property. Of the assets specifically proved by the evidence, this house appears to have used up most of their money but I am not satisfied that the evidence presents a complete picture of their affairs and I infer from the circumstances I have mentioned that they must have had other substantial capital.

[40] Mr and Mrs Lin intended this to be the house in which not only Konrad but the entire family, including Konrad's grandmother, would live. That intention is not in dispute. The Lins argue that they could not have intended Konrad to have been the beneficial as well as the legal owner because that would have put in Konrad's hands the control of an asset which was of particular importance for the welfare of their entire family. Macquarie submits that they intended a gift, but with an expectation that Konrad would be "culturally obliged to respect and obey them" and to "do what his father [said]" in any respect concerning the house. On Macquarie's argument, Konrad was to be the beneficial owner, subject to a moral but not legal obligation that he would act in relation to the house in the way which was directed by his parents. That argument involves a tension between the suggested intention of a gift to Konrad and the suggested intention that Konrad would do with the house whatever they said. That tension is not fatal to the argument, but it does attribute a subtlety to the Lins' thinking which makes it relatively less likely to have been the fact.

[41] I accept that the Lins expected no difficulty from Konrad about the family's use of the house. But that could have been because they intended that the house would be their property beneficially, and that to the extent that Konrad's concurrence might be required in any respect, they expected that it would be provided. And regardless of what expectation they had of Konrad, the use of this house as the family home for many years would be more at risk by a gift of it to him, because of the potential for events in his personal and business life to have an impact, regardless of his attitude, as the present case starkly illustrates. Mr Lin was an experienced businessman whose fortune was self made, and who, as I see him, was unlikely to have intended to give away the beneficial ownership of such an important and valuable asset to a schoolboy son who had no business experience or demonstrated acumen. Whatever faith he might have had in Konrad, it is my view of him that he would not be inclined to empower Konrad to deal with the house. That view is fortified by the Lins' keeping the certificates of title in their possession, in the safe to which Konrad did not have access.

[42] Clearly a house such as this was going to require considerable upkeep and other expenditure for things such as rates and insurance. In 1994, Konrad was beginning his last year of schooling, and he seems to have had no other property, except for such money as his parents would provide from time to time. In theory, the Lins could have intended to give him the house and also to make further gifts by paying for its upkeep. And although it would be Konrad who would have the legal authority to decide what should be done for the maintenance or improvement of the house, it might be said that the Lins expected that he would not interfere and that they would make the relevant decisions as well as providing the necessary funds. There is some evidence that some expenses were paid from an account of Konrad's, or with his credit card. However, it is far from the case that most of the expenses of the house were paid in that way. To the extent that a relevant expense was paid from funds apparently belonging to Konrad, it was because Mr and Mrs Lin felt that they could treat those funds as their own. Of course Mr and Mrs Lin cannot rely on the evidence of their own contributions to the maintenance and improvement of the house, as evidence of their intention at the earlier point when the house was purchased. But the point is that at that time, Konrad had no apparent means of meeting the substantial costs of the house's ownership. That makes it less likely that he was intended to be the beneficial owner.

[43] If Konrad was to act in all respects according to his parents' directions, then he was unable to realise or otherwise deal with the house, or in any other way to exploit it as property. The only sense in which he would enjoy the property, at least during his parents' lives, would be by living there, albeit with the other members of the family. There is no indication that he could not have expected that benefit absent any ownership of the house, legally or beneficially. But Macquarie suggested that there was an explanation for a gift, in that Mr and Mrs Lin had not made wills (because, according to Mr Lin's evidence, it would bring them bad luck). Macquarie's argument is that this was effectively an act of estate planning. That involves the premise that they wished this property to pass to only one of their three children, upon the basis that the only son should hold what Macquarie's submissions described as the family seat. That premise is not demonstrated or indicated.

[44] I accept that there were no discussions between Konrad and his parents as to who would be the beneficial owner. That is another circumstance which makes it more likely that there was no intended gift. Had the Lins been giving the house to Konrad, it is likely that they would have told him, so as to promote his loyalty and sense of obligation. Instead they said nothing, because in their own minds the house would remain theirs.

[45] Conceivably the Lins saw some benefit to Konrad in having the legal ownership of such a prominent and obviously expensive property, in that it might provide him with a certain standing to begin a business or professional career. That would not have been inconsistent with his holding the property on trust for them. Instead it is a plausible explanation for it. It was not the explanation which the Lins gave in evidence. They said they put the house in Konrad's name because they believed that it would bring them good fortune to do so because of the coincidence of the "KLB" on the plaque. Macquarie submits that I should reject that explanation as contrived. I have accepted the evidence of Mr Hsu, the real estate agent, that Mr Lin was impressed by the plaque and saw it as some favourable sign. Ultimately, I accept the Lins' evidence that it was for this reason that the house was put in Konrad's name. That evidence, of course, is considered with everything else and what I see as a number of circumstances which make it improbable that they intended to give Konrad the house. Instead their intention was that they would remain beneficially entitled the house, as it was for example, in respect of the bank accounts in Ms Lee's name. Whilst Mr Lin was prepared to put very valuable assets in the names of others, my view of him is that he was unlikely to have seen fit to give away the family house to his schoolboy son.

[46] In my conclusion the Lins have proved that they did not intend to provide this house by way of advancement. There is then a resulting trust in their favour unless Macquarie can rebut it. In the way the matter was argued, there is no particular matter upon which Macquarie relies to rebut the presumption of resulting trust, apart from those matters which I have considered already.

[47] Subject to the bank's estoppel case, Mr and Mrs Lin have proved that Konrad holds the house upon a resulting trust for them. It is convenient to discuss that estoppel case after consideration of the other issues, and in particular those between Konrad and Macquarie.

[48] I turn then to the events leading to the transaction under which Konrad gave his guarantee. I shall discuss first the uncontroversial facts and the respective contentions.

[49] MPD was a company owned and controlled by Mr and Mrs Jackson-Knaggs. He was an accountant who went into the building business. They owned another company which was a house builder.

[50] Mr Jackson-Knaggs approached Macquarie Bank in July 1998 in relation to the subject development, later known as Papillon Villas. Through a firm of accountants, he wrote to Macquarie that he was "searching for equity to assist with the purchase of the site", adding that another institution (Esanda) had expressed interest in funding the construction. Merlin Pacific Pty Ltd (another Jackson-Knaggs company) contracted to buy the site by a contract dated 17 August 1998. The purchase price was $2,500,000 with a deposit of $50,000. The contract was conditional upon the grant of certain development and building approvals within 10 months. It was also conditional upon the obtaining of a finance approval within 30 days of the grant of the development and building approvals. The date for completion was 30 days from the obtaining of the finance approval. At this stage, Jackson-Knaggs had found no person to provide equity to assist with the purchase. But Macquarie expressed an interest in lending to fund the purchase and construction.

[51] On 28 October 1998, Macquarie's Mr Jim Cossart wrote to Mr Jackson-Knaggs to "set out our understanding of the status of your application and our attitude to the proposal". Mr Cossart has worked for Macquarie since 1996 and in the banking industry since 1972. In 1998-1999, his position, as he described it, was the director in charge of new business, working in Macquarie's Brisbane office. The letter enclosed a copy of what was described as "the Bank's feasibility model". Similar documents were prepared by Macquarie in 1999 at about the time of its dealings with Konrad. These documents involved an employment of expertise from within Macquarie, but they were based upon information provided by Jackson-Knaggs. In particular, they used his company's estimates of construction and development costs and sales revenue. In October 1998, the then feasibility model was said to be based upon a total development cost of $15.13 million, a gross revenue of around $19.5 million and a net development profit of just over $3.5 million. The model assumed that in addition to Macquarie's finance, the developer would provide initial capital of $800,000. As to that, Mr Cossart wrote that "[we] are also considering the possibility of the $800,000 equity being by way of a Bank Guarantee as opposed to an actual upfront cash injection". Under the heading "Security", he wrote that "[s]ecurity will consist of charges over the project assets together with guarantees from the principals involved in the project. The Bank expects that support to include ... [g]uarantees from the directors of the company". The letter details the likely returns to Macquarie as being interest at one per cent above the Macquarie Bank Prime Rate, an establishment fee of $76,500 and a "Fixed Project Development Fee" of $1 million. The feasibility model showed the projected net profit of $3.5 million apportioned as to that $1 million to Macquarie and the balance to the developer. Jackson-Knaggs was unable himself to provide that equity of $800,000 or to procure a bank guarantee. He needed to find another investor.

[52] By April 1999, Jackson-Knaggs had not found someone and the matter had not progressed further with Macquarie. The contract to purchase the site was yet to be settled. The precise progress of its approvals is not clear but it does appear that Jackson-Knaggs was concerned to obtain funds by about June, for fear of not completing the purchase and losing the deposit and other funds which had been spent on the project. There were meetings between Jackson-Knaggs, Mr Steven Morris, who was his solicitor and a director of his companies, and Mr Cossart. Mr Morris' firm, Barker Gosling, wrote to Mr Cossart on 27 April 1999, referring to their discussions and to a number of concerns which Macquarie had expressed about the project. They included the fact that the developer proposed to engage as the builder another Jackson-Knaggs company, MHD Constructions Pty Ltd, and that Jackson-Knaggs had a "perceived inability" to manage a project of this kind. The letter also referred to the prospect of "presales" of units, of which it appears that there were none at the time.

[53] On 7 May 1999, Macquarie wrote to Mr Jackson-Knaggs as the managing director of Merlin Pacific Pty Ltd, what Macquarie calls a "mandate letter". That is a letter which sets out proposed terms of a transaction, which the author offers to submit for consideration by Macquarie's credit committee, a group of more senior executives who together have authority to approve it. The borrower is asked to proceed by signing a copy of the mandate letter and returning it together with a cheque for a so-called application fee, upon which the proposal is then put to the credit committee. Jackson-Knaggs signed this letter, which I shall call the "first mandate letter", and returned it to Macquarie together with a $30,000 application fee upon the same date, 7 May 1999. This letter, like later versions, was signed for Macquarie by Mr Cossart and co-signed by Mr Steven Wiltshire, who also worked in the Brisbane office. He was of the same seniority as Mr Cossart but was less involved in day to day dealings with customers.

[54] This first mandate letter proposed a loan of $14,432,000 although the "peak debt" was not to exceed $6 million. The development was to involve five stages, the first of which would involve the construction of 17 of the 48 villas, and the sales of earlier stages were to partly fund subsequent stages. In this way, the amount owing to Macquarie at any time was to be much less than the aggregate of the advances it was to make over the five stages. That aggregate of $14.432 million was apportioned as to $3.072 million for land acquisition and associated establishment costs, $11.157 million for progressive funding of the development and $203,000 for capitalised interest. The rate of interest was to be 3 per cent above the Macquarie Bank Fixed Rate or certain alternative Macquarie rates (or 6 per cent above that rate in the event of default). The establishment fee was $70,000 and there was to be a fixed project development fee of $750,000. There was an attached one page feasibility study, showing net development costs of $14.432 million, net sales revenue of $17.704 million and a net development profit of $3.272 million, of which $750,000 (the fixed project development fee) was described as Macquarie's profit share and the balance the borrower's profit share. The provision of the first advance was conditional upon, amongst other things, the existence of eight presales of the 17 units within Stage 1, by unconditional contracts at "arm's length" from the borrower and its associates, and with a 10 per cent deposit paid. There was a condition that the borrower would provide a certificate from a solicitor acting for the borrower or any guarantor, confirming that that party was aware of the legal obligations created under the terms of the relevant security document. There was a further condition that there be a certificate of advice from a financial advisor confirming that the borrower or guarantor was aware of "the financial implications of the transaction".

[55] The letter provided that security was to be in the form acceptable to the bank and its solicitors and was to include, but not be limited to, certain securities which were there listed. They included a registered first mortgage over the site, a registered first fixed and floating charge over the borrower and guarantees by Mr and Mrs Jackson-Knaggs and certain other Jackson-Knaggs companies. They included MPD, which ultimately became the developer and the company to which Macquarie lent, and it was to that company that the land was conveyed. And it stipulated a further security of:

"An unconditional and irrevocable Bank Guarantee of $1,000,000 (provided by a third party) from a Bank acceptable to Macquarie Bank."

[56] On 19 May 1999, Macquarie sent a second mandate letter, again addressed to Mr Jackson-Knaggs as the managing director of MPD, and again signed by Mr Cossart and Mr Wiltshire. This letter proposed total advances of $13,382,000. The interest rate and fees were unchanged as were the presently relevant conditions. The proposal was different because it provided for a contribution by the borrower to the land acquisition and other initial costs. The proposed contribution was $1 million which was to be paid by MPD from a capital contribution by a third party. This was in lieu of the requirement of the first mandate letter that there be a $1 million bank guarantee. Mr Jackson-Knaggs accepted this second mandate letter, again on the date that it was sent.

[57] The changes from the first to the second mandate letter would suggest that some investor had been found, who was prepared to contribute $1 million. However, apart perhaps from Konrad Lin, there was no potential investor in sight, and it was not until 27 May 1999 that Konrad met or spoke to Jackson-Knaggs. His knowledge of the project before 27 May, and whether he had a copy of the first mandate letter before then, are matters in dispute. But it is common ground that there was no agreement by him to be involved in this project, until at least the meeting which occurred at the Lin house at Wynnum Road on the afternoon of 27 May. It is also common ground that whether or not Konrad had a copy of the first mandate letter before that meeting, he had not seen the second mandate letter and that it was not discussed with him at any time.[6]

[58] Konrad was introduced to this project by Macquarie. Konrad had met Mr Cossart on at least one occasion prior to these events, but they had had no business dealings. Konrad had had frequent contact with another Macquarie employee, Mr Dale Evans. He worked in a similar position to that of Mr Cossart but until May 1999, he had had no involvement with this project. Mr Evans had known Konrad from 1997 when he then worked for the Bank of Western Australia ("BankWest") in its Brisbane office. Whilst working for BankWest, Mr Evans had developed a substantial custom from the Taiwanese community in Australia. The Lin family had borrowed from BankWest for investment in shares, and by that means Konrad had met Mr Evans. It was also during his employment with BankWest that Mr Evans had come to know Mr Raymond Wu. Mr Wu was not employed by BankWest, but he acted on effectively a commission basis in bringing customers to it, and it was largely through his efforts that Mr Evans procured so much business from the Taiwanese community. Mr Evans is considerably older than Konrad, and by May 1999 he had assumed a role of something of a career advisor to Konrad, whom he must have seen as a source of considerable potential business.

[59] After leaving school, Konrad had graduated with a Bachelor of Commerce from the University of Queensland. He then went to work for stockbrokers, Morgans, at their office in Chatswood in Sydney. In that work, he no doubt gained experience in the share market but he gained no experience in property development. He left Morgans in early 1999 and returned to Brisbane, moving back into the house at Wynnum Road. He was wanting to work for Macquarie, and Mr Wu re-introduced him to Mr Evans in early 1999. Mr Wu, who is also considerably older than Konrad, had known Konrad for some years. Mr Wu had done some work for Mr and Mrs Lin. Konrad sat an examination to become employed by Macquarie in its share division but he was not offered a position.

[60] In the first half of 1999, Konrad was keeping frequent company with Mr Wu and Mr Evans. Consistently with the role Evans had assumed, Konrad called him "Uncle Dale", an expression which is used in the Chinese community for an older and respected person. Similarly, he would call Mr Wu "Uncle Wu". From time to time, Mr Wu and Mr Evans discussed with him different property developments in which Konrad might invest, and the three of them visited some development sites.

[61] According to Konrad, Mr Wu told him that Macquarie had this (Papillon) project which might interest him and Mr Wu arranged the meeting which took place at the house on 27 May 1999. On Konrad's version, he knew nothing of the project until that meeting and he had not seen any mandate letter. His case is that the representations of which he now complains were made at that meeting or subsequently.

[62] It is common ground that there was a meeting at the house on the afternoon of 27 May, attended by Konrad, Mr and Mrs Lin, Mr Cossart, Mr Evans, Mr Wu and Mr Jackson-Knaggs. What occurred at the meeting is strongly in dispute. There is also a dispute as to the events leading up to the meeting.

[63] Macquarie's case is that Konrad had been informed of the project about a fortnight prior to the meeting and he was then given a copy of the first mandate letter. Mr Cossart says that he gave a copy to Mr Evans and Mr Evans says that he gave it to Mr Wu with the request that Mr Wu show it to such persons as he thought might be interested. Mr Evans says he took the letter to Mr Wu's house on 13 May 1999. Mr Wu agrees with that, but says that Mr Evans requested him to approach not any interested party but specifically Konrad. Mr Wu says that he did just that and gave him the first mandate letter soon after.

[64] It is also common ground that on the morning of 27 May, there was a brief meeting at the office of Macquarie in Queen Street between Konrad, Mr Wu, Mr Cossart and Mr Evans. Konrad's evidence is that there was then no discussion of the project and that he was simply calling upon Cossart and Evans to personally extend an invitation to come to the house that afternoon. The other persons present at that meeting say that there was some discussion of the project although none says that it was extensive. As I mentioned, Konrad's case is that there was no relevant representation to him before the meeting at the house. Similarly, the Macquarie case does not rely upon any statement at this morning meeting which would affect the impact of what Konrad alleges was said in the afternoon. The significance, if any, of this dispute as to what was said at the morning meeting in Queen Street is that each side relies upon its version to show that Konrad was or was not familiar with the project before the afternoon meeting. That issue involves whether Mr Wu's evidence that he gave the first mandate letter to Konrad some days or weeks earlier, is to be accepted in preference to Konrad's evidence that he did not.

[65] Konrad claims to be relieved from his obligations as a guarantor because he was induced to give the guarantee by misrepresentations by Macquarie, which were misleading or deceptive in contravention of s 52 of the Trade Practices Act 1974 (Cth). The representations are of two kinds. First, he says that the legal effect of the guarantee was misrepresented. Secondly, he says that Macquarie misrepresented the commercial merit of an investment in this project. He says that misrepresentations of this second kind were not only in breach of s 52 but also in breach of a duty of care which Macquarie owed to him.

[66] He pleads that at the meeting at the house on 27 May 1999, Mr Evans made statements to the effect that his potential loss would be only in relation to his contribution to the discharge of a bank guarantee of $1 million, which he and Mr Wu would cause to be provided. He pleads that Evans represented that Konrad's "maximum personal exposure in respect of the Project would be $500,000.00", on the basis that his contribution would be no more than one half.

[67] Konrad then pleads that "[a]t a further meeting in or about June 1999", Evans made further representations to this effect: that a bank guarantee was no longer required, Konrad and Mr Wu would now provide personal guarantees, "the personal guarantees would mean that, should the Project fail, [Konrad] and Mr Wu would [each] have to pay up to $500,000 to the plaintiff" and that "[Konrad's] maximum personal exposure ... would therefore remain $500,000". He then pleads that Macquarie did not at any time correct or alter the effect of what Mr Evans had said, and that Konrad thereafter signed the documents by which he became bound under the misapprehension that his liability as a guarantor was limited to an amount of $500,000.

[68] The representations as to the commercial merit of the project were allegedly made by Mr Evans and Mr Cossart at the meeting at the house on 27 May. They are pleaded as representations that:

• There were contracts for the sale of 10 of the 17 units in Stage 1 and a 10 per cent deposit had been paid in each case.

• Those contracts were at "arm's length", not involving parties related to MPD.

• The "worst scenario for [Konrad] was that 7 of the 17 units would have to be discounted 30% off their list price ... [resulting] in a reduction of the projected return for Stage 1 of the Project by $1,050,000.00 ... [reducing] the overall net development profit ... to $2,272,000.00. Even in that event, ... the Project would not necessarily suffer any loss or overall reduction in profit as any such reduction would be absorbed by significant increases in the market value of the remaining land".

• Certain monies to be paid by Konrad to purchase an interest in (MPD) would be recoverable "early in the Project".

• Macquarie was highly experienced in financing and managing developments of this nature and that it would have full management and control over each stage of the project.

• Impliedly, that Macquarie had reasonable grounds for making such representations.

[69] With some exceptions, Konrad's evidence, if accepted, would prove that each of those representations was made. One exception is the alleged representation as to the worst scenario. The apparent difference between Konrad's pleaded case and his evidence in that respect is discussed below. Another is the representation that Macquarie would have "full management and control over each stage of the project".

[70] The representation as to the monies paid by Konrad being recoverable early in the project is not alleged to have been false or wrongful in any respect; nor is the representation as to Macquarie's experience (although that is a relevant context for other representations).

[71] The making of each of the other representations is disputed and according to the evidence of each of Mr Evans, Mr Cossart and Mr Wu, none of them was made. Mr Lin and for most of the time Mrs Lin were present at this meeting. Neither of them could understand what was being said in English. All witnesses agree that from time to time things were translated to Mr Lin by Konrad. There is some difference between the witnesses as to the extent to which Konrad did so, but he agrees that he was intending his father to understand the effect of the discussions, what was being said about the development and the proposed terms of an investment, because he wanted the benefit of his father's business experience.

[72] On all accounts of the house meeting, there was discussion of Konrad and Mr Wu each taking a 25 per cent shareholding in MPD and of their lending in total $250,000 to it, which was to be repaid from Macquarie's first advance. Jackson-Knaggs had said that he had spent $500,000 towards the development and that they should reimburse him for half of that by a loan to the company, to the end that he would be also repaid $250,000 from the first advance. Within a few days of the house meeting, Konrad and Mr Wu had caused $250,000 to be lent and they, or more precisely companies associated with them, had become the owners of in total 50 per cent of MPD. Konrad caused 25 per cent of MPD to be acquired by Pao Lin Investments Co Pty Ltd ("Pao Lin"). It was the trustee of a discretionary trust in which members of the Lin family were potential beneficiaries. Its directors were Mr and Mrs Lin and Konrad. According to its Balance Sheet at 30 June 1999, it had no assets apart from those held upon trust. Its assets were shares in listed companies and short term deposits, totalling about $900,000. Its liabilities were about $1,285,000 of which $1,250,000 was non-current and was probably the borrowing from BankWest for share trading. Konrad says that he used Pao Lin because he wanted in some way to reduce his potential tax liability upon a profit from this development, although he says that in discussions with his parents, it was clear that the shareholding and income was to be his. Mr Wu took a 25 per cent shareholding through his company Chinese Investment Group Pty Ltd.

[73] The new shareholding in MPD was the subject of a contract, entitled Shareholders Agreement, executed by Pao Lin and Chinese Investment Group on 31 May 1999 and by the other shareholder, Merlin Pacific Pty Ltd, at about the same time. It recorded the agreed transfer by Merlin Pacific of 50 shares in MPD for the sum of $50, and the agreement of the new shareholders to provide the sum of $249,950 to MPD as loans. They agreed to "join with Merlin in providing the requested securities and guarantees required by [Macquarie] to complete the acquisition and development of the Project". A share certificate was issued to Pao Lin for its 25 shares, which was dated 28 May, as were the minutes of a directors' meeting of Merlin Pacific recording its resolution to sell one half of MPD. There are varying accounts of a visit to the development site by Mr and Mrs Lin and Konrad, which Konrad said occurred on 28 May as the day after the house meeting. It may be that Konrad had not decided to go ahead until after this inspection. But on any view, a decision to invest had been made, whether by Konrad alone or with his parents, by 31 May.

[74] Konrad's case is that he ultimately signed the guarantee under the mistaken belief that his liability was limited to $500,000. As mentioned, the case is that on 27 May, he thought that a bank guarantee was to be provided, but that at a subsequent meeting he was told by Mr Evans that he and Mr Wu would provide personal guarantees although each with a limit of $500,000. Yet, in his examination-in-chief, he could not recall that subsequent meeting or being told about a personal guarantee with a monetary limit. All he could say was:

"... At some time was there a discussion between yourself and Mr Evans to the effect, or regarding the dropping of the bank's requirement for a bank guarantee and a personal guarantee being accepted as an alternative? Do you recall any conversation with Mr Evans or indeed Cossart about that?-- No, I can't remember.

... I'm not referring to a particular date now, it might be 27 May or 2 June, just as to whether the question of a personal guarantee in lieu of a bank guarantee was discussed?-- No."

[75] In cross-examination, Konrad said that at some point "Macquarie Bank didn't ask us to provide bank guarantee anymore" but he did not go on to say anything of any meeting, and in particular with Evans, in which that change was discussed. In re-examination, he said this:

"... What was - what, if anything, was said to you by any representative of Macquarie Bank regarding the absence of an ongoing requirement for a bank guarantee?-- Well, the reason why I know we don't have to provide a bank guarantee anymore is because both Mr Wu and I have joined the project and we were told - see, $1 million explained to us was if the project makes a loss and then that $1 million will be called by the bank to pay for a loss, and when Mr Wu and I join the project, we were then told that instead of giving the $1 million upfront, if - when the project is completed and if there's loss, then we'll be called to give that $1 million guarantee.

When did that occur; if on more than one occasion can you assist us with that?-- No, he just say that once.

Approximately when was that by reference, perhaps for your assistance, to the meeting in the afternoon of 27 May?-- No, it was after the meeting.

After the meeting, but the same day or a later day?-- I think it was a later date.

Do you remember you said to me that it was, as best you could recall, the next day, 28 May, that you contacted someone at Macquarie, telling them that you were going to go ahead?-- Yes.

Does that assist your recollection?-- I can't - I cannot give you a date.

I think in the answer you gave to me a couple of questions ago, you used a phrase to the effect of "putting" or "giving $1 million upfront". Do you recall saying that?-- Yes.

What did you mean when you said that?-- Well, this is the $1 million bank guarantee I was referring to. What my understanding was to provide the $1 million bank guarantee upfront was, you know, when we join the project, but when I said later I meant, you know, after the project.

Go on. Can you finish that, "After the project", what?-- Is completed. If, for example, the market takes a dive and those units have to be sold at a discounted price, then we'll be called to pay that money."

[76] Mr Evans denies that he in any way represented that the guarantees to be given by Konrad and Mr Wu, as distinct from the proposed bank guarantee, were to be to a limited amount. But assuming everything in Konrad's favour, it would seem that any such statement by Mr Evans was likely to have been after Pao Lin became a shareholder and it contributed $125,000.

[77] On 31 May, Konrad signed a further document when he inserted details within a standard form used by Macquarie headed "Statement of Assets and Liabilities". Konrad listed his assets as worth $23,502,000 and his liabilities as nil. Against "deposit" he wrote $500,000. Against "real estate" he referred to three properties: the house at 62 Wynnum Road and the two investment properties in the names of his parents. The house was given a value of $12 million and the investment properties a total value of $590,000. He listed three motor vehicles with a total value of $412,000. He represented that he had shares worth $2 million, furniture and fittings worth $3 million and jewellery worth $5 million. He showed his monthly income as a "trading net profit" of $21,000, together with rent of $550, and his monthly expenditure as $16,170. He was unemployed at the time and there was no basis for what he represented as his income. He was in receipt of no rent because the rental properties were owned by his parents. Yet they were included within his assets, as were two very expensive cars which were owned and driven by his parents. The representation of $2 million of shares had no basis in fact and nor did that of $5 million worth of jewellery. The house at Wynnum Road had been bought fully furnished and conceivably much of the furniture was valuable. But there is no apparent basis for an estimate of $3 million as its value. Upon any view, this document comprised several misrepresentations, as Konrad must have known. He explained it by saying that Mr Evans told him what to write in it, which again is denied by Mr Evans.

[78] On 1 June 1999, accountants who had prepared the records of Pao Lin faxed to Macquarie, to the attention of Mr Evans, copies of Pao Lin accounts and tax returns.

[79] On 2 June 1999, Macquarie sent its third mandate letter. It was addressed to Jackson-Knaggs as the managing director of MPD. Copies were not sent by Macquarie to MPD's shareholders and in particular to Konrad or Pao Lin. Jackson-Knaggs signed it for MPD on the same day. This third mandate letter provided for advances in aggregate of $14,655,000 including an initial advance of $3,216,000. It abandoned the proposal in the second mandate letter that MPD provide its own $1 million towards the purchase of the site. It required neither the bank guarantee proposed by the first mandate letter nor the $1 million capital contribution proposed by the second mandate letter. Instead, the required security included joint and several guarantees not only from the Jackson-Knaggs and their companies, but from Mr Wu, certain companies of Mr Wu, and from Konrad Lin. Although a guarantee was required from Chinese Investment Group, through which Mr Wu had taken his shareholding, there was no mention of Pao Lin. The interest rate and fees payable to Macquarie were as they had been proposed in the first and second mandate letters. The relevant conditions were the same. On no sensible understanding of this third mandate letter could Konrad have understood that his liability as a guarantor would be limited. He does not say otherwise: he says that he did not see the letter. Yet Mr Wu saw it, as appears from a fax[7] which his assistant sent to Mr Clapin on 11 June 1999, enclosing a copy of it on which she had ticked off the references to the security required from Mr Wu and Konrad. He is the principal sued by Konrad in the third party proceedings.

[80] Konrad and Mr Wu became directors of MPD and Konrad attended his first board meeting on 10 June 1999. Also present were Mr and Mrs Jackson-Knaggs, a representative of Mr Wu and Mr Steven Morris, who was elected chairman. Mr Morris was involved through his being the solicitor for the Jackson-Knaggs. One plea by Macquarie is that Mr Morris was Konrad's or his parents' solicitor but this is contrary to all of the relevant evidence. At no time was Mr Morris acting for any of the Lin family.

[81] The minutes of the 10 June meeting record a discussion of "the conditions precedent" in terms which appear to refer to the conditions in each of the mandate letters. But they do not record that the third mandate letter was tabled or that all directors had seen it. In relation to presales, they record that "8 sales in stage 1 where [sic] required and where [sic] obtained".

[82] On the following day, 11 June, Konrad and Mr Wu met with Mr Clapin. Mr Clapin had long been Mr Wu's solicitor, but at least as Mr Clapin understood the position, he began to act also on behalf of Konrad and Pao Lin. There was some exploration in the evidence of Mr Clapin's role at the time of the shareholders' agreement at the end of May, but it is unnecessary to resolve that. By 11 June at least, Mr Clapin was purporting to act not only for Mr Wu but for Konrad and Pao Lin. On that date, he wrote a letter to Mr Morris saying that he had instructions from the directors of Chinese Investment Group and Pao Lin to request that their accountants, Deloitte Touche Tohmatsu, be permitted to examine the books and records "for the purpose of reporting to the directors of the two investors" and "so that they have an understanding of the company's financial position and be aware of its commitments ...". On the following Monday, 14 June, Mr Morris' firm replied, at the same time saying something about Mr and Mrs Lin which is of potential relevance to Macquarie's estoppel case against them. Mr Morris wrote:

"You will recall at the meeting in my office when the original deal was settled that Mark Jackson-Knaggs flagged the need to settle the land by the 15th ... You will recall that Raymond [Mr Wu] then believed that he/we could pressure Macquarie Bank to settle on the 10th on the basis that Mr & Mrs Lin senior would not be in the Country. Macquarie overcame that need by deleting them from the security requirements."

This suggests that at one stage Macquarie was requesting securities from Mr and Mrs Lin, and Mr Wu gave evidence of this request.

[83] In the next few days there was some apparent disagreement amongst the directors as Mr Wu and Mr Lin pressed for financial information before making their contributions which Jackson-Knaggs was saying were urgently required. On 16 June there was a further meeting of the directors of MPD attended by Mr and Mrs Jackson-Knaggs, Mr Morris, Mr Wu and Konrad. The minutes record some disagreement as to whether the new shareholders had properly cooperated in contributing to expenses, and they contain this reference:

"Mr Wu went on to explain the background of their involvement into the company. The position with regard to Macquarie Bank mandate letter and the attached feasibility.

He pointed out that there was a subsequent shift of the original profit of the development and spoke about the conflict as far as the changes in the feasibility and profit levels, the amount to be further contributed as discussed at the initial settlement on 31 May 1999 compared to the amounts now being required ..."

"The Macquarie Bank approval timing and issues were discussed on a general basis with the Bank to be chased to proceed with their formal approval on an urgent basis."

The minutes indicate some understanding, at least by Mr Wu that the "original profit" had "shifted" from that in the mandate letter and the attached feasibility. The minutes do not specify which mandate letter was being discussed.

[84] On 18 June, Macquarie's credit committee was yet to agree to the proposal. It was being pressed by MPD at least through Mr Morris. On that date, Mr Morris wrote to Mr Cossart to address items in "your mandate letter". In relation to presales, Mr Morris represented that "Eight Contract [sic] have been obtained for pre-sales in Stage 1 together with a further Contract in Stage 5" and that the contracts were unconditional and were "arm's length" from the customer. Rather than saying that a 10 per cent deposit had been paid, he said that the contracts required such a deposit:

"although the suggested arrangement of an Insurance Bond has proved to be both time consuming and unwieldy. Some of the Buyers are obtaining Bank Guarantees. 3 Buyers have made a request that if they pay by a cash deposit that they do not want a large amount of money such as 10% tied up for such a lengthy period. ... Please advise immediately if the bank has any difficulties with a lower deposit being paid."

[85] By 23 June, the credit committee of Macquarie had authorised the transaction. On that date, Mr Morris wrote to Mr Cossart confirming that approval "on the identical terms as the mandate letter of the 2nd June 1999 with one proviso", which was:

"... that the property at 68 Wynnum Road, Norman Park is to remain in the ownership of the Lin family during the term of the loan. Can you please advise if this is correct."

[86] A condition of that kind was then imposed by Macquarie, although, as I will discuss, it was in terms of Konrad's ownership of the house rather than the house being in the ownership of the Lin family. The credit committee comprised, at least for this transaction, Mr Grant Munro, Mr Larry Sacks, Mr Nicholas Minogue and Mr Allan Moss. None of them gave evidence, although Macquarie's case is that Mr and Mrs Lin are estopped from claiming the house vis a vis Macquarie because it contracted in the belief that it belonged to Konrad and that it held that belief through those persons.

[87] Solicitors for Macquarie prepared the necessary documents, which they sent to Mr Morris' firm on 1 July. One of them was the Fixed Fee Facility and Guarantee Agreement, which included a guarantee, unlimited by amount, to be signed by the guarantors nominated in the third mandate letter including, of course, Konrad Lin. There were forms of certificate to be signed by solicitors and financial advisors for the individual guarantors, as proposed by the mandate letters. The first draft of the Fixed Fee Facility and Guarantee Agreement contained these covenants within the clause designated as Item 27:

"(ii) (Negative Pledge): The Customer and Guarantors will covenant to seek the Lender's approval in writing prior to disposing, mortgaging or pledging any direct or indirect interest in any assets other than in the normal course of business.

(iii) (Covenant by Konrad Lin): Without limiting Item 27(ii), the Guarantor Konrad Lin covenants that he will not:

(a) encumber, sell, transfer, lease, licence or otherwise dispose of any interest he has in the property located at 62 Wynnum Road, Norman Park without the prior written consent of the Lender, which consent may be refused in the Lender's absolute discretion or issued on such terms and conditions as the Lender considers appropriate; or

(b) allow his total net worth (as assessed in its absolute discretion by the Lender) to fall below $5,000,000.00."

[88] These covenants, and the subsequent amendments to them before the document was signed, are important in several respects. They are relevant to Konrad's case that he believed that his maximum exposure was $500,000, because the covenant is to the effect that he will not allow his total net worth to fall below $5,000,000. And they are relevant to the case brought by Mr and Mrs Lin, and in particular to Macquarie's plea that it believed that Konrad beneficially owned the house as an element of its case that Mr and Mrs Lin are estopped.

[89] On 5 July 1999, there was a further meeting of the directors of MPD, at which all five directors were present. The minutes record that the various Macquarie documents were discussed and that "they accorded with the previously issued mandate letter from Macquarie Bank Limited". But prior to that meeting but also on 5 July, Mr Morris had written to Macquarie's solicitor saying that there were some issues requiring immediate attention, of which one was the proposed Item 27(iii) in relation to 62 Wynnum Road. Mr Morris wrote:

"The requirement that Konrad Lin not encumber the property at 62 Wynnum [Road], Norman Park had not been previously raised. This is not acceptable. It has been deleted from the Fixed Fee Facility and Guarantee Agreement."

With that covenant deleted, Item 27(ii) would still have prevented Konrad from selling, transferring, leasing, licensing or otherwise disposing of any interest he had in the house. Konrad's evidence is that Mr Jackson-Knaggs told him one day at MPD's offices that Macquarie would impose a condition that the house remain in the same ownership, and that Konrad rang Mr Evans about that matter. He says that he told Mr Evans that the house would not be sold in the next two years "because it's the family home and my parents have no intention of selling it" to which Mr Evans simply said that the condition was "normal bank practice". Mr Evans does not agree with that evidence. Konrad refers also to an apparently different occasion when he discussed the covenants in relation to the house, when he rang Mr Evans and told him that he could not agree to the covenant insofar as it included the word "encumber". He says that he told Evans that he could agree not to sell the house "but my parents might want to mortgage the house for their own benefit, so I cannot give him the assurance that the house will not be mortgaged". He is not sure when this conversation occurred. Nor can he recall precisely when he signed the document or initialled a change or changes to Item 27(iii). The document as ultimately signed and sent to Macquarie is dated 7 July 1999 and Item 27(iii) shows that the original draft, which I have set out above, was amended in several respects.

[90] First, the word "encumber" was crossed through, where it had appeared at the beginning of paragraph (a). Secondly, in relation to Macquarie's consent to a sale, transfer, etc. the words "may be refused in the Lender's absolute discretion or issued on such terms and conditions as the Lender considers appropriate" were ruled through and replaced with the handwritten words "will not be unreasonably withheld". Thirdly, in paragraph (b) in relation to Macquarie's assessment of Konrad's total net worth, the words "in its absolute discretion" were ruled through and the handwritten words "acting reasonably" were inserted after "the Lender". As other witnesses explained, and Konrad did not challenge, some of those amendments were made and initialled by the parties, and some were made later and re-initialled, but prior to the document being sent to Macquarie for its signature. As Mr Clapin explained the process, the changes which resulted in the handwritten insertions were made at a meeting at Mr Morris' office on 7 July 1999, and it is Mr Clapin's handwriting which appears. The change to cross out the word "encumber" was made earlier.

[91] Macquarie required certificates from a financial advisor and a solicitor in relation to each guarantor, as Konrad knew, at least by 5 July. He and Mr Wu went to Deloittes and Mr Clapin for the certificates. They were unable to see the person in Deloittes they had in mind and instead they were directed to Mr Carroll of that firm, who was called in Macquarie's case. He signed the certificate which, as appears from his own evidence, was false in that he gave no advice. In particular, he did not explain to Konrad "the financial implications of the finance transaction between [MPD] and Macquarie" and nor did he advise him "on all ancillary matters pertinent or relevant to the financial implications of the finance transaction ...". If Konrad had been misled, either as to the extent of his legal liability or as to the development and its prospects, there is nothing which he would have learned from Mr Carroll which would have helped him.

[92] Mr Clapin signed the solicitor's certificate, certifying and warranting that he had explained to Konrad "the nature and effect of the finance transaction between [MPD] and Macquarie" and that he had informed and advised him "on the terms and conditions of the Guarantee and its effect in the event of a default by [MPD]" and "of his obligations under the Guarantee and in particular the limit of his liability under the Guarantee for the payment of moneys when called upon so to do under the terms of the Guarantee". In that respect, the wording of the certificate was curious, because there was no limit to his liability under the guarantee. As he had with the Carroll certificate, Konrad countersigned Mr Clapin's certificate, acknowledging that he had received the relevant advice. Konrad's evidence is that he had no advice, or at least no advice of any substance from Mr Clapin. He says that his meeting with Mr Clapin, at which they signed the certificate, took less than five minutes. It occurred "during the signing ceremony" of the documents as a whole, which was interrupted when Mr Clapin, Mr Wu and Konrad were left alone for a few minutes for the purpose of the certificate. He says he asked Mr Clapin whether they were "standard documents" and the reply was "yes"; he asked him whether there were any "traps" and Mr Clapin said "no", and that was their discussion, apart from a few questions asked by Mr Wu.

[93] Mr Clapin's evidence is quite different. According to his version, he gave extensive advice by reference to several clauses of the documents. Mr Clapin says that he was at the directors' meeting of 5 July which took place in the boardroom of Mr Morris' firm, Barker Gosling. He recalls the Macquarie draft documents being there for discussion and that each person present at the meeting seemed to have copies. After some discussion, Mr Clapin says that he was left with Konrad and Mr Wu so that he could provide them with the required legal advice. He invited them to read the Fixed Fee Facility and Guarantee Agreement as they seemed to do. He recalls that he had already seen the document. He discussed with them the schedule to the document and then took them to a number of clauses. In his evidence, Mr Clapin gave a detailed account of what he had said to Konrad in respect of particular clauses. He did this without the benefit of a diary note. Although the evidence shows that he usually made diary notes, he says that he did not make one in this instance because he regarded the certificate itself as a sufficient record of his advice. He specifically referred, he says, to the provision that the guarantors could not rely upon any representation that had been made by Macquarie "if anything went wrong". As to the guarantee, he says that he explained to them that they were giving unlimited guarantees by which he meant:

"that they were guaranteeing the full facility, whatever was owing on it, together with any interest that was owing, the fixed fee if the facility had been drawn upon, and any legal fees or any other fees the bank might incur if there was a default which they had to rectify. I was telling them that the bank had the discretion as to which guarantor he [sic] could call upon to remedy a default if there was one, that it did not have to exercise its rights against the security property first, although I thought in usual circumstances a bank would, but in this circumstance, because they'd singled out Konrad's property in the agreement, then perhaps they would chase that first."

[94] He says that whilst Konrad was unhappy about the draft Item 27(iii), Konrad said nothing about the unlimited nature of the guarantee. According to Mr Clapin it was the problem with Item 27(iii) that delayed matters until an amended version of the document was signed and sent on 7 July.

[95] On 6 July, Mr Morris wrote to Macquarie's solicitors arguing for the deletion of the word "encumber" from Item 27(iii). Mr Clapin's evidence is that Konrad had himself crossed out that word on the draft. On 7 July, Mr Morris wrote directly to Mr Cossart, referring to discussions between them that morning and attaching a redraft of Item 27(iii), as to which, he wrote: "Konrad Lin and his parents have agreed". Macquarie pleads that this was one of several acts by which Mr and Mrs Lin were "complicit in, alternatively permitted or suffered" Konrad to represent that the property was his, legally and beneficially. That particular can be rejected immediately. Not only is the letter more consistent with Mr and Mrs Lin having an interest in the house, (instead of Konrad being the beneficial owner) but as I have found, in no respect did Mr Morris act for Mr and Mrs Lin or, if it matters, for Konrad.

[96] At the meeting of directors on 7 July, when the documents in their final form were signed, some additional matters were discussed. Mr Clapin recalls that one of them was the matter of presales although he has not made a specific note about that and nor is it specifically mentioned in the minutes. But Mr Clapin did note a matter of a proposed mortgage to be given to "Konrad's father". The evidence on this was not admitted in the case brought by Mr and Mrs Lin, but it is part of the evidence in Macquarie's case against Konrad and in his third party proceedings. Mr Clapin's note, confirmed by his oral evidence, is that:

"The board resolved to grant Konrad's father a 2nd mtge to reduce as the mtge liability to Macquarie reduces and to be released at the same time as Macquarie Bank's mtge is to be released. [Mr Morris] to write to Mr Lin confirming the decision of the board. Konrad advised it is not necessary for the 2nd mtge to be prepared immediately".

[97] The matter of that second mortgage was the subject of Mr Morris' letter to Konrad of 7 July, in which he confirmed that MPD had agreed "to provide to you or your parents' company [apparent reference to Pao Lin] a second mortgage over the [development] property [to] reduce in accordance with the debt owing to Macquarie Bank Limited". Mr Morris wrote that:

"You will be responsible for the preparation costs, stamp duty and registration fees on the second mortgage. I would suggest that the mortgage not be stamped or registered but simply held by your solicitor, Peter Clapin to be used at a time in the future when you think it is necessary. This will save around $25,000.00 in stamp duty and registration fees".

As it happened, no second mortgage was prepared. No complaint is made against Mr Clapin in that respect. Apparently he was not asked to address that matter. Also on 7 July, Mr Morris wrote to Macquarie's solicitors enclosing copies of contracts, or purported contracts, by way of presales and advising of other matters relevant to Macquarie's requirements before it would make the first advance. It enclosed a schedule of presales to which I will return.

[98] On 8 July, Macquarie's solicitors wrote to Mr Morris, saying that they were awaiting instructions as to certain matters including the terms of "the Konrad Lin covenant", reference to Item 27(iii). On 9 July, Mr Morris sent to Mr Cossart copies of the 1997 and 1998 taxation returns for Konrad, which declared a modest income and said, not surprisingly, nothing as to what were his assets. Macquarie's own records show that approval was ultimately given on 9 July to go ahead, notwithstanding that the number of presales was seven.

[99] On 12 July 1999 Macquarie made the first advance, by payments totalling $3,282,670. They included $125,000 as the repayment of Pao Lin's loan to MPD. A building contract was made between MPD and Mr Jackson-Knaggs' company, MHD Constructions Pty Ltd in relation to Stage 1.

[100] Work then began but before long there were serious delays and cost overruns. The proposal for a second mortgage was raised again by Konrad but it came to nothing. The minutes of the directors' meeting of 12 August 1999 record that he "raised the issue of the second mortgage which is being prepared by Peter Clapin. He confirmed it will be sent out shortly for signing and will be produced to the next board meeting". As I have mentioned, Mr Clapin says that he was not asked to prepare that mortgage, and Konrad does not say that he was.

[101] The problems in the development led to a further agreement between the parties including all guarantors, in a so called variation agreement dated 14 February 2000. The contract became one whereby the development was to be financed only to the completion of Stage 1. The termination date, which had been 30 months from the date of the initial advance (making it 12 January 2002) became 31 July 2000. An amended feasibility was inserted, which projected a loss of $1,189,830. The previous condition as to presales was deleted. Further covenants were added, whereby MPD was required, prior to 5 March 2000, either to repay $300,000 of the principal or pay that amount toward project costs as agreed by the lender. It thereby required MPD to raise and contribute $300,000 to the project, rather than relying wholly upon Macquarie to finance it. It was further agreed that by 15 April 2000, MPD was to pay another $320,000 in repayment of the principal, unless it could substantiate at a certain level the value of the land remaining after Stage 1. If it could not do so, it was required to make further payments or provide certain additional security by 5 May 2000. The original agreement had provided for a Fixed Fee of $750,000. Clause 8.3 had provided that MPD would pay the Fixed Fee upon the earlier repayment of the loan and the "Termination Date". The Fixed Fee was defined as the fee "described or calculated in accordance with Item 30 of the Schedule", and against Item 30 under 'Fixed Fee' was the sum of $750,000. By the variation agreement, a new Item 30 was substituted, by which the fee was to be $375,000 subject to increase or decrease according to whether MPD had repaid all of the loan before or after 31 July 2000.

[102] The project continued to suffer delay and cost overruns. MPD had to find further funds, and to a substantial extent they came through Konrad. I find that further funds were contributed, either by a payment to MPD or a payment directly to Macquarie, by Konrad as follows:

Date Amount

27.01.00 $ 11,904.20

05.05.00 $ 75,000.00

11.08.00 $100,000.00

08.09.00 $ 40,851.04

04.10.00 $ 25,700.68

06.10.00 $ 31,803.52

26.10.00 $ 28,667.66

These payments were from funds drawn from Pao Lin. There was an argument as to whether these payments could be recovered under a counterclaim by Konrad. He argued that Macquarie's Answer concedes that it was part of his loss. It is unnecessary for me to resolve that, as appears below.

[103] On 1 August 2000 Macquarie wrote to Mr Jackson-Knaggs, with copies to Mr Wu and Konrad, advising that the "facility is now in default and all obligations are now due and payable". A second variation was made to the facility agreement by a document signed by all parties on about 4 September 2000. It further extended the termination date to 31 October 2000. At around this time and for a little while later, there were frequent meetings, discussions and correspondence between MPD and Macquarie or their representatives, in most of which Konrad was involved. It is unnecessary to detail them although they received considerable attention in Macquarie's cross-examination of Konrad, which was directed to demonstrating that Konrad made no complaint of any misrepresentation until later, and in particular after Macquarie had gone into possession and had made formal demand upon him. I accept that he did not complain until then, although he must have realised that he had been misled by Macquarie's representations as to the project if, as he says, Macquarie had made them.

[104] Curiously, Konrad did not say when it was that he became aware that his liability as a guarantor was unlimited if, as he alleges, he had thought that it was limited to $500,000. Had he gone into this transaction in the belief that his maximum liability was $500,000, the realisation that it was unlimited, in circumstances where there was, at the least, a real probability that his guarantee would be called upon, would have been a significant event and one which he would be expected to recall. On 1 November 2000 Macquarie wrote to Konrad saying that MPD was in default having regard to the varied termination date of 31 October 2000, and demanding immediate repayment of the principal sum. On 22 November 2000 Macquarie's solicitors demanded possession of the Papillon site and other mortgaged property. That included files held by Barker Gosling, as the solicitors for MPD, in relation to sales of units and other related issues. Barker Gosling demanded that their outstanding fees, totalling $43,825.77, be paid before they would hand over the files. Macquarie paid those fees and now claims them as part of its debt. There is a dispute about its entitlement to do so, to which I will return.

[105] On 24 January 2001, Macquarie's solicitors wrote to Konrad advising that MPD had failed to pay the principal sum of $8,591,922.85 on 31 October 2000 and that the bank had instructed them to commence "the process to initiate legal proceedings against some of the guarantors". They asked Konrad to advise Macquarie in writing by 29 January of his intentions in relation to the provision of "additional equity and/or registered security in support of your obligations" failing which, proceedings would be commenced.

[106] On 29 January 2001, O'Shea Corser and Wadley, as solicitors for Konrad, wrote to Macquarie's solicitors saying that their client believed that he had legitimate claims against Macquarie and certain of its officers for damages for negligence and breaches of the Trade Practices Act. This was the first indication of such a complaint. Macquarie commenced its proceedings against Konrad two days later.

[107] Ultimately, with a few exceptions, Konrad admits the debt owing by MPD to Macquarie. I shall return to those issues, but apart from those matters of quantification, Konrad's defence is that he was induced to give this guarantee by the misrepresentations he alleges were made at the meeting at the house on 27 May 1999 and in one respect subsequently. I turn then to consider those allegations.

[108] The case is that Konrad became involved in this project, and in particular, gave an unconditional guarantee, because he had been made to believe by Macquarie that he was not liable to pay more than $500,000 in any event. He says that his belief came from three matters. The first is that Mr Evans told him at the meeting at the house that he would have to provide a bank guarantee for which his maximum exposure would be $500,000. The second is that "at a further meeting in or about June 1999", Mr Evans told him that a bank guarantee from Konrad and Mr Wu was no longer necessary, but that they would have to provide personal guarantees for which the "maximum personal exposure" of each would be $500,000. Thirdly, he says that there was nothing which Macquarie did after that meeting with Mr Evans to correct or alter the effect of Mr Evans' representation.

[109] Konrad says that he was given a copy of the first mandate letter at the house on 27 May. It provided for a bank guarantee in the sum of $1 million. He says that anything said at the meeting as to any security concerned that requirement for a bank guarantee. The versions of other witnesses who were at that meeting are different. Mr Evans denies that he said anything as to the securities. He says that Mr Jackson-Knaggs referred to the proposed requirement for a bank guarantee and that Mr Cossart said that, in effect, the conditions as to security were uncertain because the matter would require formal approval within Macquarie. And Mr Evans denies that there was a copy of the mandate letter at the meeting.

[110] Mr Cossart agreed with Mr Evans' version that Mr Jackson-Knaggs did most of the talking, making something of a sales presentation which Mr Cossart said took 20 to 30 minutes. There was some questioning of Mr Jackson-Knaggs by Konrad. Mr Jackson-Knaggs said that some immediate funding involving a loan of approximately $250,000 was required and "an ongoing participation in the development by way of, firstly, a shareholding and, secondly, providing some securities to the bank". Mr Cossart also said that in the context of a discussion as to cost overruns, Mr Cossart said that they would not be funded by Macquarie but the responsibility was to be that of "the guarantors". His evidence was that:

"Konrad was informed that the bank would require a joint and several guarantee from himself, in addition at that point in time if Raymond Wu was going to be a participant, he and his companies would also be required, but I didn't know the name of the companies at the time".

According to Mr Cossart he also said, in effect, that Konrad would have to be able to "stand behind his guarantee".

[111] Mr Wu, who was also called as a witness by Macquarie, gave quite a different version, and attributed things to Mr Cossart which were not the subject of Mr Cossart's evidence. Unlike Mr Cossart or Mr Evans, Mr Wu was able to give a purported recollection of what had been said in Mandarin as well as what had been said in English. Mr Wu said that Mr Lin "want Konrad to do the translation to everyone, and Konrad's father said to me his family not prepared to put $1 million bank guarantee. His family prefer joint venture". He said that Mr Lin said to him at the meeting:

"Uncle Raymond ... you must be involved in this project and share the profit in the end. If this project, something goes wrong in the end, my family will be the major guarantor, we will protect your position."

Mr Wu also said that he recalled Mr Cossart asking if Mr Lin could be a guarantor, Konrad's translating this to Mr Lin and Mr Lin's instructing Konrad to say "tell them this is your project and that you own these houses". Mr Wu says that Konrad did translate that, but that nothing more was said about it. That evidence of Mr Wu was the subject to an objection by counsel for Mr and Mrs Lin. I admitted it only against Konrad, because it was outside Macquarie's pleaded case against Mr and Mrs Lin. I refused an application by Macquarie to amend to include it as part of its estoppel case.

[112] Mr Lin's evidence is to the effect that he thought there was some guarantee being given with a limit of $1 million. As I understand his evidence, he was not purporting to recall that the guarantee was specifically a bank guarantee. There were some answers he gave which were consistent with a belief that it was a bank guarantee, but they were in response to questions which he might have thought required his response to several other points, rather than inquiring whether it was a bank guarantee or a personal guarantee which was being discussed. In other answers he referred to a "$1 million guarantee". In the course of an extensive cross- examination by Macquarie's counsel, at one stage he was asked what his understanding was of what was said at the meeting, to which he replied:

"Konrad told me what they had discussed was that they were planning to build 17 houses, out of them 10 had already been sold, and I was told that this project is almost no risk, and also the bank were the expert in this area and they would manage the project very well, he said, as long as Konrad and Raymond buy 50 per cent of the share and give $1 million guarantee."

[113] Later in that cross-examination he was asked:

"I don't want you to repeat what you told his Honour a couple of days ago. Can we - should his Honour understand that your version of things is that nothing more was conveyed by Mr Konrad Lin to you than you've already given to his Honour, which was [amongst other things] that Konrad and Raymond would get 50 per cent of the profits if they gave a bank guarantee?"

to which Mr Lin said: "I recall that's what was told by Konrad".

That question was an intended reference to the earlier answer which I have set out, except that it referred to a bank guarantee, whereas the earlier evidence had not. The cross-examination again returned to the point:[8]

"Mr Lin, do you recall saying to his Honour when you described what happened at the meeting to his Honour the first time that what Mr Konrad Lin told you was that after you mentioned the bank managing the project, we covered that, Mr Konrad Lin said as long as he and Raymond buy 50 per cent of the share and give $1 million guarantee? -- Yes he mentioned that.

I suggest to you there was no mention of that whatsoever, I withdraw that, sorry. There was no mention of providing a $1 million bank guarantee in what Mr Konrad Lin described to you as where the meeting had got to? -- He said that."

The cross-examination which immediately followed makes it clear that counsel was not intending to distinguish between a bank guarantee and a personal guarantee and, again, Mr Lin's answer involves no attention to the difference.

[114] Mr Wu's account of Mr Cossart's request for a guarantee from Mr and Mrs Lin, was put by Macquarie's counsel and denied by Mr Lin.[9] In re-examination, Mr Lin was asked:

"Mr Lin, did Konrad say anything to you about you and/or Mrs Lin giving a guarantee to the bank? -- No. He only said that he and Raymond Wu would have 50 per cent of the share and he and Raymond Wu would give $1 million guarantee."[10]

[115] A little later in re-examination he gave this evidence:

"Mr Lin you recall that you said here in the Court in evidence that Konrad had mentioned to you that one of the things required of him was a guarantee? - and Konrad told me together with Raymond Wu, they needed to provide 1 million guarantee.

I see. Mr Lin, what did you understand at that time Konrad had as assets? -- No.

Mr Lin, at the time Konrad informed you that he and Mr Wu were required to provide the guarantee you've mentioned, what did you understand that the bank considered was Konrad's assets? - I thought the bank had told him that this project was almost no risk, and also Raymond Wu said he would help him.

No, I would like - Mr Lin, I'm talking about what you understood the bank saw as Konrad's assets at the time that he was being asked to give a guarantee?-- They must have thought because the house was registered under Konrad's name, it must have been his.

Mr Lin, did you ever receive any information from the bank that that's what they thought?-- No.

Did you think at the time in 1999 what the bank thought?--My thinking was very simple. If they thought so, they should have approached me. For a young man of that age that wasn't possible."

That evidence from Mr Lin is relevant to the estoppel case between Macquarie and the Lins. It is also relevant to the present question, which is what if anything was said to Konrad at the meeting in relation to a guarantee, and what Konrad's understanding of it was.

[116] In all, Mr Lin's evidence does not provide clear support for Konrad's version that the bank guarantee and only the bank guarantee was discussed at the meeting at the house.

[117] Clearly enough, at the commencement of this meeting, the Macquarie proposal involved a bank guarantee of $1 million. That came from the first mandate letter and ultimately, it was common ground that the second mandate letter did not feature at any time in the negotiations between Konrad, Mr Wu and Macquarie. Konrad says that he saw only the first mandate letter. In cross-examination, it was suggested by Macquarie's counsel that he had the second mandate letter at this meeting. But ultimately that suggestion forms no part of the Macquarie case, and none of its witnesses supported it.

[118] I prefer the evidence from Macquarie's witnesses that the first mandate letter was given to Konrad on about 13 May, to Konrad's evidence that he learnt of its contents and was given a copy only at the house meeting on 27 May. Macquarie, through Mr Cossart, was keen to find another investor for this project. Time was running out to do so. Macquarie stood to make a substantial profit from the development. It is probable then that Mr Cossart would enlist the support of Mr Evans, as he said he did, in order to look for an investor or investors from within Mr Evans' circle of potential customers. And it was inherently probable that Mr Cossart and Mr Evans would look to Mr Wu to help them. He had been successful in attracting business to Macquarie for which he was paid a fee in each case (just as he had attracted business for Mr Evans at BankWest). It is also probable that, as Mr Wu said, Mr Evans asked Mr Wu to go to Konrad specifically, rather than to several possible investors. In these circumstances, it is likely that Mr Cossart and Mr Evans saw an advantage in providing details of the proposal, through provision of a mandate letter with its attached feasibility, on an earlier rather than a later date. And it is likely that they saw the advantage of doing that through Mr Wu. In addition, although the second mandate letter was issued on 19 May, it was not given to Konrad at the meeting at the house and nor was its content, to the extent that it differed from that of the first mandate letter, discussed with Konrad. That indicates that the first mandate letter had already been given to Konrad, and that Konrad had shown interest in response to it. If Konrad had not seen either mandate letter prior to the meeting, it is likely that Macquarie would have brought the more recent one to the meeting.

[119] As to what happened at the meeting itself, one possibility is that the only discussion was of a bank guarantee, as Konrad contends. Another is that the discussion moved to a point at which, as Mr Cossart relates, all parties should have realised that Macquarie would require personal guarantees from Konrad and Mr Wu, just as it was requiring them from the other shareholders of the borrower. On any of the versions, there was discussion about Konrad and Mr Wu taking a 50 per cent shareholding. It is probable that the subject of guarantees from all investors was then discussed. It is improbable that the discussion was one from which Konrad could have left the meeting with a reasonable understanding that it was a bank guarantee which would be required. Konrad had no means with which to procure a bank guarantee and upon anyone's version, there had been no discussion between Konrad and his parents as to how he would procure one. Mr Lin's evidence is that Konrad was seeking only a short term loan from Pao Lin of $125,000. Mr Lin is likely to have been less willing to provide funds to support a bank guarantee.

[120] It is possible that during this meeting, Konrad did not understand what a bank guarantee was, and what might be involved in providing one. In that respect, Konrad's evidence in cross-examination was that at least at the beginning of the meeting, he did not know what a bank guarantee was, so that he asked Mr Evans to explain it to him. In Konrad's examination-in-chief, he did not refer to that particular inquiry of Mr Evans. But there is a real possibility that he participated in the 27 May meeting without any proper understanding of bank guarantees, what was ordinarily required by a bank to issue one, and the difference between a bank guarantee and a personal guarantee. And under that misunderstanding, he may well have relayed information to his father which made his father understand the proposal to be a "$1 million guarantee". But if he had that misunderstanding, I find that it was not the result of any misrepresentation by Macquarie.

[121] I do not accept Konrad's evidence to the effect that throughout the meeting of 27 May, the proposal remained one of simply a bank guarantee. I would be prepared to accept that Konrad believed that the proposal was no different from what he understood was proposed by the first mandate letter. But if Konrad had that belief, he misunderstood what was involved in a bank guarantee, or the effect of what was said about guarantees. Whether he understood what was being said or not, I find that he should have understood the meeting to have concluded upon the basis that personal guarantees were likely to be required.

[122] Many criticisms were made of the evidence of Mr Cossart and Mr Evans by the ultimate submissions for Konrad. Some of those criticisms have force. In several respects the evidence did not correspond with the opening. In some cases, of which the question of whether the second mandate letter was discussed at the 27 May meeting is an example, the Macquarie case seemed somewhat different in the cross-examination of Konrad and Mr Lin from that according to the evidence which it led. For any witness, there would be some difficulty in recalling what was said at a meeting which took place nearly six years ago, and for which notes were not taken. There is an understandable tendency to reconstruct, and to do so in a way which tends to favour that witness' side of the argument. Mr Cossart and Mr Evans are still employed by Macquarie.

[123] It was suggested that Mr Wu had an interest in the outcome and he was keen to assist Macquarie to recover, not only from Konrad but against the house property, so as to shift the burden from him and his companies as guarantors. However, it is not established that Mr Wu has made any compromise or other arrangement with Macquarie upon the basis that he would give evidence to assist its case. Mr Wiltshire says that Mr Wu has been told, in effect, that Macquarie might sue him. And in many respects Mr Wu's evidence differs from that of Mr Cossart and Mr Evans, such as his evidence of Mr Cossart's supposed request through Konrad at the meeting for a guarantee from Mr and Mrs Lin. That disparity indicates that Mr Wu has not collaborated with Mr Cossart and Mr Evans to give a certain version.

[124] In my view it is likely that there was some mention of the likelihood of guarantees from all investors. It was logical for Macquarie to require the same securities from the new investors as it had stipulated in respect of the existing owners of MPD. It is less likely that, as Mr Wu related, Mr Cossart then asked for guarantees from Mr and Mrs Lin. This was a meeting in which Mr Jackson-Knaggs for one was attempting to persuade Konrad to invest, and Macquarie's representatives are more likely to have spoken in general terms about their requirements, rather than specifically raising the matter of guarantees from the Lins which might have made the proposal less attractive to them. In addition, Mr Wu's version must be considered with his evidence, that at a later meeting (which he thought was after the third mandate letter) between Konrad, Mr Wu, Mr Cossart and Mr Evans, Mr Cossart had asked that Mr and Mrs Lin be guarantors to which Konrad had said "impossible". That particular evidence is discussed below and I accept it. It is more likely that Macquarie would have asked for the Lins' guarantee after Pao Lin had become an investor, and had paid $125,000 towards the project. And if Mr Cossart had received the emphatic refusal of the Lins' guarantee at the 27 May meeting, which Mr Wu said was translated to Mr Cossart, it is relatively unlikely that Mr Cossart would have renewed the request, through Konrad, some days later.

[125] In my view, the most likely position is much as Mr Cossart described it. There was some mention of a requirement of personal guarantees from all investors, including Konrad and Mr Wu, although the discussion of that was brief and in general terms, and possibly with the qualification that others within Macquarie would have to decide what precisely it required.

[126] If, however, nothing was said in the course of the meeting about personal guarantees from Konrad and Mr Wu, it is another thing to say that the effect of what was said by the time the meeting had concluded was that the required security from the new investors was a bank guarantee.

[127] Accordingly, even at this hurdle, Konrad fails to prove the representation pleaded in paragraph 9. And to make out his unlimited guarantee case Konrad must establish the second and third matters to which I have referred, which are that Mr Evans made a subsequent representation and that Macquarie did nothing to represent otherwise. In my conclusion Konrad also fails to establish those matters.

[128] In his examination-in-chief, he was clearly unable to recall any representation of the kind pleaded in paragraph 9A. The evidence-in-chief is set out above at [74]. Ultimately he did give evidence of it in the course of his re-examination, which I have set out above at [75]. Allowance must be made for the prospect that an honest but inexperienced witness could, for nervousness or other reasons, have a momentary lapse in recollection. However his failure to recall this matter at all in his evidence-in-chief is quite remarkable and it makes his account in re-examination much less persuasive.

[129] Mr Evans denies any such representation. I accept his evidence in that respect. It is unlikely that Mr Evans would have made such a statement, at least because Konrad was very likely to learn of its falsity before the transaction was concluded. One of Macquarie's requirements was for Konrad and other guarantors to receive independent legal and financial advice. Mr Evans could have had no reason to believe that Konrad would not receive independent and competent advice. Had he represented that the maximum liability as a guarantor would be $500,000, it was almost inevitable that he would have been found out before the documents were signed. And quite apart from the likelihood of that advice, it was likely that Konrad would see (or had seen) the terms of the third mandate letter (dated 2 June 1999), which made no reference to a limited liability. Further and importantly, as Mr Evans knew, Konrad was participating in all respects jointly with Mr Wu. There would have been little point in mispresenting to Konrad that his liability, like that of Mr Wu, was limited to $500,000 if Mr Wu knew otherwise. Mr Wu was experienced in property and finance transactions, as Mr Evans knew.

[130] Even assuming the making of the representations by Mr Evans as to the guarantee as pleaded in paragraphs 9 and 9A, the ultimate question is whether Macquarie engaged in conduct which was misleading or deceptive, or likely to mislead or deceive. That is recognised by Konrad's pleading this third element that Macquarie did nothing to correct the effect of those alleged representations. In my view, what came from Macquarie was sufficient to dispel any impression from those alleged representations by Mr Evans, had they been made. There was the third mandate letter which referred to no limitation of liability. Possibly that letter did not come to Konrad's attention but Macquarie did send it to the company of which, as it knew or believed, Konrad was a director. I later conclude that Konrad had seen it or knew of it. But for the present point, it was reasonable for Macquarie to assume that the third mandate letter would be considered by all directors. And then Macquarie sent the documents to be executed by all parties, including the Fixed Fee Facility and Guarantee Agreement, which unambiguously provided for an unlimited guarantee. Importantly, they were sent with a requirement that each guarantor take independent financial and legal advice. It is very difficult to see then that there was some ongoing representation by Macquarie that Konrad's liability, and that of Mr Wu, would be limited to some amount. Instead, Macquarie was effectively saying that Konrad and the other guarantors should take their own advice as to the effect of the obligations they were to accept, according to unambiguous documents which Macquarie sent.

[131] Moreover, the requirement in Item 27(iii) of the agreement, which was the subject of considerable negotiation before it was agreed to in amended terms, was inconsistent with the notion that Konrad's liability was to be limited to half a million dollars. That is because it required him to keep his net assets at a level of at least $5 million.

[132] For these reasons, the case that Macquarie contravened the Trade Practices Act by a representation as to the extent of Konrad's liability as a guarantor must be rejected. But it also fails because in my conclusion, at least by the time he signed the guarantee, Konrad well understood that his liability was unlimited.

[133] It is possible that at the end of the 27 May meeting, Konrad had some belief that his "maximum exposure" would be limited, and perhaps to $500,000. At that stage he may not have understood the difference between a bank guarantee and a personal guarantee, or to the extent that there was any discussion of the latter, he might not have adverted to the unlimited nature of it. But events after 27 May compel the conclusion that by the time he became bound to Macquarie, he knew that his guarantee was unlimited.

[134] I find that Konrad thoroughly studied the documents presented for his signature, which explains why he raised his objection to the terms of Item 27. In doing that, I do not see how he could have understood that his guarantee was limited in amount. There is no ambiguity in the documents, at least in that respect. Further, he must have seen that he and Mr Wu were being asked to sign the same guarantee as was to be signed by Mr and Mrs Jackson-Knaggs. He had no reason to believe that their guarantees would be limited: in particular no mandate letter had given any indication of that.

[135] A major reason for this conclusion is the advice which I find, according to Mr Clapin's evidence, Konrad received from him. Mr Clapin has had sometime to prepare himself as a witness in this case, and to study the documents upon which he says he gave advice. Still he impressed me as someone having a genuine understanding of documents such as these and as a solicitor who was well able to explain them to Konrad. The documents were not especially complicated for a solicitor with some experience in this type of work which was not outside Mr Clapin's field of practice. Importantly, there is no suggested reason for Mr Clapin to choose to be recklessly indifferent to his professional responsibilities and to give effectively no advice. He had not only Konrad's interests to consider, but those of Mr Wu who was a long standing client. It was contrary to Mr Clapin's interest to give either of them anything but competent advice and, as I have said, that advice was well within his professional ability and experience. I accept his explanation for why he does not have a specific diary note of this advice, which is that the advice was effectively recorded by the certificates. The certificates were countersigned by his clients.

(a) he had been retained by Konrad to advise him on the terms and effect of the facility agreement;

(b) he had explained to Konrad the nature and effect of the finance transaction referred to in the certificate;

(c) he had informed and advised Konrad on the terms and conditions of the facility agreement, and its effect in the event of a default by MPD and of Konrad's obligations under the facility agreement and, in particular, the limit of his liability under it; and

(d) he had advised Konrad on all "ancillary matters pertinent or relevant to the finance transaction between [MPD] and Macquarie and the general consequences of his entering into the [facility agreement]."

I accept Mr Clapin's evidence which is to the effect that he informed and advised Konrad in these respects. In particular, I accept that he explained to Konrad the guarantee and the possible consequences of its being called up, in terms which could not have left Konrad with any belief that his guarantee was limited to a certain amount.

[137] For Konrad, it was ultimately argued that Mr Clapin's evidence should be rejected, "because the accuracy of his purported recollection was simply too good to accept". In particular, it was argued that his purported recollection of specific advice in respect of many of the clauses of the facility agreement was unrealistic, given the passage of time, the work he must have been doing in the interim and the absence of file notes of this particular meeting. It was said that it was more likely that his recollection was the result of his having carefully perused the documentation in preparation for giving evidence and reconstructed his version. I accept that he has spent some time in preparation for giving evidence, and that in the course of that, he has studied the documents in question. But that could have prompted his memory, and contributed to his recollection of having advised in particular respects. Undoubtedly he has an interest in the outcome and a natural inclination to defend himself against an allegation of negligence and a specific allegation that he certified falsely that he had given certain advice.

[138] In early 2001, Mr Clapin was contacted by Mr Diercke, a solicitor at O'Shea Corser and Wadley who were acting for Konrad. In a telephone conversation with Mr Diercke on 14 February 2001, Mr Clapin told Mr Diercke that he (Mr Clapin) recalled spending a "short time" with Konrad and Mr Wu during their relevant meeting of 5 July 1999. On 6 March 2001, Mr Clapin wrote to Mr Diercke, saying that he had conducted a search of his records, from which it appeared that the original of the relevant Macquarie documentation had not been sent to him before the meeting of 5 July 1999. In cross-examination, Mr Clapin said that he had the documents before this meeting. But he persuasively explained that recollection by two things. First, he had been prompted by seeing the letter from Mr Morris to him dated 2 July 1999, which said that it enclosed the documents. Secondly, he recalled looking for Part 3.2A of the Corporations Law, which was referred to in clause 13 of the draft agreement, and that he was unable to find it. There is no means of verifying that particular evidence, but Mr Clapin is unlikely to be lying about that, especially when his version is strongly supported by Mr Morris' letter.

[139] His statement to Mr Diercke that he recalls spending a "short time" with Konrad and Mr Wu provides no proper basis for rejecting the substance of his evidence. This was a conversation in a context where Mr Clapin had not been asked, at least prior to this conversation, to recall his dealings with and advice to Konrad. A comment that he was with Konrad "a short time" is not an admission that he could not have advised him sufficiently for the purposes of the certificate. Criticism was also made of Mr Clapin's pleading. It is pointed out that in his initial defence, it is pleaded that Mr Clapin did advise Konrad as to the nature, terms and effect of the relevant documentation and "... Clapin cannot recall the specific words he used but says that Clapin explained the nature, terms and effect of the said three documents". His solicitors then declined to provide further particulars of that allegation. It was in his second amended defence, dated 1 February 2005, for the first time it was pleaded that certain specific advice had been given. However, it was not until 31 January 2005, in a pleading to which that second amended defence responded, that Konrad pleaded that there was a failure to give proper advice: until then the case had been that no advice at all had been given. The failure to plead earlier these specific terms of the advice is then somewhat easier to understand. The terms of earlier pleading, compared with his later pleading, are explained by his refreshing his memory from perusing the documents in preparation for this case.

[140] It was further submitted that Mr Clapin's account was inconsistent with that of Mr Wu, in that Mr Wu's recollection of Mr Clapin's advice was that it was very much more limited than as Mr Clapin described, although Mr Wu says that they were advised as to the unlimited nature of the guarantee. It was submitted that based upon the evidence of Konrad, some evidence of Mr Morris, and some evidence of Mr Wu, I should find that the meeting at which Mr Clapin said he advised lasted only a few minutes, from which I should infer that Mr Clapin could not have given the advice he claims to recall. Mr Morris was not at all a satisfactory witness, and his evidence in relation to the matter of presales was an example of what was at best an unreliability in his evidence. His evidence was strongly challenged by Konrad. Nor was Mr Wu an entirely satisfactory witness. Evidence such as Mr Wu's estimate of time for the meeting, is of a kind which is likely to be imprecise. And importantly, Mr Wu's evidence contradicts Konrad's version that Mr Clapin offered practically no advice, and did not advise on the unlimited nature of the guarantee.

[141] I am in no doubt that Mr Clapin thoroughly prepared to give evidence in this case. Perhaps his recollection in relation to some matters is imperfect. But it is quite probable that as he has prepared for this case, a true recollection has been improved by his attention to the documents. The essential question is whether he is giving truthful evidence in saying that he explained the guarantee in terms which made it clear enough to Konrad, if he did not know already, that his liability was unlimited. I am left in no real doubt that he did give that explanation. The circumstances make it highly likely that he would do so. There is no sensible reason why he would not do so. It is unnecessary to decide whether he advised in relation to certain other clauses, and in particular clauses 12.4 and 39. The former was an acknowledgement that Konrad had not relied upon any representations, and the latter was to the effect that the documentation contained the entire terms of the agreement between the parties. Had Mr Clapin not advised as to those matters, there would have been no ultimate consequence for Konrad, because those terms would not have precluded at least a claim under the Trade Practices Act. But I am satisfied by Mr Clapin's evidence that he did advise in those respects also.

[142] Not only does Mr Clapin's evidence persuade me that he gave specific advice to Konrad as evidenced by the certificate, but it also establishes that on frequent occasions he was in company with Konrad and Mr Wu discussing various aspects of the transaction, including in the period from 7 to 9 July when there were some negotiations concerning Item 27(iii). This makes it even less likely that Konrad continued to labour under such a misconception about the guarantee. For example, in the course of Mr Clapin's work in relation to Item 27(iii), it is difficult to see why Konrad did not say to Mr Clapin, that what he was prepared to agree to in relation to the house and his assets, had to be understood against Macquarie's rights being limited to $500,000. The evidence in relation to the drafting and redrafting of Item 27(iii) is telling. It demonstrates that Konrad was well able to read these documents and decide what was acceptable. He was able to distinguish an obligation not to encumber the house from the other obligations within Item 27(iii). He took no objection in relation to the provision about his net worth not falling below $5 million. Of course , he is not a lawyer and he was only 22 years old at the time. But over the many days of his oral testimony, he impressed me as an intelligent man with no difficulty with the English language. And this project was his only work. He had no demands from other business which through inattention to this matter, could have led to some ongoing misunderstanding.

[143] As I have mentioned, Mr Clapin was sent a copy of the third mandate letter by Mr Wu's assistant on 11 June 1999. The conditions in the letter had been discussed at the MPD board meeting on 10 June (although they do not record that it was tabled). I infer that the letter was before the directors at that meeting. And I infer that Konrad saw it then. Even if he did not, it would not affect my conclusion as to his understanding by 7 July.

[144] As I have mentioned, his evidence does not disclose when it was that he came to realise that his liability was unlimited. He had representation from other lawyers from June 2000, and it is remarkable that if he then believed that his liability was limited, that they did not disabuse him of the notion on some occasion which he might now recall. The absence of evidence of when he came to realise the truth about his guarantee is not the only consideration. But his failure to identify when this was, and how he came to realise the truth in my view supports the conclusion that he well understood the position by the time he became bound.

[145] Each of these representations is said to have been made by Mr Evans and/or Mr Cossart at the meeting of 27 May at the house. In the case of each representation alleged to be false, they deny making it. It is necessary to determine first whether Konrad has proved, in each case, that the representation was made. There are then further questions of whether the conduct was misleading and deceptive, as at 27 May, and whether that remained the case such that Konrad was induced by that conduct to invest in this development and to give his guarantee. Fraud is not alleged against Macquarie but negligence is, together with allegations that the representations breached s 52 of the Trades Practices Act for which, of course, no intention to mislead is required.

[146] Undoubtedly Macquarie had more knowledge of this project than Konrad had as at 27 May. And whereas Mr Cossart and Mr Evans had extensive experience in property development through their banking careers, it is also clear that Konrad had no property development experience. Mr Cossart and Mr Evans would have understood that Konrad was likely to be influenced by any endorsement they gave to the proposal. It was likely that Konrad and perhaps his parents would be encouraged by the fact that Macquarie, with its corporate experience and expertise, considered that it should invest. And clearly Mr Cossart, and in turn Mr Evans, were endeavouring to conclude this transaction. There is evidence that each of them was paid bonuses commensurate with the amount of successful business in which he was involved. That in itself does not present a strong likelihood that either would deliberately exaggerate any claim about this project, or endeavour to mislead Konrad. But it is one factor, together with the merit of the proposal as Macquarie must have seen it, which makes it somewhat likely that they were inclined to encourage Konrad to be involved. The context was not one where a bank was something of an impartial observer, quite indifferent to whether Mr Jackson-Knaggs could persuade Konrad to invest. The assessment of these claims then must be made in the light of those circumstances.

[147] Nevertheless I am unpersuaded that Mr Evans and Mr Cossart made the representations which are alleged. Konrad's case relies on his own evidence, which is unsupported by other testimony. His father's evidence is that Konrad repeated things to him which correspond with what Konrad attributes to Mr Evans and Mr Cossart. That evidence is of limited value. Clearly he and Konrad have a common interest in relation to Konrad's claim. The evidence shows that Mr and Mrs Lin are paying for Konrad's legal representation in these proceedings.

[148] I have rejected Konrad's assertion that he went into this transaction believing that his liability was limited at $500,000. In particular, I have rejected his evidence that he received effectively no advice from Mr Clapin. That affects my assessment of his evidence as a whole and is an important reason for my being unpersuaded to accept his evidence in relation to these representations. In addition, there is the fact that no complaint was made of these matters until he was about to be sued in 2001. I accept that someone in his position might have seen it as more advantageous to negotiate with Macquarie, rather than to complain, as things went from bad to worse and Macquarie was making more demands. Ultimately, however, his failure to complain, even when he had the benefit of legal representation from other solicitors (against whom he makes no complaint), in his dealings with Macquarie from June 2000, is significant.

[149] Whilst it is not very unlikely that Mr Evans or Mr Cossart would have made such statements, nevertheless the surrounding circumstances do not indicate a high probability that they did so. As I have found, Konrad had the first mandate letter from about 13 May. It is likely that he studied the feasibility statement that accompanied that letter in advance of the 27 May meeting. Although he was inexperienced in property development, he was a commerce graduate who could read financial reports and analyses. At the meeting itself, as he agrees, Mr Jackson-Knaggs gave something of a sales presentation. Konrad would have it that Mr Evans gave one of his own before Mr Jackson-Knaggs arrived. It is not so likely that Mr Evans would have thought to do so. It was inevitable, as Mr Evans must have appreciated, that Mr Jackson-Knaggs would try to persuade Konrad to be involved by giving his development good prospects. And Konrad had already shown sufficient interest to have at least agreed to, if not requested, the meeting at the house. Despite his regular contact with Konrad, Mr Evans had not approached Konrad before this meeting, endeavouring then to attract him to the project.

[150] There is no particular likelihood that Mr Evans would have made the statement attributed to him as to the number of presales. The meeting was in the context of a possible participation in a development which, according to the mandate letters, was not going to proceed unless there was the requisite number of arm's length contracts. Mr Evans did not have to represent that the condition as to presales, in effect, had been already satisfied. In addition, if Konrad was going to be involved in this development, he was likely to become aware of what had been sold. It would have been foolish of Mr Evans to make this representation about presales without a basis for it, and when MPD was going to have to establish a certain number of presales prior to obtaining Macquarie's first advance. It is possible that Mr Evans did say something about presales, in the sense that the proposal would go ahead only with a certain number of arm's length sales within Stage 1. But I am not satisfied that he said what is alleged.

[151] Konrad pleads that Mr Evans made a statement of what was the "worst scenario", which was that seven of the 17 units in Stage 1 would have to be discounted by 30 per cent, resulting in a reduction in sales revenue, and in profit, for Stage 1 and the whole project, of $1,050,000. He pleads that Mr Evans said that this would reduce the profit for the entire project to $2,272,000. The feasibility study attached to the first mandate letter had projected a profit for the entire project of $3,272,140, from which Macquarie's "fixed fee" of $750,000 was to be paid, resulting in a projected profit for MPD of $2,522,140. Konrad pleads that Mr Evans then added that "the Project would not necessarily suffer any loss or overall reduction in profit as any such reduction [an apparent reference to the reduction in sales revenue of $1,050,000] would be absorbed by significant increases in the market value of the remaining land". On this (pleaded) scenario, MPD would still make a profit, although possibly but not certainly, a lower profit than that projected.

[152] Konrad's evidence in chief was relevantly as follows:

"All right. Now, when he was talking about the figures and the 3.272 million dollars profit the feasibility shown, was anything said about a worst case scenario -----?--Yes.

----- or words to that effect? -- Yes. He said - first I asked Mr Evans why this project is very low risk project and he said to me that the project was low risk because he had a fixed time, fixed price contract with presales in place. So, that's why the project was very low risk.

Yes? -- I ask him what does risk mean in this case and he said if the market goes bad, the worst case scenario will be the seven remaining units were discounted by 30 per cent and then he used the term - then he said, "After discount, the units will sell like hot cakes," that's the term he used, "And if you take an average price of $500,000 per unit and 30 per cent discount, by seven unsold units, the worst case scenario will be roughly one million dollar loss," but then he went and said there were still the remaining land for stage 2 to 5 and the major infrastructure and civil works will have been done and that will improve the value of the remaining land. So, even the worst case scenario, you wouldn't be able to make a loss.

All right. Did he say anything about the figure of the one million dollars in relation to the bank guarantee that Macquarie required in this context that you have just described to us? -- He said that's how the bank come up with the one million dollar bank guarantee required in this facility -----

All right? -- ----- taking the worst case scenario."

[153] This evidence as to the worst case representation had Mr Evans talking in terms of a discount of 30 per cent on 10 units in Stage 1, and a cessation of the development at the end of that stage, and saying that with the expected increase in the value of the remaining land, "even the worst case scenario, you wouldn't be able to make a loss". And then there was that leading question about a $1 million bank guarantee, which Konrad answered by evidence that "[Evans] said that's how the bank came up with the one million dollar bank guarantee required in this facility -- taking the worst case scenario".

[154] So according to his evidence, the worst case scenario was said to be a loss of about $1 million, against which Macquarie saw it as appropriate to seek a bank guarantee in that sum. As I see it, that is somewhat different from the pleaded case. The pleading makes no reference to a statement by Mr Evans of a correlation between the amount of the bank guarantee and the worst case. That difference makes Konrad's evidence, particularly as to this representation, yet more difficult to accept. It is possible that Mr Evans did say something to the effect that the project would not go ahead without a certain number of presales, because that was a condition which Macquarie had set out in its mandate letter. If he said that it is possible that he made some comment in which he hypothesised about the good prospects of selling the remainder by some discounting of the price. Statements of that kind could have been the inspiration for what became the "worst scenario" pleading and evidence by Konrad. Faced with such a large claim under his guarantee, it is understandable that Konrad would seek to blame Macquarie, by some process of reconstruction whereby Mr Evans is said to have given some assurance as to the end result of this investment. So it may be that Mr Evans said something about presales and something about discounting of the units within Stage 1, and Konrad's purported recollection has then been expanded to that which he purported to have during his evidence. In my conclusion, however, he has failed to prove a representation either in terms of paragraph 17.4 or in the somewhat different terms of the "worst scenario" which he gave in his evidence.

[155] Nor am I persuaded that, more probably than not, Macquarie represented by something said at this meeting that the project had "minimum risk". It is possible that something was said about the relative amount of risk. Again, Konrad may have been inspired to make this allegation, and to give this purported recollection, from something which he believes was said about the relative risk. I am not prepared to accept that this particular representation was made. In any case, as the ultimate argument for Konrad accepted, of itself such a representation would be inconsequential. That is why Konrad's case was argued on the basis that this alleged statement should be coupled with the "worst scenario" allegation.

[156] There is no pleaded case as to the falsity of the representation alleged in paragraph 17.5, that "certain monies to be paid by the defendant to purchase an interest in the Borrower would be recoverable early in the Project". This is a reference to the loan, made by Pao Lin, of $125,000 which was to be repaid from the first advance. Whilst I accept that there was a discussion to that effect, I am far from satisfied that, if it matters, it was Mr Cossart who said this. In any event, there was nothing false or otherwise wrongful in this statement. As I have discussed, the shareholders' agreement, signed only a few days later, provided for the repayment of the loan of $125,000 upon Macquarie's initial advance, and that occurred.

[157] Paragraph 17.6 of Konrad's pleading alleges a representation that "the plaintiff was highly experienced in financing and managing developments in the nature of the Project and that it would have full management and control over each stage of the Project". This representation is said to have been false in that "the plaintiff did not have full control over the Project. The best particulars which the defendant can give ... is that the present indications are that there were substantial cost overruns, delays and disputes with subcontractors involved with the Project". However, the evidence in support of this was as follows:

"And then did [Mr Evans] comment as to the amount of the construction costs, for example? -- He said Macquarie Bank will have full control of the funding and they will also monitor the project.

Now, was anything said about whether a report had been obtained from a quantity surveyor at that stage? I'm looking to the heading "Construction Costs" about half-way down that page? Was anything discussed about that that you can remember now or not? -- No, I cannot recall, but I remember Mr Evans said that the bank had an internal team who will be looking after the project.

All right. What did he say about that? Did he say anything further about that? -- Well, he said the bank will have control of funding. The bank will also supervise construction cost, marketing and cashflow -----

All right? -- ----- and Mr Evans personally will keep a close eye on the project."

[158] Again, I am unpersuaded that there was a representation precisely as pleaded, although I accept that it is likely that Macquarie said something to the effect that it would be monitoring the project. A statement of that kind was likely because that monitoring would be expected, given Macquarie's financing of the whole cost of the project.

[159] Paragraph 17.7 alleges that Macquarie impliedly represented that it had reasonable grounds for making these representations. That allegation cannot be usefully discussed, given that Konrad has failed to prove the express representations pleaded within paragraph 17. A related but distinct question is whether at least some of these representations, had they been made, would have been representations as to future matters, for which s 51A of the Trade Practices Act would operate. The allegations of minimum risk and the "worst scenario" are ones of that kind and, in my view, it was unnecessary for Konrad to expressly refer to s 51A or to their character as representations of that kind, for him to rely upon that section. As representations as to future matters, they would be misleading and deceptive unless Macquarie could prove that it had reasonable grounds for them.

[160] Considerable attention was paid in Konrad's case to other feasibility statements which had been prepared by Macquarie at this time. In some cases at least, they presented a dimmer prospect for the development than that which accompanied the first mandate letter. There is no case in deceit and it is not alleged that Macquarie knew or believed to the contrary of any of the alleged representations. Importantly it is not Konrad's case that Macquarie made a misrepresentation by a feasibility statement or by a mandate letter. There is no case pleaded to the effect that the feasibility statement attached to the first mandate letter was a forecast made negligently or in contravention of s 52. The pleaded case is that the relevant representations were made by certain oral statements in terms which did not incorporate the feasibility statement.

Would the alleged representations have been misleading or deceptive, or negligent?

[161] As the history of this project has proved, the "worst case" scenario was worse than a reduced profit, or even a loss of the order of $1 million. There is a shortfall of many times that loss which is reflected in Macquarie's claim. Macquarie did not argue that the worst case had been no worse than a $1 million loss. Nor did it seek to prove that there was some reasonable basis for an opinion to that effect. There was no issue, involving any point of substance, as to whether such a representation, had it been made, was justifiable. Still, in Konrad's case, there was substantial reference to other feasibility studies prepared by Macquarie but not shown to Konrad. There was also a criticism of some of the calculations within those feasibility studies, as involving errors in Macquarie's work. I accept the submission for Konrad that Macquarie had within its possession, as at 27 May 1999, calculations depicting scenarios with worse outcomes than that said to have been represented to Konrad. As I have mentioned, however, there is no pleaded case to the effect that Macquarie misrepresented anything by a feasibility study. Nor is it alleged that Macquarie owed a duty to disclose to Konrad any of these other feasibility studies.

[162] As to presales, it is clear that there were not 10 contracts as at 27 May 1999. It is also clear that there were not 10 presales by the time of Macquarie's initial advance, or even eight presales as required by the first mandate letter. In addition, such contracts as then existed were not all at arm's length. Some of the contracts which MPD put forward to Macquarie as satisfying the condition as to presales included a sale to a company of which Mr Morris was a director and shareholder; another sale was to a Mr and Mrs Knaggs, who were related to Mr Jackson-Knaggs. That contract and two others were the subject of a collateral agreement, recorded in a separate document, whereby the purported purchaser was given a promise (under seal) by Merlin Pacific Pty Ltd that it accepted a nomination as a substitute purchaser prior to settlement, and was also given $10,000 for agreeing to participate. This was a misrepresentation that the sale was to an arm's length buyer: it was to Merlin Pacific Pty Ltd. Mr Morris was responsible for preparing these Deeds and he sent them to the "buyers". None of this was contested by Macquarie. It had been deceived by MPD.

Would the alleged representations as to the project have mattered to Konrad?

[163] As I have said, the ultimate argument for Konrad was that the representation as to "minimum risk" had to be coupled with the "worst case" representation. In turn, that is related to the alleged representation as to the number of presales. What must Konrad have known as to presales by the time he signed the guarantee and became bound? Some six weeks passed from when Konrad agreed to participate in this project and when he became bound by his guarantee. For almost all of that time, he was a director of MPD, and he attended several board meetings. In at least some of those meetings, the progress of the development, including the sale of units, was discussed. He may not have been fully aware of the circumstances of some of the purported presales, and in particular, the collateral dealings between Merlin Pacific and some "buyers". But he probably knew that MPD was finding it difficult to satisfy Macquarie's condition that there would be eight presales. On 18 June, Mr Morris for MPD wrote to Macquarie representing that eight contracts had been obtained, and argued why those contracts should not require a 10 per cent deposit to satisfy Macquarie's condition. At the meeting of directors on 7 July, Mr Clapin recalls some discussion as to whether MPD had been able to achieve the required number of presales, and his diary note of 8 July records that he then discussed with Mr Evans that MPD was one presale "short". Macquarie subsequently agreed to go ahead on the basis of what it believed were seven presales. Although Konrad was new to property development and was not involved directly in the marketing of units, he must have being taken a keen interest in the progress of sales. That was of fundamental importance to the project as a whole. It was not that he was busy doing other things such that he was distracted from paying attention to that matter. As an intelligent person, he would have been watching the progress of sales closely. On most days he was going to work at MPD's offices. I am unable to accept that from 27 May until 7 July 1999, he believed that MPD had agreed to sell at least 10 units. More probably, he knew that MPD was struggling to satisfy Macquarie's condition of eight presales. He was, after all, a director of MPD, and he was in a better position than Macquarie to know what was the progress of presales by the time when he became bound to Macquarie. It was Macquarie that was misled by MPD as to this matter.

[164] In the same way, in the six weeks between 27 May and 7 July, he had ample opportunity to investigate the prospects of this project. He and Mr Wu had retained Mr Clapin to correspond with Mr Morris about some vetting of the initial expenses to which they were being asked to contribute. They were being careful to ensure that Jackson-Knaggs was being reimbursed only for expenses properly attributable to this project. They retained accountants to assist them in that respect.

[165] Accordingly, had Konrad proved that these representations were made, I would not have been satisfied that they were a material inducement to his signing the guarantee and becoming bound on about 7 July 1999. Konrad's case is that his loss comes from that event, rather than from the making of the shareholders' agreement at the end of May 1999.

[166] The various claims of misleading and deceptive conduct and negligence are not established. Apart from particular questions concerning the quantification of Macquarie's debt, Macquarie has established its claim against Konrad, and Konrad's counter-claim must be dismissed. I turn then to those issues of quantification.

[167] Save in two respects, the amount of the debt owing by MPD to Macquarie, and in turn owing by Konrad under his guarantee if enforceable, is admitted. The components of Macquarie's claim which are challenged are in relation to a fee of $25,000 per month, charged from 31 July 2000, and the amount of $43,825.77 which Macquarie paid to Barker Gosling on 13 December 2000 to obtain possession of the MPD files for this project.

[168] In the original Fixed Fee Facility and Guarantee Agreement made in July 1999, it was agreed that MPD would pay to Macquarie, amongst other amounts, a fee of $750,000. In February 2000, that Agreement was varied in several respects. One variation involved a substitution, for the fee of $750,000, of a fee of $375,000, subject to a decrease or increase according to whether all of the debt and other obligations were discharged before or after 31 July 2000. The fee was to increase by $25,000 per month for each month after that date whilst the borrower's obligations, including the repayment of all of the debt, were undischarged. The fee was to decrease from $375,000, again by $25,000 per month, if the debt was paid out before 31 July 2000 (to a maximum discount of two months). Then in September 2000, the parties again varied their agreement, to extend the date for repayment of the loan from 31 July to 31 October 2000.

[169] Macquarie claims the fee of $375,000 plus $25,000 per month for each month from 31 July 2000. Konrad disputes that claim in three ways.

[170] First, he argues that the terms which purported to provide for this fee of $375,000, together with $25,000 per month, are uncertain and unenforceable. Alternatively, he argues that upon their proper interpretation, they entitle Macquarie to but $450,000 ($375,000 plus three months at $25,000 from 31 July to 31 October 2000). Thirdly he argues that the fees claimed, or at least that part of them in excess of $375,000, are irrecoverable because they constitute a penalty against which he should be relieved.

[171] In the original Agreement, clause 8.3 provided as follows:

"The Customer has agreed to pay to the Lender the Fixed Fee in consideration of the Lender providing the Facility to the Customer outside its normal lending guidelines upon the earlier of:

The Customer acknowledges that the Customer becomes liable to pay the Fixed Fee to the Lender once the Lender makes the First Advance or issues the first Bank Guarantee."

(a)

the date appearing in Item 13 of the Schedule or such other date as may be agreed between the parties in writing;

(b)

the date of the sale of the Property or of the sale of the final portion of the Property or Project asset; and

(c)

the date on which the Facility is terminated or cancelled by the Lender or the Customer in accordance with this Agreement."

The date appearing in Item 13 of the Schedule was "Thirty (30) months from the date of the Initial Advance". The term "Fixed Fee" was defined as the fee described or calculated in accordance with Item 30, of the Schedule, and against Item 30 the amount of $750,000 was specified.

[172] This "Fixed Fee" of $750,000 was a substantial portion of the consideration to be paid to Macquarie. The feasibility study annexed to the Agreement projected interest to be paid to Macquarie in sums totalling $365,000, an establishment fee of $70,000 and this fee of $750,000. By clause 8.3, the parties agreed that the fee was appropriate because Macquarie was providing the finance outside its normal lending guidelines.

[173] The parties agreed to vary the terms of the facility by a written agreement dated 14 February 2000 (first variation agreement). As appears from this document itself, including its attached cash flow, the facility was now to fund only Stage 1 of the Papillon project. The Termination Date was varied, by substituting within Item 13 the date of 31 July 2000. The limit of the facility, as stipulated by Item 6 of the Schedule, was increased by approximately $1,300,000. There was no amendment of clause 8.3. But Item 30 was amended, by substituting for the amount of $750,000 the following under the heading "Fixed Fee":

"$375,000.00 provided that the Fixed Fee will be**:**

(a) reduced by $25,000.00 for each calendar month (to a maximum amount of $50,000.00) that the Principal Sum has been repaid in full and Obligations have been satisfied prior to July 31, 2000;

(b) increased by $25,000.00 for each calendar month, or part thereof, that the Principal Sum has not been repaid in full and Obligations have not been satisfied, after July 31, 2000. The Customer and Guarantors acknowledge and agree that interest will accrue on any unpaid Fixed Fee until paid.

The term "Obligations" was defined by the (original) Agreement as meaning, in effect, all of the obligations and liabilities of MPD and a guarantor.

[174] The parties made another variation by a document dated 15 September 2000. They agreed to again vary the Termination Date. The new date became 31 October 2000. Nothing was expressed in this second variation agreement about the fee of $375,000 and $25,000 per month. In particular there was no change to clause 8.3 or to Item 30.

[175] Konrad's first argument is that the provision for this fee is uncertain. It is argued that there is some irreconcilable tension between a requirement to pay the fee on 31 July 2000 (or alternatively 31 October 2000) and the quantification of the fee according to events occurring after that due date for payment. As $25,000 per month is to accrue until repayment in full to Macquarie and discharge of the "Obligations", the amount of the total to be paid under Item 30 could be "fixed" only if and when that occurred. The argument is that it would be impossible for MPD or a guarantor to know how much should be paid on the due date, which according to clause 8.3 would be the Termination Date (31 July 2000 or alternatively 31 October 2000).

[176] In my view the agreement, as varied, can and should be interpreted in a way which makes the relevant terms sufficiently certain. Going to the first variation agreement, it is in my view clear that it provided that an amount of $375,000 was to be paid on 31 July 2000, unless the principal sum had been repaid in full and the Obligations had been satisfied prior to that date (in which case a lesser sum, according to (a) within Item 30 would be paid). If the principal sum was not repaid by 31 July 2000, the $375,000 had to be paid on that date. And in that event, for each month thereafter, a further sum of $25,000 would become due and payable until repayment of the principal sum and satisfaction of the Obligations. As provided by the new Item 30, interest was to accrue on any of that $375,000 or $25,000 per month which was overdue.

[177] That was unaltered by the second variation agreement. As I have said, it amended the termination date but not clause 8.3 or Item 30. As at the date of the second variation agreement, the sum of $375,000, together with a further $50,000 (for August and September 2000) was due and payable, and interest was accruing upon those sums. The second variation agreement indicates no intention to affect that position. The variation of the Termination Date to 31 October 2000 was relevant in other respects.

[178] The written submissions in support of Konrad's second argument are as follows:

"Logically, for the fee to be fixed and to be payable on the Termination Date, it must be determinable and determined at that date. The clause can (and should) therefore be construed as meaning that, if the whole of the debt was not repaid and the obligations not fulfilled before 31 October 2000, the fixed fee payable on that date was $450,000. It did not (and could not) increase thereafter, as it was payable in full on that date."

I interpret agreement (as varied) otherwise. The parties agreed that what had been a fee fixed at $750,000 would be replaced by a series of amounts, which would accrue due whilst any of the debt remained unpaid on and from July 2000.

[179] The third argument is that upon what I see as the proper construction of these terms, they constitute a penalty and are unenforceable. The fee increased from $375,000 only if the borrower breached the contractual stipulation to repay the debt on the then agreed Termination Date of 31 July 2000. As its effect was unchanged by the second variation agreement so it is submitted that its nature was unchanged. It is submitted that a requirement payment of $25,000 per month is so obviously penal and not compensatory that it is unenforceable as unconscionable. For Macquarie, it is argued that to be considered a penalty, these sums must be "out of all proportion, or extravagant, exorbitant or unconscionable in comparison with the greatest loss that could be proved to flow from the breach", for which is cited Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1914] UKHL 1; [1915] AC 79. At 86-88 Lord Dunedin there set out these propositions:

"1. Though the parties to a contract who use the words 'penalty' or 'liquidated damages' may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The court must find out whether the payment stipulated is in truth a penalty or liquidated damages ...

The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage ...

The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach ...

To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:

(a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach ...

(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid ...

(c) There is a presumption (but no more) that it is a penalty when 'a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage' ...

On the other hand:

(d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties."

This passage has been cited with approval in many Australian cases, including O'Dea v Allstates Leasing System (WA) Pty Ltd [1983] HCA 3; (1983) 152 CLR 359; AMEV-UDC v Austin [1986] HCA 63; (1986) 162 CLR 170; Esanda Finance Corp Ltd v Plessnig [1989] HCA 7; (1989) 166 CLR 131 and Zenith Engineering Pty Ltd v Queensland Crane and Machinery Pty Ltd [2000] QCA 221; [2001] 2 Qd R 114. In his chapter on relief against penalties in The Principles of Equity (1996), edited by Professor Parkinson, Professor Rossiter suggests that para 4(b) from that passage might require reconsideration in Australia, because of the recognition that damages for late payment of a debt are recoverable under the first limb of Hadley v Baxendale in consequence of Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125. The proposition in para 4(b), however, is not critical for the present case.

[180] Macquarie led evidence from Mr Wiltshire and Ms Paschke as to how, within Macquarie's thinking, this particular fee structure was conceived. There was no objection to that evidence and counsel for Konrad explored the matter in cross-examination. Each side attempts to gain some support from that evidence. For Konrad, it is argued that it demonstrates that within Macquarie, this was not a genuine estimate of a likely loss. It is at least doubtful that this evidence is relevant, because as was said in Dunlop Pneumatic Tyre, the question is one of "construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract ...". In O'Dea, Deane J at 400 said of that statement:

"Properly understood, that statement is unobjectionable: whether or not a provision of a contract imposes a penalty must be determined by reference to the true operation of that provision. That question must, however, be determined as a question of substance which cannot be foreclosed by statements of the parties in their agreement, no matter how genuine they may be, as to their intention in stipulating the sum. The parties to an agreement may have subjectively intended to make a pre-estimate of damages in the event of breach. If, however, that pre-estimate is either extravagant or unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach or, judged as at the time of making the contract, is unreasonable in the burden which it imposes in the circumstances which have arisen, it is a penalty regardless of the intention of the parties in making it."

[181] But at least because of the approach of each party, it is appropriate to discuss the evidence as to the thinking of Macquarie behind these provisions. The starting point is in Mr Wiltshire's evidence as to how Macquarie calculates a fee it should charge for certain types of transactions of relatively higher risk. Where Macquarie finances 100 per cent of a project, as in this case, it sees the funds which it is lending as made up of two components. The first is that part of its loan which corresponds with the proportion of the cost of a development which ordinarily would be lent by a financier. Macquarie regards the balance as "notional capital", in that it sees itself as assuming a risk greater than that of a financier in the ordinary course. Upon the part of its loan which is that notional capital, it regards it as necessary to earn a higher rate of return than for the "debt" component. According to Ms Paschke the rate on notional capital at the time was in the range of 30 to 40 per cent. The calculation of what constitutes the notional capital component is a complex one. It is affected by the value of the property over which Macquarie has security. So the higher the value of that property related to the funds advanced, the relatively lower would be the component of notional capital. According to methodology such as this, the original terms of this finance, with provision for a fixed fee of $750,000 payable on a termination date in January 2002, resulted in what Macquarie describes as an internal rate of return of about 37 per cent on notional capital.

[182] Mr Wiltshire described the methodology as follows:

"May I turn your mind, Mr Wiltshire, to the fixed fee methodology that Macquarie adopted in respect of this particular product. The facility has, as we see, a fixed fee and an interest component. Can you explain to his Honour how Macquarie reached its fixed fee component or by reference to what things it assessed and required as a fixed fee component? -- In simple terms, we assess a transaction on the basis that a normal bank would lend to a particular loan to value ratio and based on an assessment of the value of the property, or in the case of a construction facility, it will lend as a percentage of costs. So typically 80 per cent of costs is a construction loan for which they take an interest margin as appropriate return. The bank has for many years provided funding beyond and up to 100 per cent of a project cost, and in assessing the return that is appropriate to that, it basically says it will lend up to 67 per cent or thereabouts, it depends on the type of security, as normal loan funds and any funds advanced beyond that cost are considered notional equity for which the bank is saying it's taking the risk that a developer would normally take, and that notional equity. So if a client puts in a small amount of equity that comes off the top layer, so to speak, so the equity is layered. It is not unlike a mezzanine debt approach, but we say we are taking a risk for that increased exposure and we calculate it based on a set return that is required.

I think, or I know you've made plain to his Honour in passing there the concern, but one of the elements that you take out in making the calculation or making the assessment is the customer's equity? -- Yes. In this instance where $1 million is put in as cash up-front by someone, be it Jackson-Knaggs or the guarantors, it really doesn't matter, it's customer equity. So it is the first dollars that stand to be lost in terms of if the project, if the sale of the asset doesn't realise sufficient to cover the debt and the equity, then the equity is lost first; then our notional equity is at risk and finally the debt."

[183] When Macquarie was considering the basis upon which it would agree to vary the facility, as it did in February 2000 by the first variation agreement, Ms Paschke proposed this new fee of $375,000, subject to adjustment, by estimating what was required to provide much the same internal rate of return upon notional capital. Of course, the term of the loan was very much shortened. The date for repayment was changed from January 2002 to 31 July 2000, because Macquarie was now financing only Stage 1. But as documents she prepared at the time demonstrate, her suggestion of this new fee structure was according to her calculations of what was warranted by the application of an appropriate rate of return upon notional capital. In particular, in her memorandum to Mr Wiltshire, Mr Munro, Mr Pope and Mr Sacks of 8 February 2000, she calculated an internal rate of return on notional equity of 30.9 per cent. And she there wrote:

"To further expedite repayment, it is proposed to offer a fee reduction of $25k for each month that full repayment precedes July 2000 (up to a maximum reduction of $50k) and an additional facility fee of $25k for each month that full repayment exceeds July 2000.

It is necessary to explain her terms "terminal equity" and "terminal debt". In that passage, she adopted a particular hypothesis which was that by 31 July 2000, Stage 1 would be completed and all of its units sold and settled, but the remaining development site would be unsold. Upon certain estimates of costs and revenue, Ms Paschke hypothesised that $1.484m would be still owing, for which Macquarie would have the security over the balance of the land, worth $880,000. She has apportioned this outstanding debt by attributing $440,000 to notional debt and the balance to notional equity. She has shown then that amounts accruing at $25,000 per month on that notional equity would represent a return of 29 per cent plus the interest which Macquarie was to receive upon it. She was cross-examined by Konrad's counsel in terms which suggested, as she agreed, that she considered that this substituted fee structure would provide a comparable rate of return upon notional capital as that provided within the original agreement by the fee of $750,000. Konrad thereby accepts that Macquarie engaged in something of a process of genuine pre-estimation. But he argues that it was not a pre-estimation of Macquarie's loss from a default in repaying the debt by 31 July 2000. Instead it was a calculation of what was required to produce the same rate of return to Macquarie as that upon which Macquarie had embarked upon the original transaction, which he says was a different thing. It is then argued for Konrad that because this type of transaction, involving both notional debt and notional equity, is not the only kind of business undertaken by Macquarie, and involves a higher required rate of return than at least some other business, it could not correspond with a genuine pre-estimate of Macquarie's loss in not having the funds to invest in something else. There is no challenge then to the relevant evidence of Mr Wiltshire and Ms Paschke, and to the fact that the new fee structure was calculated in this way.

[184] It was then argued that because Macquarie presented no evidence of some "usual" range of return which it made on other loans, or some average across its whole lending business, there was no evidence as to whether Macquarie would have been likely to suffer any loss, as distinct from "return" or "profit" as a result of the default. It was argued that Macquarie had thereby "failed to demonstrate that the increased monthly fee in fact is a genuine pre-estimate of [its] loss". Those submissions then compared Macquarie's position, if entitled to recover this fee in full, with a loss it would have suffered by not being able to invest an equivalent amount at the interbank cash rates as published by the Reserve Bank of Australia (ranging from 4.23 per cent to 6.24 per cent).

[185] I accept that this agreement fairly describes the effect of Ms Paschke's evidence. But I do not accept that this evidence assists Konrad's case. Instead it confirms the character of the payments required by clause 8.3 and Item 30 as appears from the contract documents themselves. They are payments as part of the consideration for the provision of finance, and the ongoing use of the finance ahead of a full repayment.

[186] Importantly, according to the amended Item 30, the total fee increased by $25,000 per month not from a default on 31 July 2000, but from 31 May 2000. MPD was not obliged to repay the debt on 31 May, but it was agreed that a further $25,000 per month would accrue if the debt was not then repaid. No challenge could be made to the requirement, expressed within para (a) of Item 30, to pay $325,000 upon a full repayment of the debt if that occurred by the end of May. Nor could it be said that the requirement to pay $350,000 upon a repayment in June, or $375,000 upon a repayment in July 2000, involved a penalty. Those fees involved simply components of the consideration for MPD's having the benefit of Macquarie's finance for a particular time. The rate of return to Macquarie which was involved in the fee being in any of those three amounts, may or may not have been higher than other financiers would have required. But that would not make the payment of any of those three sums, in those respective circumstances, something in the nature of a penalty. Konrad's argument would appear to accept that if Item 30 had provided only for a fee of $375,000, reduced according to paragraph (a) but not increased according to its paragraph (b), no question of penalty would arise. That is so although the amount of the fee in that event would not vary if the principal sum had been partly (or even almost entirely) repaid, or if all of it had been repaid but there was still some "Obligation" which was unsatisfied.

[187] Konrad's argument is that, for example, the $25,000 payable in August is of a different character from the $25,000 which was payable in July. But the character of each payment, as an element of the bargain, is the same. As appears from the original agreement and the first variation agreement themselves, those fees are part of the agreed consideration for MPD having the benefit of Macquarie's finance. It is telling that the same monthly sum is payable before and after the due date for repayment. And there is no disproportion between that monthly sum of $25,000 and a fee of $375,000 in the event of repayment in full by 31 July. To the extent that it is relevant, Ms Paschke's evidence supports that characterisation of the monthly fee of $25,000. It shows that Macquarie was likely to receive the same rate of return on its outstanding funds both before and after the agreed date for repayment, until repayment was made.

[188] The agreement also provided for a higher interest rate upon any overdue sum: clause 7.9. There is no argument that this clause was penal, or that the effect of that provision is to make the $25,000 fee (after July 2000) a penalty.

[189] One of the guidelines given in Dunlop Pneumatic Tyre, was that there was a presumption (but no more) that there is a penalty when there is "a single lump sum ... made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage". In this case there is no "single lump sum". But a similar point arises, in that the fee is $25,000 per month regardless of whether the outstanding debt is very large or quite small. Nevertheless, that is a feature of the fee payable prior to the agreed Termination Date. What the parties agreed for a period after July 2000 was no different from what was agreed for the months immediately prior to then.

[190] Ultimately the argument for Konrad seemed to be that Item 30 should be characterised as a liquidated damages clause, and it was from that premise that it is argued that it is a penalty because it is not a genuine pre-estimate of loss. As I read Item 30, and the purpose it served within the bargain, its character was different. It provided for a substantial component of the consideration to be paid to Macquarie for the borrower's having its finance, and that character is demonstrated by the fact that its expressed burden upon the borrower is effectively the same both before and after the agreed date for repayment. It was not a term for what should be paid only in the event of default. It is not apt to inquire whether it was a 'genuine pre-estimate of loss', because its evident purpose was to provide a certain level of consideration for Macquarie according to the time for which any of its finance was still being used regardless of breach. Upon that characterisation, there is no aspect of unconscionability or oppression, or something of that kind which would warrant an interference with the parties' bargain. In the events which have occurred, the bargain, if it is ultimately performed, could prove to be a relatively profitable one for Macquarie. But that is not in itself a basis for setting aside part of the contract.

[191] On 13 December 2000, after Macquarie had gone into possession of the site, it asked Barker Gosling to hand over its files for work done for MPD on this project. Barker Gosling refused to do so unless Macquarie paid $43,825.77 which were the fees claimed to be owed by MPD. Macquarie paid the fees and obtained the files. Macquarie seeks to recover them as part of its debt. Konrad disputes that, arguing two points. The first is that Macquarie should prove, and has not proved, that Barker Gosling was owed these fees. Secondly, Macquarie has not proved that it required the files to take over the conduct of the development and, in particular, has not proved that the same material could not have been obtained from other sources. That material includes information as to what contracts for the sale of units were then on foot.

[192] The fees are claimed pursuant to clause 23.1 of the agreement which provided, in part, as follows:

"23.1 The Customer will pay to the Lender on demand and keep the Lender indemnified against all expenses ... incurred by the Lender in connection with:

(a) ...

(b) ...

(c) Enforcement:

The enforcement, attempted enforcement or preservation of any rights under any Transaction Document ..."

The mortgage granted by MPD was a "Transaction Document" as that term was defined. Further, clause 10.5 of the mortgage provided that:

"All monies expended by [Macquarie] in such carrying and completion [of the work] will form part of the Secured Monies and will bear interest from the date of payment as if such monies were advanced under the Facility Agreement ..."

Konrad guaranteed the payment to Macquarie "of the Obligations", which was defined to include the obligations and liabilities under any Transaction Document.

[193] The fees paid to Barker Gosling were expenses within clause 10.5 of the mortgage and they were in any case expenses in connection with the "enforcement, attempted enforcement or preservation of rights under any transaction document" within the terms of clause 23.1(c). That is not affected by whether Barker Gosling were owed the fees or the material on the files could have been obtained elsewhere. Konrad's argument is not put by reference to the terms of his agreement. It is simply an assertion that Macquarie unreasonably paid the fees, so that they are outside those terms. That submission must be rejected. The fees are recoverable, as is the interest which has accrued upon them.

[194] The amount of Macquarie's claim is otherwise undisputed. According to the third further amended Statement of Claim filed on 24 March 2005, the sum then due was $8,676,831.65. Since then, further amounts have accrued for fees and interest. At the conclusion of the trial, Macquarie's counsel agreed to provide a calculation of the sum owing to the date of judgment. According to that calculation, which again is undisputed, the current debt is $9,436,857.70.

[195] Macquarie also claims an order that Konrad indemnify it in respect of its costs of and incidental to proceeding S7421 of 2001, the proceedings brought by Mr and Mrs Lin. It claims that order upon the basis of clause 23.1(c), which I have discussed in relation to the Barker Gosling fees. In relation to these costs, however, Macquarie does not claim that it has incurred a certain amount of expenses for which there should be an addition to the judgment sum. In this respect it does not seek a judgment for a money amount, but an order for the performance of that alleged obligation. If Macquarie was by now entitled to add any such costs to its debt, and in turn to receive that from Konrad, it was necessary for Macquarie to plead and prove the amount for which it was seeking judgment in that respect. It did not do so and nor is there evidence as to that amount. There were no submissions addressed by Macquarie or Konrad in this respect. But Macquarie's entitlement (or otherwise) to indemnity in relation to its costs of the Lins' proceeding is relevant to the orders for costs which should be made in these two proceedings, about which I will hear argument from all parties.

[196] As I have concluded already, Mr Clapin did give proper advice to Konrad. In particular, he properly advised as to his guarantee being unlimited. Moreover, it is likely that Konrad understood this already, at least by 5 July 1999. The third party proceedings therefore fail, because Mr Clapin gave proper advice and Konrad relevantly understood his legal position.

[197] It also follows that Konrad's claim for contribution or indemnity, against the solicitors as another tortfeasor, must be dismissed. The solicitors were not in breach. In any case, Konrad is not liable in tort: he is liable under his guarantee. He did not defraud Macquarie by representing that he had received advice from Mr Clapin, because he had received that advice.

"are estopped from denying, insofar as [Macquarie's] rights against the [house] property are affected, that [Konrad] was the beneficial owner of the property and was entitled to deal with the property as regards [Macquarie] without the [Lins'] prior permission or approval."

[199] Konrad did not "deal with" the property as regards Macquarie. The house was not mortgaged to Macquarie and nor was Macquarie given any other proprietary interest. Instead Macquarie was given Konrad's covenant not to deal with the house in certain respects. Macquarie's claim then is that Mr and Mrs Lin are estopped from denying, as against Macquarie, that Konrad was the beneficial owner. Put another way, it is that they are estopped from asserting, as against Macquarie, what I have found to be their beneficial ownership of the house.

[200] The pleaded basis from Macquarie's estoppel case is as follows:

(a) The First Defendant represented to the Second Defendant that the property was, legally and beneficially, his own ("the representation").

(i) in about 1999 Merlin Pacific Developments Pty Ltd ("MPD") requested that the Second Defendant lend money to finance a multi-stage apartment development at Point Arkwright to be known as Papillon Villas ("the project");

(ii) by May 1999 the First Defendant became involved in those discussions as a potential investor/participant in the project and as a potential guarantor of MPD's obligations;

(iii) on or about 1 June 1999 the Second Defendant was given a Statement of the First Defendant's Assets and Liabilities, dated 31 May 1999, by the First Defendant. The Norman Park property (identified in paragraph 2 of the Statement of Claim, "the property") was identified on that Statement of Assets and Liabilities;

(iv) in about July 1999, the Second Defendant agreed to lend MPD funds for the project. Thereafter, the following written agreements were executed:

A. Fixed Fee Facility and a Guarantee Agreement dated 7 July 1999 ("the original agreement");

B. Variation to Facility Agreement dated 14 February 2000 ("the first variation"); and

C. Variation Number 2 to Facility Agreement dated 15 September 2000 ("the second variation");

The Second Defendant incorporates those agreements.

(v) The Second Defendant was not informed at any time prior to entry into the original agreement, the first variation or the second variation, that anyone other than the First Defendant had any interest in the property or any claim of such interest;

(vi) The Second Defendant was told by the First Defendant that the property was his to deal with;

A. The First Defendant informed the Second Defendant (by its servant Steve Wiltshire) in about late June 1999, that:

II. he was free to deal with the property as its owner;

B. The First Defendant informed the Second Defendant (by its servant Dale Evans) in late June or early July 1999, that he wished to be at liberty to deal freely with the property;

C. The First Defendant informed the Second Defendant (by its servant Steve Wiltshire) on or about 7 July 1999 that he wanted to be free to borrow against the property for other investments;

(vii) prior to making the advance under the original agreement, the Second Defendant received from the First Defendant the following certificates of independent advice in relation to the First Defendant's entering into that agreement:

A. certificate of independent legal advice to the First Defendant dated 7 July 1999 and provided by Peter Clapin of Clapin Pagliaro, solicitors; and

B. certificate of independent financial advice to the First Defendant dated 6 July 1999 and provided by Peter J Carroll of Deloitte Touche Tohmatsu, chartered accountants;

(viii) and when, by clause 15 of the original agreement (as varied by the first variation and the second variation), the First Defendant had;

A. unconditionally and irrevocably guaranteed to the Second Defendant the payment by MPD of its obligations under the original agreement (as varied by the first variation and the second variation) ("the guaranteed obligations"); and

B. agreed to pay the guaranteed obligations on demand if those were not paid by MPD on time;

by clause 13.1(1) of the original agreement (as varied by the first variation and the second variation), the First Defendant gave the further contractual assurances in Item 27 of the Schedule, which Schedule provided, inter alia:

(ii)

(Negative Pledge): the Customer and Guarantors will covenant to seek the

(iii)

Lender's approval in writing prior to disposing, mortgaging or pledging any direct or indirect interest in any asset other than in the normal course of business;

(iv)

(Covenant by Konrad Lin): Without limiting Item 27(ii), the Guarantor Konrad Lin covenants that he will not:

(a) sell, transfer, lease, licence or otherwise dispose of any interest he has in the property located at 62 Wynnum Road, Normal Park without the prior written consent of the Lender which consent will not be unreasonably withheld; or

(b) allow his total net worth (as assessed by the Lender acting reasonably) to fall below $5,000,000.00"

(b) the Plaintiffs were complicit in, alternatively permitted or suffered the First Defendant to make, the representation.

(i) the First Defendant is the registered proprietor of the property;

(ii) no trust interest, or any interest of the Plaintiffs', was disclosed on the register at any material time;

(iii) on or about 7 July 1999 the Plaintiffs, by their Solicitor, Mr Steven Morris, approved the wording of the covenants set out in 3(a)(viii) above;

(iv) at all material times:

A. the Plaintiffs and the First Defendant were directors of Pao Lin Investments Pty Ltd ("Pao Lin");

B. the Plaintiffs were shareholders of Pao Lin;

C. Pao Lin was a shareholder in MPD;

D. the First Defendant was a director of MPD;

A. the investment in MPD by Pao Lin;

B. the borrowing by MPD from the Second Defendant for the project;

C. the First Defendant's dealing with the Second Defendant on behalf of MPD;

(the Second Defendant cannot better particularise the awareness and approval until after the completion of interlocutory steps but the same are to be inferred from the fact of the borrowing in the foregoing circumstances.)

(i) made each of the agreements referred to in 3(a) above;

(ii) accepted the First Defendant's guarantee and further assurances; and

(iii) advanced money on loan thereunder in reliance on the representation.

[201] In essence, Macquarie's case is that Konrad represented that he was the beneficial owner, that the Lins were so involved in that representation as to be treated as representors, Macquarie assumed that Konrad was the owner as represented and on the basis of that assumption it undertook this transaction and continued to make advances. By implication, Macquarie also alleges that its reliance upon the truth of that representation will cause it a detriment which it will suffer if the Lins were allowed to assert their beneficial ownership.

[202] By their Reply, the Lins admit that Konrad represented to Macquarie that the house was "legally" his, but deny that he represented that it was his beneficially. That denial is explained not by particulars of what Konrad did or did not represent, but by allegations that each of Mr Evans and Mr Cossart knew before Macquarie lent any money that the house was held beneficially by the Lins. Further, they plead that they had no knowledge of the representation if Konrad made it. They deny that Macquarie relied upon the representation, if it was made. They further plead that if Macquarie did not know they were the owners, it ought to have known.

[203] The question of whether there is but one "single overarching doctrine" of estoppel or a "general doctrine of estoppel by conduct" of which estoppel by representation and promissory estoppel are examples,[11] or whether there are still distinct doctrines of estoppel is unresolved, as noted in Giumelli v Giumelli (1999) 196 CLR 101 at 112. That question could be relevant to the relief which is available if an estoppel is otherwise established. I accept the Lins' submission that the pleaded case is not akin to a promissory estoppel. The case is that the Lins are estopped because of a representation of an existing fact rather than a promissory statement. To the extent that the distinction between the various doctrines of estoppel is still relevant, the pleaded case seems to be one of an estoppel by representation. Macquarie claims that the Lins should be held to the position which they caused to be represented. There is another aspect to Macquarie's pleading, which is the apparently alternative allegation that the Lins "permitted or suffered" Konrad to make the representation, although there is no plea that the Lins owed any duty to disabuse Macquarie of a belief that Konrad was the beneficial owner.

[204] At para [77] of this judgment, I have discussed the document headed "Statement of Assets and Liabilities" which Konrad signed and sent to Macquarie on 31 May 1999. Against the item "Real Estate" he there listed three real properties amongst his assets, two investment properties (of which his parents were the registered owners) and this house. The house was given a value of $12 million and the investment properties a total value of $590,000. He showed rental amongst his stated income. And he listed as an asset furniture and fittings said to be worth $3 million. On its face, this document represented that he was the beneficial owner of each of those pieces of property, including the house. The statement was provided to a potential lender by a potential guarantor. The relevance of the house being his asset and having a certain value was in its information to the lender about the prospects of recovering from the guarantor. Had the house been held on trust, it would have been irrelevant, unless Konrad was giving the guarantee as a trustee such that he could have looked to trust assets for indemnity against his liability to repay. On its face, it was an unambiguous representation that he was the beneficial owner of the house.

[205] Macquarie also pleads another document by which the same representation was made, which is the Fixed Fee Facility and Guarantee Agreement itself, and in particular its Item 27. Konrad there covenanted that he would not "sell, transfer, lease, licence or otherwise dispose of any interest he has in the (house) property ... without the prior written consent of [Macquarie]" and that he would not "allow his total net worth ... to fall below $5,000,000.00". In his Statement of Assets and Liabilities, he had represented assets of a total value of about $23.5 million, made up of the house worth $12 million and other assets worth a total of about $11.5 million. The covenant not to allow his net worth to fall below $5 million was not of itself inconsistent with his being a trustee of the house. But the covenant not to sell, transfer, lease, license or otherwise dispose of any interest he had in the house was a representation that his interest was a beneficial interest. It was argued that there was something deliberately guarded in Macquarie's use of the words "any interest he has in the property" within this covenant, and that that phrase might be understood to refer to simply the legal interest, i.e. to the interest of a trustee. However, this was a covenant not to, amongst other things, sell his interest. That covenant would not have been apt had he been a trustee. And by cl 12.1(j), Konrad represented that he was not a trustee. So, by Item 27, Konrad represented that he was the beneficial owner.

[206] Macquarie alleges that Konrad also said things by which he represented to the same effect. First, it pleads that "in about late June 1999" he told Mr Wiltshire that he was the owner of and free to deal with the property. Mr Wiltshire's evidence was that Mr Munro of Macquarie's credit department in Sydney asked Mr Wiltshire to query whether the house was "really his", and so he asked Konrad. He says he queried Konrad, not in late June but prior to 11 June 1999. He made no note of such a conversation and nor did he refer to it in any internal bank document. I find that he did query Konrad about the house, as he said, prior to 11 June, but that the effect of what Konrad told him was according to this passage of his cross-examination:

"My recollection is that he said it was his house, yes he could deal with it, he had dealt with it in the past, and he did make a comment to the effect that he would speak to his father about the matter, but that yes, he could use the house if required.

Speaking to his father 'about the matter' did he give reference to what matter he was talking about? -- I can't recall the specifics of the conversation beyond what I've said to you."

[207] So according to Mr Wiltshire, Konrad said that he could deal with the house but that he would have to speak to his father "about the matter". This was hardly an unequivocal representation by Konrad that he was in all respects the owner. The answer is more suggestive of Konrad's legal ownership being in some way subject to Mr Lin. The statement should have made Mr Wiltshire doubt that Konrad was in all respects the owner of the house. And, assuming that he passed on Konrad's response to Mr Munro, Mr Munro should have had the same doubt. Mr Munro was not called as a witness although he is one of the persons whose state of mind is pleaded by Macquarie as its mind for the purpose of its estoppel case. Konrad's comment about talking to his father was not an unequivocal representation that his father was the owner. In theory, Konrad could have been the owner but thought that he should consult his father, not because Mr Lin had an interest in the house but out of some moral obligation in relation to an asset which was used as the family home. In my view, however, the impact of Konrad's statement about his father should have been to make Macquarie at least doubtful that Konrad was the beneficial owner. This qualified response is relevant to an issue, considered below, of the reasonableness of an assumption of Konrad's ownership.

[208] The Lins submit that there is another aspect of Mr Wiltshire's recollection of this conversation, which is contrary to Macquarie's case. Mr Wiltshire recalls that he asked Konrad whether Macquarie could have a caveat over the house and Konrad refused. I do not see that this was such an indication of Mr Lin's interest, as was Konrad's statement that he would have to speak to Mr Lin about dealing with the house.

[209] A further conversation relied upon by Macquarie is said to have occurred between Konrad and Mr Evans in late June or early July 1999, in which Konrad is said to have told Evans that he wished to be at liberty to deal freely with the property. According to Mr Evans this arose in the context of negotiations about the terms of Item 27. And there is a conversation allegedly between Konrad and Mr Wiltshire on or about 7 July 1999, again concerning the terms of Item 27, in which it is claimed that Konrad said he wanted to be free to borrow against the house for other investments. I accept that these conversations occurred. Other evidence, such as that of Mr Clapin as well as the documentary evidence, shows that there was considerable negotiation as to the terms of Item 27, such that the conclusion of the agreement, and the consequent first advance, were delayed by some days. It is likely that in this context Konrad would have made statements to that effect. However, of themselves these were not unequivocal representations that Konrad was the beneficial owner. Indeed, Mr Wiltshire admitted that in his mind he did not regard his conversation on 7 July as one which confirmed Konrad's ownership. Nor did Mr Evans give evidence that Konrad's statement to him made him think that he was the owner. Each of them said that he believed that Konrad was the owner, but not as a result of these conversations.

[210] Macquarie also relies upon Mr Clapin's certificate and the certificate of Mr Carroll as to independent financial advice, as part of Konrad's representation that he was the owner of the house. I do not see that the certificates, read by themselves or with other documents, constituted such a representation.

[211] Despite the qualification made by Konrad when speaking to Mr Wiltshire about needing to speak to his father about the house being available, upon an objective view, the Statement of Assets and Liabilities and covenant in Item 27 represented that Konrad was the owner in all respects. There are further questions of whether Macquarie understood the documents in that sense and if so, whether that was reasonable, and whether the representation was causative of Macquarie's going ahead on these terms. Before going to those questions, I turn to that of whether Mr and Mrs Lin are to be responsible for that representation.

[212] Macquarie pleads that the Lins are responsible upon what are pleaded as two bases. First it is said that they were "complicit" in Konrad's making the representations, and secondly they "permitted or suffered" him to do so.

[213] Macquarie provides the same particulars for these alternative allegations. As set out above at [200] the first two particulars are that Konrad was the registered proprietor and that there was no trust or other interest of the Lins disclosed on the register. Those facts are not, or ought not to be, controversial. The Lins ultimately submitted that Macquarie had adduced no evidence as to "the material content of the Land Title register at any material time". On the pleadings, the fact of Konrad's registered ownership is admitted. No trust instrument appeared on the register. The Lins' point is more that the state of the register, or indeed any belief as to the true ownership of the house, was immaterial to Macquarie. I find that Macquarie did not search the register itself. It did search records of the Valuer General, which showed Konrad as the registered owner, but there is no record of a search of the Land Title register.

[214] The next particular is that Mr Morris, as the alleged solicitor of the Lins, approved the wording of Item 27. As I have found, Mr Morris was not their solicitor. Any approval by Mr Morris purportedly on their behalf is of no present relevance.

[215] The other particulars relate to the Lins' involvement in Pao Lin. As Macquarie alleges, Mr and Mrs Lin and Konrad were the directors of Pao Lin, and Mr and Mrs Lin were its shareholders. Pao Lin was a shareholder in MPD. It was a trustee of the Lin family trust, a discretionary trust in terms apparently intended to benefit members of the Lin household, including Mr and Mrs Lin and Konrad. Macquarie alleges that the Lins were aware of and approved Pao Lin's investment in MPD, the borrowing by MPD from Macquarie and Konrad's dealing with Macquarie on behalf of MPD. As to those allegations, there is an issue as to whether the Lins and Konrad intended Pao Lin to be the investor or whether, as each of them says, it was intended that Konrad be the investor and solely entitled to the (Pao Lin) holding in MPD. The Lins' case is that they had no interest in the shares in MPD and in its project, and nor did Pao Lin have any beneficial interest. They say that this is why they paid little attention to these dealings, had no involvement in the negotiations with Macquarie and knew nothing of any representation which Konrad made to Macquarie. That is consistent with Konrad's version. Macquarie contends that this was a Pao Lin investment and that the Lins were following every step, which Konrad would have promptly reported to them.

[216] Macquarie provided particulars of its plea that the Lins were aware of and approved Konrad's dealings with Macquarie, by reference to these matters:

(a) the provision of the Statement of Assets and Liabilities on or about 1 June 1999;

(b) the conversations between Konrad and Mr Wiltshire and Mr Evans as to the ownership of the house;

(c) the provision by Konrad of the certificates of legal and financial advice;

(d) the provision by Konrad of a signed "application for credit - consents acknowledgement";

(e) the provision by Konrad of financial statements for himself and Pao Lin;

(f) Konrad's attendance at meetings on 9 and 14 February 2000 and 8 May 2000 with Macquarie representatives and others;

(g) certain correspondence between Macquarie and MPD on 3 May, 13 July, 11 and 17 August and 5 September 2000 in relation to further terms of Macquarie's lending;

(h) Pao Lin's payment of $100,000 on 11 August 2000 to Macquarie in discharge of an obligation of MPD;

(i) Konrad's execution of the fixed fee facility and guarantee agreement of 7 July 1999, together with variations to it in February and September 2000;

(j) various telephone conversations between Konrad and Macquarie representatives in May, July, August and September 2000.

[217] Konrad's involvement in these respects is not controversial. What is in issue is the existence or extent of the Lins' involvement in that conduct as ultimately going to whether it should be inferred that they were ever "complicit" in Konrad's representations or that they "permitted or suffered" him to make them.

[218] The Lins denied any knowledge of Konrad's Statement of Assets and Liabilities. Nothing was put to them about Konrad's conversations with Mr Wiltshire and Mr Evans, or about the other conduct of Konrad referred to in these particulars with the exception of Pao Lin's provision of $100,000 and with respect to the execution of the Fixed Fee Facility and Guarantee Agreement with Macquarie. However, there was extensive cross-examination in which the Lins' denial of any intended investment for the benefit of Pao Lin or its beneficiaries was challenged.

[219] It was Pao Lin which signed the Shareholders Agreement and became a shareholder. It was the lender of $125,000 to MPD before the first advance from Macquarie. And the subsequent advances, by the shareholding which Konrad represented, were from Pao Lin. I have detailed those payments already at [102] and they total more than $300,000. On the face of things, this was a Pao Lin investment. But the Lins and Konrad say that it was solely Konrad's investment, and that Konrad used Pao Lin only for convenience. He says that he was concerned about paying tax on his income from the project so he saw some advantage in using the trustee of the family trust as the shareholder. And possibly, it was thought that there was little time to acquire another company through which to make this investment. Only one working day intervened between the 27 May meeting and the advance to MPD upon the signing of the Shareholders Agreement.

[220] It is unlikely that Konrad and his parents discussed specifically the entitlements of Konrad and Pao Lin to any profits from the project, at the time they were each causing Pao Lin to become a shareholder on or about 31 May. Undoubtedly Konrad and his parents saw this as Konrad's venture in the sense that it was Konrad who was to be the active participant by being a director of MPD and attending to the protection of the one quarter share which he represented. Mr and Mrs Lin did not attend any meetings of MPD or with Macquarie other than the 27 May meeting. They could not speak English but they could have been active participants by going to meetings and having Konrad translate for them. Nor were they active in the sense of dealing with Mr Wu, with whom, of course, they were able to communicate. Significantly, Mr and Mrs Lin were not involved in meetings when the project was experiencing delays and other problems. The common understanding of Konrad and his parents was that this was to be Konrad's first step in his business career. It was a means of finding employment for him. Pao Lin did not give a guarantee to Macquarie. In itself, that could indicate that it was not an intended investment for the family trust, although another explanation for why it was not given is discussed below. Because the investment was in the hands of Pao Lin, the Lins would be able to control the disposition of any income it derived from it. I think it likely that the Lins and Konrad understood that it would be distributed for Konrad's benefit, consistently with Konrad's doing the work, although it was unlikely that the three of them spoke about it in terms which defined the precise legal position.

[221] Under that arrangement, it is unlikely that the Lins received comprehensive reporting from Konrad as to his dealings with Macquarie and the other investors. And to the extent that Konrad did tell his parents what was occurring with this investment, they were totally reliant upon his information. It would be wrong to assume that Konrad was in all respects a reliable informant. For a number of reasons he may have been less than candid with his parents about the progress of negotiations towards an agreement with Macquarie and more generally as to the progress of the project. Nor do I think it likely that everything which he said to Macquarie was likely to have been said with their imprimatur. Ultimately, Pao Lin has paid over $300,000 towards this project. But as matters stood in June 1999, the Pao Lin contribution was $125,000 which it was to be repaid by the first Macquarie advance within a matter of weeks. Once Macquarie was involved, there was no capital invested by Pao Lin, and none would be needed unless and until the project failed and MPD had to fund a loss. It is not so unlikely that in those circumstances, the Lins left matters to Konrad on the basis that this was effectively his job. In particular, it is not unlikely that anything said or written by him which constituted a representation as to the house was without their instruction or involvement.

[222] I am left unpersuaded that the Lins were knowing participants in the conduct relied upon by Macquarie, putting on one side the terms of Item 27 to which I shall return. I am not satisfied that the Lins had any involvement in the completion by Konrad of the Statement of Assets and Liabilities. Mr Lin did not impress me as someone who was likely to disclose assets unnecessarily, and volunteer the information that there was, for example, $5 million worth of jewellery in the Lin family. Whilst it is possible that Konrad asked his parents, or at least Mr Lin, as to how he should complete this document, I cannot conclude that more likely than not he did so.

[223] The conversation between Konrad and Mr Wiltshire in June involved a query by Mr Wiltshire which Konrad answered in terms that Konrad would have to speak with his father. So what he said to Mr Wiltshire on that occasion did not have his father's involvement.

[224] On any view, Konrad was involved in extensive negotiations of the terms of the covenant which became Item 27. He insisted upon a change to Macquarie's draft to delete the word "encumber". In that context he told Mr Wiltshire that he wanted to be free to borrow against the property for other investments. But that is not to say that these negotiations were conducted at the direction of Mr Lin or even with his knowledge. Quite possibly Konrad was minded to negotiate these matters by himself, without reference to his parents. He may have felt that this was his role as the active investor, and that he was looking to prove himself able to do the job. It is significant that agreement was reached with Macquarie on Item 27 on terms for which no agreement or consent from Mr and Mrs Lin was then needed, or would likely be needed during the life of the loan. And so whilst companies associated with the Jackson-Knaggs and with Mr Wu, including the company through which Mr Wu took his shareholding in MPD, were required to provide guarantees to Macquarie, no like guarantee was required from Pao Lin although it was also a shareholder. A guarantee from Pao Lin would have required the agreement of Mr and Mrs Lin.

[225] In Macquarie's third mandate letter, no guarantee was required from Pao Lin, which is curious having regard to what was required from other investors. As to Item 27, Konrad could well have thought that whilst there was no prospect that his parents would seek to sell, transfer, lease or licence any interest in the house during the term of the loan, it was likely that they would seek to again borrow against the security of the house, as they had done through Pao Lin from Bank West. And so Konrad's covenant within Item 27 was one which he might have thought he could perform without the co-operation of his parents.

[226] The statements by Konrad about his wanting to be able to borrow against the house and to deal with the property, and in turn his ultimate agreement to Item 27, are not inconsistent with his negotiating the terms with Macquarie without reference to his parents. It is no more likely that he was negotiating with the knowledge and/or instructions of his parents than that he was acting alone. Indeed, there is a real likelihood that he found himself getting in more deeply and felt that he should negotiate alone rather than admit to his parents that he had misunderstood what was involved. To explain that, it may be that he was under the impression, although unreasonably, after the 27 May meeting, that the limit of his liability, jointly with Mr Wu, would be $1 million, as he then may have told his father. If he subsequently realised, before the agreement with Macquarie was concluded, that his liability would be unlimited, he may have felt that he should endeavour to negotiate the best terms he could with Macquarie whilst keeping his mistake from his father. In that situation, he may have been content to represent to Macquarie to the effect that he was the owner of the house, although not with any encouragement from or knowledge of his parents.

[227] Putting on one side this possibility that he did not want to tell his parents of his mistake about the guarantee, still it is no more probable that he negotiated and agreed to terms for Item 27 on the instructions, or with the approval of his parents, than that he did so without their instructions or knowledge. The terms he negotiated did not require his parents' signature, and he was eager to have the transaction proceed. To have involved his parents at the eleventh hour, in his mind might have put it at risk. He might have thought that the conclusion of an agreement would be at risk by the prospect that his parents would have not agreed to a covenant acceptable to Macquarie

[228] As I have mentioned,[12] at a meeting of directors on 7 July, Konrad raised the prospect of a mortgage by MPD in favour of his father or Pao Lin, apparently to secure some loss contingent upon a failure by MPD to repay Macquarie. There are two reasons why Konrad's request for that mortgage does not assist Macquarie's case against the Lins. The first is that, this conduct is not pleaded by Macquarie against them. Secondly, in any case the conduct does not necessarily indicate an involvement by Mr Lin in Konrad's negotiations. It is just as consistent with a concern by Konrad, that by providing an unlimited guarantee in the circumstance that he was the owner of the Lin family home, he was exposing his family to the prospect of having to pay out much more than $500,000 to Macquarie to save the house: hence his request for a mortgage under which the secured debt would reduce according to a reduction in Macquarie's debt.

[229] When Pao Lin had to provide the large amount of money it did towards this project in 2000, probably Mr and Mrs Lin took a greater interest. But that is not to say that in June and early July 1999, they were knowingly involved in anything which Konrad was doing and, in particular, in any of the conduct relied upon by Macquarie as a representation. I am unable to conclude that they were told of Konrad's negotiations of the terms of Item 27, so that they knew that he was thereby representing that the house was in all respects his property. In summary, I am not satisfied that they instructed him to make such a representation or that they were in any other sense a knowing participant.

[230] There is the alternative allegation that they permitted or suffered Konrad to make the representation. The effect of this allegation is that they knew that he was making the representation and they did nothing to stop him.

[231] In either of the ways in which Macquarie pleads its case, the estoppel depends upon Konrad having made the alleged representation and upon his parents causing or permitting it to be made. The case is not pleaded upon the basis that Macquarie had an assumption or expectation, which was incorrect as the Lins knew and were duty bound to correct. But, at some stages at least, Macquarie's case appeared to have been conducted on this alternative basis and a consideration of it would not involve an unfairness to the Lins.

[232] In his judgments in Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 and Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641, Dixon J defined the elements of an estoppel without distinguishing between estoppel at common law and equitable estoppel, and in terms of the assumption of a state of affairs rather than in terms of representation. In his view, a representation was but one means by which a party could cause another to assume something so as to be estopped from contending otherwise. In Grundt's case, citing his earlier judgment in Thompson v Palmer, Dixon J said at 675-676:

"The justice of an estoppel is not established by the fact in itself that a state of affairs has been assumed as the basis of action or inaction and that a departure from the assumption would turn the action or inaction into a detrimental change of position. It depends also on the manner in which the assumption has been occasioned or induced. Before anyone can be estopped, he must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it. But the law does not leave such a question of fairness or justice at large. It defines with more or less completeness the kinds of participation in the making or acceptance of the assumption that will suffice to preclude the party if the other requirements for an estoppel are satisfied. A brief statement of the recognized grounds of preclusion is contained in the reasons I gave in Thompson v. Palmer and it is convenient to repeat it:--'Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct, as in Yorkshire Insurance Co. v. Craine; Cave v. Mills; Smith v. Baker; Verschures Creameries Ltd. v. Hull and Netherlands Steamship Co.; and Ambu Nair v. Kelu Nair; or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party's adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption.'" (Emphasis added)

That passage was applied to an equitable estoppel in Waltons Stores (Interstate) Ltd v Maher (1987-1988) 164 CLR 387 at 404, 427-428, 443-445, 448-450, 460-461.

[233] Were the Lins bound to speak up and tell Macquarie that it was their house? A duty will arise where a failure to speak would be unconscionable in the sense which is required for the operation of an estoppel in equity. In Walton's Stores, citing Dixon J's judgment in Thompson v Palmer; Brennan J said at 427-428:

"As an element in unconscionable conduct is the inducing of the other party to adopt an assumption or expectation as to the parties' legal relations, the question arises whether silence is capable of inducing the adoption of the assumption or expectation. ... the ... observations [by Dixon J] ... hold good, mutatis mutandis, with respect to the adoption of an assumption or expectation which founds an equitable estoppel. Clearly an assumption or expectation may be adopted not only as the result of a promise but also in certain circumstances as the result of encouragement to adhere to an assumption or expectation already formed or as the result of a party's failure to object to the assumption or expectation on which the other party is known to be conducting his affairs. ...

Silence will support an equitable estoppel only if it would be inequitable thereafter to assert a legal relationship different from the one which, to the knowledge of the silent party, the other party assumed or expected: see Ramsden v. Dyson; Svenson v. Payne; Willmott v. Barber. What would make it inequitable to depart from such an assumption or expectation? Knowledge that the assumption or expectation could be fulfilled only by a transfer of the property of the person who stays silent, or by a diminution of his rights or an increase in his obligations. A person who knows or intends that the other should conduct his affairs on such an assumption or expectation has two options: to warn the other that he denies the correctness of the assumption or expectation when he knows that the other may suffer detriment by so conducting his affairs should the assumption or expectation go unfulfilled, or to act so as to avoid any detriment which the other may suffer in reliance on the assumption or expectation. It is unconscionable to refrain from making the denial and then to leave the other to bear whatever detriment is occasioned by non-fulfilment of the assumption or expectation."

[234] What, if anything, did the Lins know of Macquarie's thinking as to the ownership of the house? The first matter to consider is whether they believed that Macquarie did assume Konrad was the owner. Macquarie relies upon this evidence in the re-examination of Mr Lin:

"Mr Lin, at the time Konrad informed you that he and Mr Wu were required to provide the guarantee you've mentioned, what did you understand that the Bank considered was Konrad's assets? -- I thought the Bank had told him that this project was almost no risk, and also Raymond Wu said he would help him.

No, I would like - Mr Lin, I'm talking about what you understood the Bank saw as Konrad's assets at the time that he was being asked to give a guarantee? -- They must have thought because the house was registered under Konrad's name, it must have been his.

Mr Lin, did you ever receive any information from the Bank that that's what they thought? -- No.

Did you think at the time in 1999 what the Bank thought? -- My thinking was very simple. If they thought so, they should have approached me. For a young man of that age that wasn't possible."

[235] For the Lins it is submitted that the effect of this evidence is that:

"Mr Lin was expecting the Bank to approach him for confirmation in relation to the question of ownership if it in fact were [sic] assuming that Konrad owned the house. No such approach was made and Mr Lin was entitled to assume that no such assumption had been made by the Bank. This was a reasonable position for Mr Lin to have adopted. He was entitled to assume that the Bank would not, in the face of its doubts, act in the manner in which it did without regard to him."

I do not accept that the effect of this evidence was that Mr Lin assumed that Macquarie was not treating the house as belonging to Konrad. To the contrary, he said that "they must have thought because the house was registered under Konrad's name, it must have been his". And I also understand his evidence to be that this was his thinking at the time in 1999. According to this evidence, he understood that Macquarie was treating the house as Konrad's property and not that of the Lins. But he asserts that Macquarie should not have made that assumption and that he did not feel obliged to tell them otherwise.

[236] Mrs Lin, whose evidence was given subsequently to that of Mr Lin, was not asked about what, if anything, she thought Macquarie assumed about the house. Macquarie would argue that if Mr Lin had a certain belief about Macquarie's state of mind, so too did Mrs Lin from the likelihood that the Lins discussed the matter, or that from her own business experience, her belief or understanding was probably the same as that of her husband.

[237] I find that Mr Lin did think that Macquarie was assuming Konrad to be the owner of the house, on the basis of the effect I give to that evidence in his re-examination. I am not satisfied that Mrs Lin had a corresponding belief. There is no admission by her, as Mr Lin made, and I am not prepared to infer it. More likely than not she did know that Konrad was being asked to provide a guarantee. But that is not to say that she turned her mind to what, if anything, Macquarie thought about who owned the house, and that she thought Macquarie was assuming Konrad to be the beneficial owner.

[238] The necessary inquiry is not simply whether the Lins or either of them believed that Macquarie assumed Konrad was the owner. It is whether the Lins' understanding of Macquarie's position was such as to oblige them to speak out if later they were going to assert their interest as against Macquarie. Mr Lin admits that he thought Macquarie must have assumed Konrad to be the owner because he was the registered owner. He does not admit that he thought Macquarie had that assumption because a bank would not have lent the money absent that assumption. He admits Macquarie's assumption, but not a reliance upon that assumption.

[239] For an equitable estoppel, the party to be estopped must not only have known of the other party's assumption: it must have known or intended the other to act or abstain from acting in reliance on the assumption. That is the fourth of the six elements set out in the judgment of Brennan J in Walton Stores at 428-429. Earlier in his judgment (at 423) Brennan J said:

"It is essential to the existence of an equity created by estoppel that the party who induces the adoption of the assumption or expectation knows or intends that the party who adopts it will act or abstain from acting in reliance on the assumption or expectation: see per Lord Denning M.R. in Crabb v Arun District Council. When the adoption of an assumption or expectation is induced by the making of a promise, the knowledge or intention that the assumption or expectation will be acted upon may be easily inferred. But if a party encourages another to adhere to an assumption or expectation already formed or acquiesces in the making of an assumption or the entertainment of an expectation when he ought to object to the assumption or expectation - steps which are tantamount to inducing the other to adopt the assumption or expectation - the inference of knowledge or intention that the assumption or expectation will be acted on maybe more difficult to draw."

"The foregoing review of the doctrine of promissory estoppel indicates that the doctrine extends to the enforcement of voluntary promises on the footing that a departure from the basic assumptions underlying the transaction between the parties must be unconscionable. As failure to fulfil a promise does not of itself amount to unconscionable conduct, mere reliance on an executory promise to do something, resulting in the promisee changing his position or suffering detriment, does not bring promissory estoppel into play. Something more would be required. Humphreys Estate suggests that this may be found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party." (emphasis added)

"These facts suffice to found an estoppel precluding Waltons from denying the existence of a binding agreement for lease. Indeed, these facts call into play the operation of perhaps the clearest emanation of estoppel by conduct, namely, the principle which precludes departure from a representation or an induced assumption (a "representation ... by silence": Laws Holdings Pty. Ltd. V. Short.) of existing fact in circumstances where the party estopped has knowingly and silently stood by and watched the other party act to his detriment. The requirements of such an estoppel have been explained in a number of cases in this Court, in particular by Dixon J. in his judgments in Thompson v. Palmer and Grundt v. Great Boulder Pty. Gold Mines Ltd."

[240] In Thompson v Palmer, the duty to which Dixon J was referring was not so much a duty for which there would be a liability for its breach, apart from the operation of an estoppel. It was a duty to speak "the sanction of which is preclusion, not liability", as Dixon J described it in Williams v Frayne [1937] HCA 16; (1937) 58 CLR 710 at 736. [13] In this context, the duty to speak up and correct the mistaken assumption must have a wider basis than simply a knowledge of the assumption. Its basis is be defined by the standard of unconscionability. The Lins had such a duty only if their consciences were affected by a knowledge or belief that Macquarie was proceeding on terms which would not have been acceptable to it, absent an assumption that Konrad was the beneficial owner.

[241] As I have said, Macquarie pleads its reliance[14] but not an awareness of it by the Lins. As I find below, Macquarie did rely on an assumption of Konrad's ownership, although unreasonably. But in my conclusion, Macquarie has not proved an awareness by the Lins of that reliance.

[242] In his evidence-in-chief, Mr Lin was asked about his experience in Taiwan borrowing money on the security of a mortgage.[15] He was asked whether it was his experience that money could be borrowed from the bank without providing a mortgage, to which Mr Lin answered: "For formal bank loans you have to have a mortgage, and you could only borrow money without mortgage from black society and you have to pay high interest". He was then asked as to his understanding of what was required of the owner of a property for a mortgage and he said that the title deeds and a stamp of some kind had to be provided. The implication of this evidence is that he did not believe that Macquarie was taking a mortgage over the house, at least because the Lins retained possession of the Certificates of Title. In cross-examination by Macquarie's counsel, it was put to Mr Lin that he knew that "if Konrad was to pull out of the deal, that the Bank certainly wouldn't lend", which he denied. It was then suggested that Mr Lin "knew that one of the bases on which the Bank was prepared to lend was ... Konrad's giving a guarantee to the Bank" to which Mr Lin responded: "At that time after the meeting Konrad told me that Raymond Wu and him would buy 50 per cent of the share and they would give one million guarantee, but at that time they were only talking about it". In his next answer, Mr Lin said that he did not know at 5 July 1999 that Konrad was going to give a guarantee. A little further on in that cross-examination[16] he gave this evidence:

"Well, do you remember your son bringing the Bank documents - a set of the Bank documents to you to discuss them with him? -- It did not happen. It's a very strange project and a very strange misunderstanding.

What's strange about a son who you say has no development experience, who is going to invest - has invested at this point in a developer company, and that company of which he is a director is now borrowing millions of dollars, coming to his father, the experienced property developer, to have the father have a look at the documents that the Bank wants signed? What's strange or complex about that? -- For young people who have no experience in the investment, had no asset, had no money and ask him to give a guarantee, and there's no need to give money? I've never done any business like that.

No indeed. What you did, I put to you, Mr Lin, was you presented as the wealth behind your son, who you wanted to get into property development, and you provided the family's blessing and financial backing in the dealings with the Bank? -- No.

Well, that's precisely what the meeting of the 27th of May was to achieve, wasn't it? -- The Bank wanted to let me know that they have given Konrad an opportunity to learn something. Later Konrad told me that this project almost had no risk. I felt that the Bank was wanting to do a demonstration, and later on there should be more people to co-operate with the Bank."

[243] A little further on Mr Lin was tested as to his understanding of the relevance or otherwise of Konrad's financial position to Macquarie.[17] He then gave a series of answers which were unresponsive to the questions, but I am not prepared to find that he was deliberately evasive. It may have been a difficulty caused by his evidence being given through an interpreter. But he did give this evidence:[18]

"You knew that to be taken seriously as a potential investor, to make up the difference that Jackson-Knaggs needed, Konrad had to be presented to the Bank as a person of substance? -- I believe it was the case."

He went on to deny in that part of his cross-examination that he understood, or believed, that Konrad would have to give a guarantee as one of the investors in the project.[19] When it was suggested to Mr Lin that he knew that "Konrad had presented to the Bank as the owner of the house and a person of substance", Mr Lin answered "It's impossible for him to say that". His answer that he believed "it was the case" that to be taken seriously as a potential investor, Konrad had to be presented to the bank as a person of substance, assists Macquarie's case. But in context of Mr Lin's other evidence, it is not a plain admission that Mr Lin believed Macquarie was assuming Konrad to be the owner of the house and was relying upon that assumption. Mr Lin might have had another understanding of what was meant by "a person of substance", such as Konrad's being such a person, not through his own individual wealth but through the wealth and backing of his family. Indeed, at one point, as appears from the passage I have set out in the previous paragraph, it had been expressly put to Mr Lin that "what you did ... was you presented as the wealth behind your son, who you wanted to get into property development, and you provided the family's blessing and financial backing in the dealings with the bank" and that "that's precisely what the meeting of the 27th of May was to achieve". So in the minds of the Lins, it could well have been thought that Macquarie would be prepared to proceed on the same terms, irrespective of the ownership of the house, because of a perception that the Lins would stand behind him, as the "wealth behind [their] son".

[244] I have already set out some of the re-examination of Mr Lin which is relevant to the present point. To that must be added this reference:[20]

"Mr Lin, what was your understanding in May 1999 of why the Bank was doing business with Konrad? -- Because I had helped Raymond Wu before and Raymond Wu said he had good relationship with the Bank, he could assist Raymond - assist Konrad, and Bank gave Konrad this learning opportunity hoping in the future that together with my friends, I could do bigger project with them."

That is a plausible explanation. It is likely that, at least as Mr Lin saw things, Macquarie was motivated in part by the prospect of doing future business with him and his "friends" or business associates. I have mentioned Mr Evans' pursuit of clients within the Taiwanese community in Australia. Insofar as the Brisbane representatives of Macquarie were concerned, it is likely that this prospect of further business involving the Lin family was influential. There were many circumstances from which this transaction might have been attractive to Macquarie absent Konrad's owning the house. As well as the formation of a business relationship with the Lin family, there was the expectation of a large return, having regard to a fee of $750,000 as well as the high interest rate. Mr Lin was not privy to any assessment by Macquarie of the risks, or Macquarie's internal rules and guidelines for risk management. And Konrad's guarantee might have been considered valuable, without his owning the house, because of the likelihood that the Lin family would stand behind him. There was no clear admission then by Mr Lin that he believed that Macquarie was not only assuming but relying upon Konrad's ownership of the house, in that it was going ahead on terms which would have been unacceptable but for that assumption. And I am not prepared to infer that Mr Lin had that belief.

[245] I have concluded that the Lins were not knowing participants in the conduct alleged to have been the respects in which Konrad represented himself to be the owner. And I am not persuaded that the Lins relevantly induced any assumption by Macquarie as to ownership of the house by failing to speak up, because I am not persuaded that they believed that Macquarie was relying upon an assumption, and absent that, they were not bound to speak up. At least for those reasons, the estoppel case is not established. It is appropriate however that I consider some other aspects of it. There is a further reason why that case fails, which is that any reliance by Macquarie was unreasonable.

[246] Macquarie pleads that it undertook this transaction in reliance upon the representation that Konrad owned the house. The Lins deny that allegation and, in particular, deny that Macquarie did assume that Konrad was the owner. Macquarie has identified its employees whose minds were relevant in this respect as being:

(b) further or alternatively, Mr Wiltshire;

(c) further or alternatively, Ms Paschke;

(d) further or alternatively, Mr Munro;

(e) further or alternatively, Mr Munro, Mr Sacks, Mr Minogue and Mr Moss conjointly."

Ms Paschke was employed in Macquarie's Brisbane office as a Senior Portfolio Manager. Her manager was Mr Wiltshire. Her role was to assist him in the documentation and implementation of new transactions and the subsequent administration of the loans. Her evidence was given by a statement and by oral evidence. The statement was subject to a number of objections by counsel for Mr and Mrs Lin. The result was that some of her statement was admitted only against Konrad, and not against Mr and Mrs Lin.[21] She was on leave when the first, second and third mandate letters were prepared. When she returned in June 1999, she was involved in "processing the further information required by the bank to satisfy the conditions precedent in the Mandate letter dated 2 June". She "reviewed" Konrad's Statement of Assets and Liabilities and the "property searches" of the house and the two Gumdale properties. Of course those searches showed Konrad as the registered owner of the house but his parents as the registered owners of the Gumdale properties. Ms Paschke says that the only "hard" asset which had been disclosed by any of the proposed guarantors was the house. She saw copies of correspondence between the solicitors for MPD (Mr Morris' firm) and Macquarie's solicitors dated 5 and 6 July 1999, in which there was some debate as to the terms of the covenant to be given by Konrad as to the house. She attended a meeting at Macquarie's offices on 7 July at which Mr Wiltshire, Mr Cossart, Konrad, Mr Wu and Mr Morris were present, when there was discussion as to that subject although she cannot recall the detail. She had a role in the administration of this facility after the original advance in July 1999, and she participated in meetings in late 1999 and in July 2000 with, amongst others, Konrad. In this administration work, she caused searches of the house to be carried out on 12 October 1999 and 11 January, 12 April and 11 July 2000. The Macquarie file also shows searches on 23 October 2000 and 16 January 2001. There was no specific statement in her written or oral evidence to the effect that she believed that Konrad was the beneficial owner. But her evidence that when she reviewed Konrad's Statement of Assets and Liabilities, the house seemed to be the only substantial asset, indicates that she believed it was his. That explains why she dismissed the Gumdale properties as irrelevant. If it mattered, I would infer that she believed that it was Konrad's house in every relevant respect. But she was not a decision maker for Macquarie. It was not her responsibility, either alone or with others, to make a judgment as to whether Macquarie should lend, and on what terms.

[247] Macquarie does not list Mr Evans as being one of those whose mind is relevant in identifying Macquarie's state of mind. Nevertheless, it is necessary to discuss his thoughts at least because of the chance that his thoughts affected those of others in Macquarie. On this, there is a substantial conflict between his evidence and that of Mr Foreman, who was called in the case for Mr and Mrs Lin. Mr Foreman has been involved in property development and management for about ten years, and now he operates his own business from the Sunshine Coast. From 1996 to 1999, he worked for Mirvac in property development. He met Mr Evans in about mid 1998. Mr Evans was with Macquarie by then. There was no business between them for their respective employers, but Mr Foreman was then minded to start his own business, and with that prospect in mind, Mr Foreman saw some potential advantage in an acquaintance with Mr Evans. Occasionally they would lunch together. Mr Evans does not dispute any of that, but Mr Foreman says that he lunched one day with Mr Evans and a group with him, which included Mr Wu and Konrad. According to Mr Foreman, he and Mr Evans later discussed Konrad and the fact that the Lin family lived in this prominent house at Wynnum Road, and this inspired Mr Foreman to himself look at the details of the house on a database of property information. Mr Foreman says that when he saw that Konrad was the owner, he rang Mr Evans to tell him of his surprise that it was owned by Konrad, and that Mr Evans said "No, no, it's only owned - it's not owned by Konrad. It's owned by his father. It's just in his name." This conversation is said to have taken place before Mr Foreman left Mirvac in April 1999. Mr Evans denies having this conversation with him.

[248] Mr Foreman had nothing to do with the Papillon project or any other event relevant to these cases. His evidence was strongly challenged by Macquarie, as being deliberately false. It was suggested that Mr Foreman was giving a false account to further some business relationship with the Lin family, which Mr Foreman denied. I am not sure that Mr Foreman is so distinct from the Lin family or the prospect of business with them as he maintained. But it is difficult to simply dismiss his evidence as a fabrication. In some respects, the evidence is not so unlikely. It is probable that after Mr Foreman met Konrad, he and Mr Evans did discuss who the Lin family were, especially when they lived in a house which only a few years earlier had been regarded as the most expensive in Brisbane. It is the kind of small talk which two men involved in the property business would have. It is quite likely that Mr Foreman would search the database, at least to find out the price paid for the house, and if so, that he would have seen it as worth saying to Mr Evans that it was the young Konrad who was shown as the owner. And it is likely that Mr Evans supposed that Konrad was not the beneficial owner. It was such an expensive house, the Lin family and not just Konrad lived there, and Konrad must have been so young when it was purchased. In the same way, as I have mentioned already, other employees of Macquarie doubted Konrad's ownership: Mr Wiltshire says that he was asked to confirm the matter with Konrad. This is not to say that Mr Evans knew that Konrad was a trustee for his parents. There is no suggestion that he had been told that by Konrad or any other member of the family. But I find that more probably than not, he did know that Konrad was the registered owner but that he supposed that Mr Lin had an interest. I accept the substance of Mr Foreman's evidence that Mr Evans told him of that supposition.

[249] Mr Evans worked closely with Mr Cossart, including in work which progressed this proposed transaction. For the Lins, it is submitted that if Mr Evans thought that Konrad was not the true owner, so too did Mr Cossart. The Lins seek a finding that both Mr Evans and Mr Cossart were actually aware that Konrad did not own the property. But as I have said, I would not infer that Mr Evans knew that Konrad was not the true owner; I would infer that he supposed that he was not. More probably than not, he and Mr Cossart discussed the subject at some time during the negotiations leading to the conclusion of the agreement and the first advance on 12 July 1999. There was considerable negotiation with Konrad as to the terms of what became Item 27, and as to what restraints were appropriate in relation to dealings with the house. It is very likely that in the circumstances the two men did discuss whether any decision in relation to the house was one which was only for Konrad. Each of them is experienced in banking and in the financing of property transactions. Neither is a lawyer and there is little chance that their discussions descended to the detail of trusts, and the types of circumstances which might have made Konrad a trustee. I find that, like Mr Evans, Mr Cossart supposed that Konrad owned the house subject to what his father might say should be done with it. I reject the evidence of Mr Evans or Mr Cossart which is inconsistent with that position. Each had a personal interest, through Macquarie's bonus schemes, in furthering this transaction. It was not in their interests to have Macquarie make a bad transaction. But they may well have believed that a call upon Konrad's guarantee would be unlikely, and that if it did occur, the family would stand behind him. There was a disincentive for them to say to the actual decision makers within Macquarie that they at least doubted Konrad to be the owner.

[250] Once a mandate letter had been accepted, it fell to Mr Wiltshire to progress the transaction and in particular to prepare a submission to the Bank's credit committee, all of whom worked in the Sydney office. I have already accepted Mr Wiltshire's evidence that he queried Konrad as to the house, to which Konrad replied that he could deal with the house although he would have to speak to his father about the matter. But there is no evidence from Mr Wiltshire that he followed up with Konrad the question of whether Konrad had spoken with his father about the matter. That seems curious, because Mr Wiltshire must have been left in doubt after Konrad had said this to him.

[251] Mr Wiltshire began to draft his submission to the credit committee on or about 18 May 1999. There is a copy of a draft of that date on a backup tape which was ultimately disclosed by Macquarie.[22] There are other versions of Mr Wiltshire's draft, also located on backup tapes, which are dated 11, 17 and 21 June 1999.[23] The hard drive of the computer used by Mr Wiltshire has been cleaned so that only these backup copies are available. For Mr and Mrs Lin it is submitted that the destruction of relevant documents, including this hard drive as well as some email records, should make it more difficult for Macquarie to discharge its onus that it relevantly relied upon Konrad's alleged representation. Some of Macquarie's disclosure was late, and the copy of the original draft of 18 May 1999 was disclosed only some weeks into the trial and after I was persuaded to make an order against Macquarie pursuant to r 223. However, I am unpersuaded that Macquarie deliberately failed to disclose documents and, in particular, that it destroyed relevant documents with the intention that they would not be disclosed. To the extent that documents were disclosed late, there was an inattention to the task of disclosure by Macquarie, but not involving the sinister motive which is suggested.

[252] Mr Wiltshire's draft of 18 May 1999 makes no reference to any investors, other than the Jackson-Knaggs, and it reflects the proposal set out in the second mandate letter, which Mr Wiltshire signed on the following day. The draft as at 11 June 1999 does refer to Mr Wu and Konrad, as being each the owner of 25 per cent of MPD and as "professional investors with a combined net worth [of] $10.513m". Those details remained in subsequent drafts including the final version. Mr Wu is also referred to as having been a guarantor under a previous Macquarie facility, in relation to which his interest in that project had been sold and his guarantee had been released. In his 11 June draft, Mr Wiltshire had shown the net worth of the Jackson-Knaggs' interests at $0.785m and those of Raymond Wu and Konrad "and associated entities" at $10.513 million, noting that "the financial statements held indicate a combined net worth of $26.298m, however, these have been scaled according to probable realisable values - refer to 5.0 Financial Summary and the Financial Analysis located in Annexure I for details". The Financial Summary showed that of that $10.513 million, $1.301 million was allocated to Mr Wu and his entities and $9.212 million to Konrad. The Annexure showed that Konrad's assets were $6.8 million for the house, $412,000 for motor vehicles and $2 million for shares. There was a note that the investment properties were in Konrad's parents' names.

[253] But in the draft as at 21 June 1999, this had been added:

"Konrad Lin is the only significant asset holder. His primary asset is arguably the most expensive residence in Brisbane (claimed to be worth $11.6 million but discounted by MBL to the $6.8 million purchase price). It appears that the asset was gifted to Konrad Lin by his parents and that the whole family still lives there. There is a risk therefore that if the Bank sought to recover from Mr Lin, this asset may be transferred back to his family. To mitigate this risk, a condition of the facility is that Mr Lin undertakes not to dispose or encumber the asset. MBL will undertake at least three monthly title searches to verify this so that if the covenant is breached, MBL will be able to declare default and if necessary invoke preference payment arguments if necessary in bankruptcy proceedings."

[254] In all drafts there is also this said about Konrad:

"Konrad Lin is 23 years of age. He was born in Taiwan and educated to Tertiary level at the Taipei American School in Taipei. He migrated to Australia 9 years ago with his family and moved to Brisbane where he attended Brisbane Boys College and obtained a Commerce degree at the University of Queensland, St Lucia. He was employed until recently at Morgans Stockbrokers Sydney where he worked as a successful stockbroker.

Konrad resigned his position so that he could focus on property development.

Konrad's father is said to be one of the most successful property developers in Taipei."

[255] According to Mr Wu's evidence, at some stage after the third mandate letter (2 June 1999), at a meeting at the bank between Mr Wu, Konrad, Mr Cossart and Mr Evans, Mr Cossart asked that Mr and Mrs Lin be guarantors to which Konrad answered that this was "impossible", and that Konrad said the same to a suggestion that there be a mortgage "on Konrad's houses". There is no support for that in the evidence of Mr Cossart or Mr Evans, and it was challenged by Konrad's counsel when cross-examining Mr Wu. It is understandable that Konrad would challenge this evidence because it is more likely that he did appreciate that his guarantee was unlimited if Macquarie was asking for guarantees also from his parents, or alternatively a mortgage. It is also understandable that Mr Cossart and Mr Evans would not wish to volunteer that evidence, lest it indicate that they were concerned about Konrad's standing. The evidence was given by Mr Wu in a very definite way, as he gave much of his evidence. It is difficult to assess whether there were these requests of Konrad. It is quite likely that Mr Cossart and Mr Evans would request those things, especially when, as I have found, they supposed that Konrad was unlikely to be in all respects the owner of the house. Mr Wu was not an entirely reliable witness, and although he may have been doing his best to recall things, he could well be mistaken as to this, but so too could Mr Cossart and Mr Evans. Ultimately, I do accept Mr Wu's evidence on that point. But assuming that the conversation was related to Mr Wiltshire, it does not follow that Mr Wiltshire believed that Konrad was not the owner.

[256] At the time of his final version of the submission to the credit committee, Mr Wiltshire was writing in terms which seemed consistent only with a premise that Konrad was the owner in the sense that the house would be available property in the event that Konrad's guarantee was to be enforced, albeit through his bankruptcy.

[257] Yet it is difficult to see how Mr Wiltshire could have reasonably accepted that premise in his own mind. He had had one conversation with Konrad which was at best equivocal. There is no evidence of a search of the register. No inquiry had been made of the Lins themselves. Of course that inquiry would have needed the assistance of an interpreter, but that should have presented no practical difficulty. If there was another person interested in the house, almost inevitably that person was Mr Lin or an entity associated with him. Macquarie was requiring a solicitor's certificate of advice to Konrad, and it would not have been unrealistic to have asked for a solicitor's letter, written on behalf of Mr Lin, confirming that he had no interest. Nor did Macquarie ask for any certificate from an accountant for Konrad as to his financial position. I am mindful of the benefit of hindsight in all of this, but Mr Wiltshire seems to have taken none of the steps which might have been expected of him in the circumstances.

[258] For the Lins it is submitted that an unreasonable adoption of and reliance upon an assumption of Konrad's ownership cannot found an estoppel. An estoppel can be denied upon the basis that the relevant assumption by the party claiming the estoppel was unreasonable: Waltons Stores at 397 per Mason CJ and Wilson J; Commonwealth v Verwayen (1990) 170 CLR at 414 per Mason CJ; Australian Securities Commission v Marlborough Goldmines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 506 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ; Valbirn Pty Ltd v Powprop Pty Ltd [1991] 1 Qd R 295 at 297-8 per de Jersey J (with whom the other members of the court agreed); Standard Chartered Bank Australia Ltd v Bank of China (1991) 23 NSWLR 164 at 180-181 per Giles J; Murphy v Overton Investments Pty Ltd [2001] FCA 500; (2001) 112 FCR 182 at 202 per Branson J, 208 per R D Nicholson J; Voss v Suncorp-Metway Ltd (No 2) [2003] QCA 252; [2004] 1 Qd R 214 at 222 per Davies JA. The reasonableness of the representee's reliance is an element of an estoppel by representation: Franklin v Manufacturers Mutual Insurance Ltd [1935] NSWStRp 62; at 82. And in terms of an equitable estoppel (or an overarching doctrine of estoppel) the reasonableness of the conduct of the party in acting upon the assumption is a circumstance relevant to whether a departure from the assumption would be unconscionable: at 445 per Deane J.

[259] If Macquarie, specifically Mr Wiltshire and those who relied upon his credit submission, did believe Konrad to be the owner, that was an unreasonable assumption and insufficient to justify the estoppel which is claimed. As Giles J said in Standard Chartered Bank v Bank of China at 181, the question here is not one to be framed in terms of constructive notice: "instead the preferable approach is to take account of the representee's actual knowledge in asking whether the representee reasonably adopted and relied upon the representation". On what Mr Wiltshire actually knew, it was unreasonable for him to adopt the assumption from the conduct attributed to Konrad, and to rely upon it. And no member of the credit committee, none of whom was called as a witness, seems to have done other than to rely upon what was put up by Mr Wiltshire.

[260] The absence of any reasonable basis for Mr Wiltshire's alleged assumption also throws considerable doubt upon whether, in fact, he did make that assumption. The alternative is that, in his own mind, he was not assuming that Konrad was the owner but he was prepared himself to represent that to the credit committee as he plainly did by his submission to it. I am not prepared to find that this was his state of mind and, ultimately I accept that he simply assumed, although unreasonably, that the house was Konrad's and specifically his for the purposes of his potential bankruptcy.

[261] There is no evidence then from any of Mr Munro, Mr Sacks, Mr Minogue or Mr Moss. There is a document which evidences their decision making, which is a hard copy of a document which had been in electronic form and is headed "Credit approval/discretion". It records Mr Munro's approval on 21 June 1999, as the first of those four on the committee to grant approval. Importantly, it records Mr Munro writing this before it was in turn approved by the other members of the committee:

"There is some risk that much of the wealth from the guarantors comes from 1 individual whose main asset is an expensive residence in Brisbane may disappear. The effects of such an occurrence have been reduced by imposition of a negative pledge and non disposal covenant on this asset (to be checked by regular title searches) which will empower the Bank to act, even though it will be after the fact, at least the Bank may be able to rely on a claw back of preference payments in the event of bankruptcy."

I infer from this document, read with the submission to the committee by Mr Wiltshire, that the committee members did assume that Konrad was the owner of the house, such that it would be treated as his property in a bankruptcy. The representation by the covenant in Item 27 could only have confirmed that understanding. If it mattered, I would hold that Konrad's representation was an inducement to Macquarie's assumption. But it does not affect my conclusion that Macquarie's assumption was unreasonable. It was unreasonable for Macquarie to hold this assumption simply on Konrad's say so when the circumstances so clearly raised the question of his ownership, and that question did arise in the minds of at least Mr Munro and Mr Wiltshire without its being reliably answered.

[262] Macquarie says that it continued to rely upon the house being Konrad's after 12 July 1999 and as it made further advances through to November 2000. I accept that nothing occurred after July 1999 which altered or should have altered Macquarie's state of mind in relation to the house, until after Macquarie had made its last advance. Accordingly, I accept that Macquarie continued to assume, through Mr Wiltshire at least, that Konrad was the owner.

[263] Ultimately, the assumption upon which Macquarie relies is established, according to the findings I have made about Mr Wiltshire and the members of the credit committee. But the element of reliance is not established, because Macquarie's assumption and reliance was not reasonable.

[264] It is unnecessary then to consider what relief might have been given to Macquarie in the event that it otherwise established its entitlement to an estoppel. Macquarie claimed, even in final argument, that the relief should be by the Lins being estopped from asserting their title against Macquarie, to the end that Macquarie should have a charge upon the house for the entire amount of the outstanding debt. The Lins submitted that Macquarie had not proved that, everything else being in its favour, this relief was warranted. If an equitable estoppel had been established, it would have entitled Macquarie to no more than that relief which was necessary to prevent unconscionable conduct and to do justice between the parties: Waltons Stores at 404; Verwayen at 411, 413, 429, 454, 487. Macquarie could have put its case no higher than that, prima facie, the estoppel should preclude departure from the assumed state of affairs unless to do so would "exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party": Verwayen per Deane J at 442; Giumelli at 125. I have accepted that Macquarie did rely on its assumption as to the house. I infer that Macquarie would not have lent on those terms but for that assumption, from what appears in the document recording the decision making of the credit committee. However, the progress of the mandate letters, together with Mr Wiltshire's evidence, show that a transaction upon the terms of, for example, the first mandate letter, under which there was to have been a $1 million bank guarantee, would also have satisfied the relevant Macquarie guidelines. I infer that more likely than not, had that security been offered, Macquarie would have proceeded. The detriment from its reliance was not in failing to properly secure its debt, and in particular to obtain security of the value of the amount which it now claims. Its detrimental reliance is not shown to have been more than failing to require a bank guarantee of $1 million or its equivalent in value. Had I been otherwise persuaded that there was an estoppel, and that the relief should be according to the operation of an equitable estoppel, I would not have been persuaded to grant Macquarie any relief beyond a charge to the value of $1 million upon the house. The estoppel case is pleaded in the language of estoppel by representation, so that it is not certain upon the present authorities that the (equitable) approach is appropriate. Given my findings it is unnecessary to explore that legal question.

[265] I conclude then that Macquarie fails in its estoppel case. Given my conclusion that Konrad holds the house on trust for Mr and Mrs Lin, there should be a declaration to that effect. I shall hear the parties upon what further orders are appropriate.

[266] There will be judgment for the plaintiff against the defendant for $9,436,857.70 The counterclaim by the defendant against the plaintiff is dismissed.

[267] The claim by the defendant against the fifth third parties, Peter Ross Clapin and Gerard Joseph Pagliaro, is dismissed.

[268] It is declared that the first defendant holds upon trust for the plaintiffs the property described as:

(a) Lot 2 on RP 92983 in the County of Stanley, Parish of Bulimba, title reference 13287136;

(b) Lot 4 on RP 12550 in the County of Stanley, Parish of Bulimba, title reference 11641206;

(c) Lot 1 on RP 92982 in the County of Stanley, Parish of Bulimba, title reference 13287135.

The plaintiffs are at liberty to apply, upon notice to the defendants, for any further or other relief in consequence of that declaration and consistently with the reasons for judgment.

[5] Brown v Brown (1993) 31 NSWLR 582, 589-590

[6] Macquarie suggested to Konrad, when he was cross-examined, that he had seen the second mandate letter, on or before the 27 May meeting, but Macquarie later conceded that he did not

[11] Commonwealth v Verwayen (1990) 170 CLR 394 per Mason CJ at 411 and Deane J at 440

[13] See also Meagher, Gummow and Lehane's Equity Doctrines and Remedies 4th ed at [17-025]

[21] The difference appears from a comparison of exhibits 143 and 143A

[22] In its solicitors' letter of 22 March 2005: exhibit 146