Manfred Schoenhoff & Anor v The Commonwealth Bank of Australia - [2003] NSWSC 918 - NSWSC 2003 case summary — Zoe

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Manfred Schoenhoff & Anor v The Commonwealth Bank of Australia

[2003] NSWSC 918

Supreme Court of NSW|2003-10-21|Before: Einstein J

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Court

Supreme Court of NSW

Decision date

2003-10-21

Before

Einstein J

Source

Original judgment source is linked above.

Judgment (154 paragraphs)

[1]

CITATION : Manfred Schoenhoff & Anor v The Commonwealth Bank of Australia [2003] NSWSC 918 HEARING DATE(S) : 13/10/03, 14/10/03 JUDGMENT DATE : 21 October 2003

[2]

JURISDICTION: Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Plaintiffs' case to be dismissed

[3]

CATCHWORDS : BANKING - Margin Lending Facility - borrower obtains a guarantor - whether borrower is an agent of the Bank in obtaining surety - shares - cash advances - GUARANTEE - variation of guarantee - "obviously unsubstantial" alteration test - whether guarantor prejudiced - grounds for discharge - CONTRACT - construction - objective manifestation of assent - ascertaining the intention of the parties - rule in L'Estrange v Graucob - operation of the rule - failure to read documents signed - significance of signed documents - signature as a strong indication of intention to be bound - bound by material printed on both sides of pages - MISREPRESENTATIONS - whether guarantors induced into entering into guarantee by fraudulent misrepresentations - whether any misrepresentations were made on behalf of the Bank - EVIDENCE - adverse findings as to credibility of witness - the rule in Jones v Dunkel LEGISLATION CITED : Trade Practices Act 1974 Adler v Australian Securities and Investments Commission [2003] NSWCA 131 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 5 ACSR 720 CASES CITED : Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 Jones v Dunkel (1959) 101 CLR 298. L'Estrange v F Graucob Ltd [1934] 2 KB 394 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2003] NSWCA 75 Manfred Schoenhoff (First Plaintiff) PARTIES : Evelyn Schoenhoff (Second Plaintiff) The Commonwealth Bank of Australia (Defendant) FILE NUMBER(S) : SC 50193/00 COUNSEL : Mr N Perram (Plaintiffs) Mr M T McCulloch, Mr A J Abadee (Defendant SOLICITORS : Aitken McLachlan & Thorpe (Plaintiffs) LE Taylor (Defendant)

[50]

"I am aware that the Bank wrote to me by letter dated 18 September 2001. To the best of my knowledge, I read this letter for the first time in my solicitor's office while preparing this statement. The system that Manfred and I use in relation to mail, is that whoever is first home opens all of the mail, whether it is addressed to me or to Manfred. If I am home first, I simply open all of the letters, and then leave the letters in a pile for Manfred to look at. I do no read them. They are usually either accounts, or matters relating to his share trading. When Manfred comes home, he likes to do his administration straight away, while I busy myself with household matters. While it is very possible that I opened this letter from the Bank, I did not read it at the time, and simply handed it to Manfred to deal with." Reliability of evidence given by Mr Schoenhoff 46 The evidence given by Mr Schoenhoff is critical to the plaintiffs' case. I formed a clear view that this evidence was not reliable. In many ways the effect of this finding is that important parameters of the cases of both plaintiffs are not made out. 47 There were a number of reasons for finding that Mr Schoenhoff's evidence was not reliable. It was clear that his recollection was very vague as to most of the material events upon which he was cross-examined. An important consideration concerns the very detailed affidavit which he made on 26 February 2003 and the fact that the affidavit was shown to be incorrect in a number of places. Additionally during the course of his cross-examination Mr Schoenhoff often contradicted himself. I formed the clear impression that where he was able to do so, his evidence was tailored to assist his case. Cash Advance - 14 August 1998 48 The matter begins with his failure in his affidavit to give any evidence at all in relation to a cash advance which he gave to Mr Mansfield on 14 August 1998. A careful reading of paragraphs 17 and following of his affidavit makes plain that the affidavit was intended to properly summarise the commercial dealings between Mr Schoenhoff and Mr Mansfield. Mr Schoenhoff deposes to his having met Mr Mansfield in about 1997 and to having become friendly with Mr Mansfield and having spoken to him about Mr Schoenhoff's investments from time to time. Paragraph 18 then simply launches into the evidence of the October 1998 approach without a word having been said as to the earlier $40,000 cash advance which had not been repaid by that point in time. The only evidence in relation to this matter was first given when Mr Schoenhoff was called in chief. One may add to this the fact that in paragraph 50 of the affidavit Mr Schoenhoff deposed that apart from the two loans to buy the family home and their investment unit he had never borrowed money or lent money. He then conceded under cross-examination that this was simply incorrect in that he had failed to refer to the August 1998 loan to Mr Mansfield [Transcript 42.32, 43.50]. 49 Another early indication of the difficulty posed by his cross-examination was the following answer given in chief [Transcript 37.42]:

[53]

"Q. You believed, didn't you, that at the time Mr Mansfield spoke to you, as you set out in your affidavit, he had not yet obtained finance from a bank. Is that correct? A. I can't recall this." [Transcript 59.33] 53 This is for very obvious reasons a particularly important piece of evidence, given the central basis of the plaintiffs' case. It further seems to contradict or is at least inconsistent with his evidence [Transcript 37] that he would not have signed the guarantee if Mr Mansfield had told him: · that he had already purchased $136,000 worth of shares; · that he had borrowed money to do so; and · that the shares which he was being asked to put up work to secure borrowings he had already made. Other inconsistencies concerning the $40,000 54 Then there were the inconsistencies concerning the August 1998 $40,000 loan. First the question put to Mr Schoenhoff was whether it was correct to say that the loan to Mr Mansfield of $40,000 was to enable him to buy shares. The answer [Transcript 48.2] was that Mr Mansfield gave Mr Schoenhoff the impression that he would but was not specific. But later under cross-examination [Transcript 51.45] Mr Schoenhoff accepted that Mr Mansfield had asked him for this $40,000 loan without specifying what he wanted to use it for and that he had agreed to give him that loan. 55 A further problem concerns the evidence given by Mr Schoenhoff on the subject of whether Mr Mansfield had made no repayments in relation to the earlier $40,000 loan by the time he was approached in October 1998 to sign the subject application forms and ancillary documents. He could not recall and then agreed that it was possible that no such repayments had been made by October 1998. He was asked: "Q. Well, that is the sort of thing you would expect to be able to remember, wouldn't you agree, Mr Schoenhoff? A. It is wiped out of my memory, I couldn't remember." [Transcript 49.1] Motivation in signing the application form documents 56 The truth is that it is extremely difficult to understand from the evidence given by Mr Schoenhoff what exactly was his motivation in signing or having his wife sign the application form documents. His evidence was that he simply entered into the subject transaction to help somebody else, just a work colleague and not a good friend [Transcript 96.45]. The whole of the evidence in relation to the dealings between Mr Schoenhoff and Mr Mansfield have an air of unreality about them and leave a considerable number of questions simply floating in the air. The Court is left with the impression that it has not been given the full picture by any means. There are simply too many matters which do not add up. 57 Returning to the detail, Mr Schoenhoff gave the following evidence:

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Q. What do you mean not to the full extent? A. I was unconscious of the full impact that it could have at that time." [Transcript 78] 67 Mr Schoenhoff's evidence in relation to the Independent Legal Advice document that he had not read before he signed it is likewise rejected. [Transcript 74] 68 Mrs Schoenhoff's evidence is dealt with below. Dealing with the case 69 The threshold questions concern two factual matters: · have the plaintiffs proven on the balance of probabilities that the representations which are alleged were made by Mr Mansfield to Mr Schoenhoff; and · have the plaintiffs proven on the balance of probabilities which documents were shown to them and which documents they signed. 70 It is convenient to first examine the nature of the exercise posed by the second of these matters and to do so initially in terms of identification of the appropriate principles. 71 A number of propositions relevant to the questions which here arise are to be found in the reasons for judgment delivered by Bryson J in the recent decision of the Court of Appeal in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2003] NSWCA 75. Sheller JA agreed with these reasons for judgment insofar as they dealt with the parties' intention and the remarks that the signing of the credit document and the return of it was objectively a strong indication of an intention by the company to be bound by everything on both sides of the document. The propositions identified by Bryson J are as follows: · when a contract is formed by a series of communications and by behaviour of parties in relation to those communications, it is a question of fact what parts of those communications were intended by the parties to be terms of the contract [111]; · where the Court has the task of examining a series of communications and acts, some of which are on paper and signed but some of which are acts of parties dealing with the written material, the identification of the parties' intentions about which parts of their acts and communications were to be contractual conditions may not be simple at all [111]; · a finding of fact about what the parties intentions were with respect to one document in the series, or to something written in that document, is not dictated by the terms of the document, or by the fact that the party signed it. [111]; · the fact that a particular document in the series was signed is an important indication favouring a finding that the parties signing it intended to be bound by it; but does not preclude paying regard to what the document says, how the parties treated it, and the facts and events which led to it being signed; and a whole view of the evidence may lead to a finding that the parties did not intend that the document and any promises or obligations in it should be part of their contract [111]; · it is for the tribunal of fact to consider the whole body of material and to come to a finding about the parties' intentions [111]; and · the proposition laid down in L'Estrange v F Graucob Ltd [1934] 2 KB 394 that "in an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents" must be considered in context. Their Lordships did not address whether or not one document, signed or undersigned, was intended by the parties to be included in the agreement which they reached-this being a question of fact which must be decided before attempting to apply any such principle. "In deciding the question of fact, the fact that the party has signed a document which purports to be part of a contractual arrangement, even though evidence shows that he signed it in the course of negotiation before the point of achieving finality, is a powerful indication of intention to be bound by it at the later point of achieving finality; it is a powerful indication because of well-known cultural practices about the use of one's signature as a token of assent." [101] 72 In Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 McClelland J made plain that a contract is made "by the mutual communication between the parties of their respective assents to being bound by identifiable terms otherwise capable of having contractual force, the mutual communication typically taking the form of offer and acceptance". As his Honour (citing Williston on Contract, 3rd ed, Vol 1 paragraph 21) points out, one is not concerned with the subjective thing known as meeting of the minds, but the objective thing, the manifestation of mutual assents which is essential to the making of a contract. [at page 9254] 73 Clearly enough when, as here, the question is as to precisely what are the terms of the contract, the signature of one only of them to a document presented to it cannot necessarily and by itself determine the question. Likewise, although many of the above principles go to the question of objective intent to be bound at all, the passages quoted inform the nature of the exercise here under consideration. Dealing with the first question - the representations 74 There is absolutely no doubt but that the plaintiffs have failed in my view to prove on the balance of probabilities that the representations alleged to have been made by Mr Mansfield were so made. The evidence given by Mr Schoenberg in this regard cannot be regarded as reliable. Dealing with the second question - what parts of the communications were intended to be terms of the contract? 75 The convenient course is to commence with an examination of the documents which were signed. The evidence as to the signing of the documents 76 There are some complexities in unravelling precisely which of the application form documents were signed and by whom and when and what were the copies taken and by whom and when and of which particular documents were copies taken. 77 The easiest course in order to follow the position seems to be to commence by referring to the original documents which went into evidence. These comprise the Margin Lending Facilities booklet which as originally produced comprised a booklet the front cover of which is not paginated, the reverse side of the front cover of which is paginated as page 2, and the closing inside cover page is paginated as page 51. The back cover is not paginated. The booklet can be examined [Exhibit D2] albeit that the exhibit does not include what is referred to within it as a Margin Amending Facility Application Booklet intended to be removed [see page 31 which gives instructions in this regard]. 78 The next relevant exhibit is Exhibit D1 which has been removed, it would appear, from Exhibit D2. Exhibit D1 comprises pages 33-48. These pages have an irregular left-hand side edge apparently having been cut down that edge in a reasonably rough and ready fashion. It would be difficult for anyone given one or more of these pages not to immediately notice the irregularity. The evidence appears to disclose the following about each of these pages which have been completed: · Page 35 - this page is to give the "Guarantor(s) Details". It is completed with the details of both Mr Schoenhoff and by Mrs Schoenhoff. Mr Schoenhoff gave evidence that after signing page 40 which is referred to below, he copied page 35 at the same time as copying other pages [see annexure "A" to his affidavit]. It is important to note in relation to page 35 that the reverse side of the same page paginated as 36 gives Loan Details and the handwritten insertion into the relevant box provided for " Credit Limit Applied For " is "$ 200,000 ". Immediately thereunder the following appears: *"(if charges are capitalised to the loan account, you must ensure the credit limit is sufficient and that the loan is not placed into a margin call by capitalising such charges" [my emphasis]

[74]

The reverse side of page 47 which is paginated as 48 is headed "Adviser's Quick Checklist" and refers in various places to "the borrower" and in terms of the "Credit Limit" asks questions about whether the credit limit is large enough for interest to be capitalised to the Loan and as to whether the margin call loan-to-security ratio allows the interest/stamp duty/company registration fee to be capitalised. 79 The fact that both parties signed the risk disclosure document is an important indication looked at objectively. The words "Risk Disclosure" are emphasised and appear in large font. The very first sentence of the document clearly draws attention to the importance that the statement be read and signed by each person providing security for a borrowing under Margin Lending Facilities. The paragraph numbered 1 commences by referring to use of a margin lending product and the second paragraph is actually headed "Margin Calls". The "Guarantee Obligations" paragraph is clear. Importantly and very close to the place provided for the signatures, there is a reference in large font to "a gearing product". The fact that this document was signed as part of the several documents is a significant indicator favouring a finding that in signing the document Mr Schoenhoff intended to be bound by the terms of whatever were the obligations of Mr Mansfield being guaranteed. 80 But the very same finding may be made by reference to the signing by Mr Schoenhoff of the "Independent Legal Advice" form which appears in large font and is self-explanatory. 81 The same finding may be made by reference to the signing by him of the Application Form. In particular the Court's finding is that on the balance of probabilities Mr Schoenhoff would have seen the reverse side of page 35 which importantly refers to "Gearing Facility" on more than one occasion. Whether the handwritten $200,000 figure was included at the time he signed is not clear but the evidence permits an inference that this figure was so included. In any event the matter is by no means determinant of the proceedings. 82 The above findings treat with what actually happened. But the Court is of course engaged in the task of ascertaining the objective manifestation of mutual assents. This is not a difficult task when one simply focuses upon the documents which both Mr and Mrs Schoenhoff actually signed. The objective manifestation of assent fairly taken from the materials which Mr Schoenhoff signed is quite simply an assent to guaranteeing whatever were the obligations of Mr Mansfield under the subject Margin Lending Facility borrowing transaction. Evidence given by Mrs Schoenhoff 83 Returning to the precise evidence of Mrs Schoenhoff, it is quite clear that she chose not to read the documents because she made an assumption that she and her husband were borrowing funds without making any inquiry of her husband at all about whether that assumption was correct or not. Her very clear evidence was that she signed the documents without caring what liabilities, if any, she was letting herself in for. I turn in this regard to her evidence. 84 Mrs Schoenhoff was cross-examined in respect of various aspects relating to the guarantee and her role in signing forms. Specific areas on which she was cross-examined include: · her business dealings, including her experience with signing legal documents; · her knowledge about the cash loan of $40,000 to Mr Mansfield in August 1998; · her recollection of signing documents including the conversion form, the risk disclosure form and the independent legal advice form in October 1998 in relation to the Wattyl share; and · her evidence as to whether she had ever seen a complete and entire Margin Lending Facility booklet before being shown one in the witness box. General recollection of signing documents 85 Mrs Schoenhoff was cross-examined about the evidence given in her affidavit that she only remembers signing some of the documents upon which her signature appears. She gave the following evidence in this respect:

[118]

109 In the result and even though it is extraordinarily difficult for the Court to determine whether only the documents comprising pages 41, 47, 35, and 40 as well as Exhibit PX II page 366 were shown to Mrs Schoenhoff or whether other pages of the Application Booklet were also seen by her or shown to her, the fact is that even if she only saw the pages identified immediately above, the execution of those pages is a powerful indication that she intended to be bound by whatever was the transaction involved. And here again one must not lose sight of the fact that the Court is concerned with the objective manifestation of mutual assents. By further execution of these pages she objectively manifested her assent to be so bound. 110 Ultimately the proceedings may be determined upon the assumption that the only documents which Mr Schoenhoff gave evidence had been given to him by Mr Mansfield, were the documents which were signed. Even this approach to the evidence which accepts the plaintiffs' claims to a certain extent, is by no means clear. There were so many difficulties with the reliability of the evidence given by Mr Schoenhoff that I am not at all sure that it is proper to accept his evidence that only those documents were so provided to him. Mr Schoenhoff is not shown to have been anything remotely like meticulous in relation to his keeping of records. But having given the matter careful consideration it seems to me appropriate to determine the case by finding that upon the balance of probabilities, only the pages to which he referred were furnished to him by Mr Mansfield. 111 To the extent that his evidence was that he took copies of the documents to be found as annexure "A" to his affidavit, there is no explanation as to why he would not have photocopied the reverse side of page 35. On my findings the task of photocopying page 35 and of handling this page on the balance of probabilities is likely to have drawn the reverse side of the page to his attention. Indeed on my findings the same applies to the photocopying of page 47 in terms of the likelihood that the reverse side of the page came to his attention. He did of course photocopy the Risk Disclosure [page 41] and this is an important indication that he understood the significance of the terms. 112 The convenient course is to append as Appendix "B" to this judgment, the whole of the Margin Lending Facilities Booklet, in particular for the reason that the Terms and Conditions section has been the subject of close analysis during argument. The plaintiffs' submissions 113 The plaintiffs relied upon detailed written submissions in relation to the issues. It is unnecessary to repeat the whole of those submissions, many of which had real substance. Certain of them fall away by reason of the findings in terms of the plaintiffs not having discharged on the balance of probabilities the burden of proving the misrepresentations. They did however include many useful cross-references to the evidence. The submissions, with certain annotations by the Court, were as follows: · Mr Schoenhoff knew that when asked to become involved as a surety, it was up to him to exercise his own judgment whether he should become involved and believed that Mr Mansfield was acting for himself and nobody else (Transcript 58.30 - 44). He also understood that whilst Mr Mansfield was supplying him with Bank forms, the latter was doing no more than passing them on to him and that it was up to him as to whether he should sign them (Transcript 59.9). He also properly acknowledged that he understood that Mr Mansfield was not a Bank employee (Transcript 59.15). · It was astonishing that Mr Schoenhoff would make the August 1998 unsecured and undocumented $40,000 advance without any time provision for repayment, to Mr Mansfield, someone whom he described as a mere work colleague and not even a good friend (Transcript 97.10). · As previously asserted, Mr Schoenhoff did not level with the Court as to the real nature of his relationship with Mr Mansfield: people do not continually pledge shares, as Mr Schoenhoff did, just to "help somebody else" (Transcript 97.12). · It follows from this extraordinary, and insufficiently explained relationship, that when Mr Mansfield asked Mr Schoenhoff to put up security in October 1998, Mr Schoenhoff did not rely upon any representations made to him by Mr Mansfield as to the purposes or uses of the security: he was simply prepared to accede to Mr Mansfield's request. This was because the relationship was essentially such that Mr Schoenhoff would do what Mr Mansfield requested of him as regards financial matters. It did not really matter to Mr Schoenhoff that his and/or his wife's (jointly owned) shares were exposed, even though he understood that they were at risk (Transcript 89.21), just as he was content to pledge additional shares at a time when he did not know that Mr Mansfield might get around to repaying the $40,000 advance (Transcript 93.38 - 95.17). Mr Schoenhoff said himself he was content with how his involvement was proceeding until September 2001 (Affidavit of Mr Schoenhoff, para 41). He was content to do so since the stock market was performing well and he assumed, or possibly even gambled, that it would continue to perform well. · In the circumstances, Mr Schoenhoff's evidence that he was only willing to provide his security within the limits defined in the conversation with Mr Mansfield in October 1998 should be rejected. He did not rely upon any representation by Mr Mansfield as to the limits to be placed on Mr Schoenhoff's provision of security: so long as the stock market was performing satisfactorily, Mr Schoenhoff saw little risk. · If all this appears strange, it is worth recalling that the plaintiffs had accumulated significant wealth and could afford to take risks with their securities. Apart from their home and investment unit, they had a substantial share portfolio; so much so that in December 2000, when the plaintiffs applied for finance with St George Bank, they represented to the Bank that the share portfolio was valued at $910,000 (PX II/446). That they had substantial wealth, and could afford to gamble on their securities, is not only demonstrated by the volume of their share trades (PX II/420 - 426), but also by the vast amounts of money they occasionally transferred across from their accounts. For example, on 5 March 2002, they directed their broker, Andrew West to transfer proceeds in the sum of $59,587.50 from extensive share trading from their account with that firm, numbered 121984, into their St George account number 117 971 118 (PX II/426.5, 507.10 & 565.5). Those funds were duly deposited on 8 March 2002. · In short, if the risks to the plaintiffs appeared considerable then the plaintiffs were certainly in a financial position to meet those risks. · Of course, there is nothing to indicate Mrs Schoenhoff's reliance upon anything said to her by Mr Mansfield. The high point of her evidence was her husband asking her to sign the Risk Disclosure document (Affidavit of Mrs Schoenhoff, para 17). This was broadly consistent with Mr Schoenhoff's evidence that he simply asked her to sign the forms and they had no discussion about it (Affidavit of Mr Schoenhoff, para 24). Let it be assumed that Mrs Schoenhoff asked Mr Schoenhoff to be her agent to manage her financial interests and Mr Mansfield induced Mr Schoenhoff to enter the guarantee with the defendant. Even on that analysis, the better view seems to be that Mrs Schoenhoff would have to authorise Mr Schoenhoff to bring her into privity with the defendant: Bowstead on Agency (15th ed, Art 79, p 314). This analysis does not, however, apply, since she entered the contract of surety with the defendant herself. · Because of the inconsistencies in his evidence, Mr Schoenhoff should not be believed when he said he did not read the independent legal advice form. Rather, it should be found that he noticed the form and signed below the statement that he agreed not to obtain independent legal advice. In that event, he may be taken to have indicated his assent to the Bank the statement he signed on independent legal advice form: that he had been recommended to obtain independent legal advice but, exercising his own judgment and personal autonomy, he chose not to receive it. [I interpolate to make such a finding] The significance of that [as the Court further accepts] was the representation it conveyed to the Bank that Mr Schoenhoff neither requested, nor required an explanation from an independent party that might, conceivably, further have alerted him to the risks he was taking (he had already been generally warned of the nature of the risks in the risk disclosure form that he signed). It is difficult to speculate what course Mr Schoenhoff might then have taken. · Mrs Schoenhoff [as I accept] adopted a policy of wilful blindness when it came to signing documents. On her case, she would simply do what she was asked by her husband, with no evidence of any accompanying explanation. This was not, however, always the case: when she signed other financial documentation, albeit documentation prepared by others, she understood the significance of her entry into legal relationships (PX II/447-448 and her evidence in cross examination). She had been a director of two private companies (PX II/388) and was a professional nurse. With the abandonment of the unconscionability claim, it could not be asserted that she suffered some special disability in reading, or understanding English, or even the general information contained in the forms she signed. · In these circumstance, even if, contrary to what the defendant has submitted, she may somehow be taken to have relied upon a representation by Mr Mansfield, her unthinking and unreasoned refusal to read the forms she signed amounted to conduct which severed any causal connection between such representation and her loss. · The guarantors did not accept only certain terms offered by the Bank. The proper analysis is that in making the guarantee, they were making a promise to the creditor: Weaver & Craigie, The Law Relating to Banker and Customer in Australia (Vol 2) [23.40]. Put in conventional contract law analysis, it was the Schoenhoffs who were offering to provide a guarantee; which offer was accepted by the creditor: O'Donovan & Phillips, The Modern Contract of Guarantee (1996) pp 38 - 39. · So what were the terms that the guarantors were offering?... There was a range of matters that would reasonably have suggested to the defendant that the offer of guarantee made by the plaintiffs was based in circumstances where the plaintiffs were aware that there were other documents apart from the forms actually signed by the plaintiffs that constituted the agreement, being the Terms and Conditions. · First, there was the content of the forms themselves. The Schoenhoffs signed the 'glossy' forms from the Margin Loan Facility Application Booklet (Exhibit D1, PX II/370-385), one of the pages (the Application Form) contained the 'Business Purpose Declaration' on the reverse side (PX II/376.10) which stated: "You declare that the credit to be provided to you by Colonial State Bank under the Terms and Conditions is to be applied wholly or predominantly for business or investment purposes (or for both purposes)" (emphasis supplied). · The Risk Disclosure Statement (PX II/378, 2nd column point 9) contained the statement that "We strongly recommend that you seek independent legal, financial and taxation advice with respect to: · The complete terms of the product and its suitability to you

[151]

· three property rights which were involved; · at the moment before the $30,000 transfer took place, there existed the following: First of all, Mr Schoenhoff had a chose in action which was worth $30,000. The bank held cash which was worth $30,000. Mr Mansfield gave a direction in relation to that cash. At the very same moment, Mr and Mrs Schoenhoff's exposure to the guarantee was at a particular level, say at X dollars. At the moment of the transfer Mr Schoenhoff forewent his chose in action, which was worth $30,000, and it was replaced by in fact $30,000. At the same time the Schoenhoff's exposure on the guarantee, increased to X plus $30,000; · if one compares the asset position of the share of the Schoenhoffs immediately prior to the transaction, they had exposure of X dollars and [he had] an asset worth $30,000. If one looks at the transaction immediately after that has happened, they have an exposure of X plus $30,000 and [he has] an asset of $30,000; · their exposure after the transaction has increased by $30,000. 129 There are three answers to this submission. The first is that the Court is in a position to infer from the whole of the evidence that the subject chose in action was worth considerably less than $30,000 [and quite possibly nil] at the material time. The whole of the evidence including the evidence of Mr Mansfield's Bank balances with the ANZ at May 1999 [Exhibit PX I page 10] suggests that Mr Mansfield likely had no assets at the material time. 130 The second answer is that the issue is not to be decided in terms otherwise than whether or not the subject variation was obviously unsubstantial. The Court's holding is that the variation, if variation it be, was obviously unsubstantial in the whole of the circumstances which obtained at the material time. Any variation was not prejudicial to the plaintiffs for the same reason. 131 The third answer concerns the onus of proof in terms of the so-called 'unsubstantial issue'. The plaintiffs have not discharged the primary onus of proving that the variation was not unsubstantial. 132 Finally it is appropriate to refer to the submission that what is seen to have occurred is that the Bank altered the fundamental nature of the agreement from being a margin lending facility which, pursuant to clause 1, contemplated the advance of money for the purpose of purchasing securities, to a different form of security which of its nature, covered simply the making of advances to debtors unsecured by any form of security over shares or securities. The submission was particularly put in relation to clause 20.1. The proposition was that this clause did not allow or in any way forgive such a fundamental alteration of the facility. The submission was that no clause within clause 20 has the effect of permitting such a fundamental alteration. 133 The submission fails by dint of the finding that the subject variation was obviously unsubstantial and non-prejudicial in the whole of the circumstances which obtained at the material time. Evidentiary matters 134 During address Mr Perram sought to tender an affidavit which had been made and filed by Mr Johnston on behalf of the Bank. The application was for a direction that the affidavit be admitted on the basis that it not be evidence of the contents, but evidence that the deponent was capable of giving evidence as to those fact. The application was opposed, the Bank submitting that no such section 136 limiting order was appropriate and further that there was simply no issue because the Bank, so far as a Jones v Dunkel inference issue was concerned, conceded that Mr Johnston is an employee of the Bank and remains fit and well. A ruling in relation to the tender was reserved. The tender is rejected. Had the plaintiffs wished to have the evidence of Mr Johnston before the Court they should have called him. The concession removes any otherwise possibility of a need to tender the affidavit to make the Jones v Dunkel submission and the actual content of the affidavit could never have been referred to in that regard. Jones v Dunkel 135 A number of submissions were advanced by the plaintiffs during the hearing seeking to rely upon the rule in Jones v Dunkel (1959) 101 CLR 298. Generally the submissions were put in terms of the Bank's failure to call persons who had been employed by the Bank at the material time and who could have given evidence from the Bank's side of the record as to the manner in which Mr Mansfield had applied for the facility and as to the manner in which the Bank received particular documents and the like. 136 It is important to recall the principles laid down in Jones v Dunkel: · "The unexplained failure by a party to give evidence, to call witnesses, or tender documents… may - not must - in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case. The appropriate circumstances exist where it was within the power of the party to tender the evidence which was not tendered." (JD Heydon, Cross on Evidence, 6th ed, Butterworths, Sydney, 2000 at [1215]) · "…This instance of a Jones v Dunkel inference (Jones v Dunkel (1959) 101 CLR 298), also available where there is unexplained failure by the party to call a witness or tender documentary evidence, can entitle the judge or jury more readily to accept the evidence of the opposite party which might have been contradicted, or more readily to draw any inference fairly available from the evidence called by the other party. A Jones v Dunkel inference cannot fill gaps in the evidence, or convert conjecture and suspicion into inference, but unless it is to be empty of content the inference if drawn may weigh the scales, however slightly, in favour of the opposing party." (Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [649] per Giles JA, Mason P and Beazley JA agreeing) 137 The plaintiffs have not established any particular matter which required to be contradicted. The defendant's forensic tactics is a matter for it. The Court is not required to speculate as to why the defendant may have elected not to call such witnesses. The state of the evidence at the end of the plaintiffs case was simply not such as to cast a particular evidentiary burden upon the defendant which required to be discharged by the calling of absent witnesses. Quite possibly the defendant, following the cross-examination of the plaintiffs, set its sails by reference to its perception as to the lack of reliability of that evidence. 138 In any event the totality of the evidence which the reasons disclose is accepted as reliable, results in the conclusion that the plaintiffs case received no assistance from an inference that the uncalled evidence could not have assisted the Bank's case. Short minutes of order 139 The parties are to bring in short minutes of order at which time costs may be the subject of submission.