Marsden v DCL Developments Pty Ltd

Solicitors: Gadens Lawyers (Plaintiff) Jackson & Associates (Defendants) File Number(s): 2016/176049

Judgment

1. By a Summons filed on 8 June 2016 the Plaintiff, one of the joint and several Receivers of the First Defendant, seeks a declaration that the Receivers were validly appointed by Rabobank Australia Ltd and seeks an order that the Plaintiffs are entitled to immediate possession of the property known as "Ruby Hill" at 47 Yarrol Road, Kootingal. By cross-claim the Defendants seek declarations that contracts between Rabobank and the Defendants dated 2 and 24 December 2015 are void and should be set aside, and various declarations and orders to the effect that Rabobank engaged in conduct contrary to ss 12CA, 12CB, 12ED, 12GF, 12GD and 12GM of the Australian Securities and Investments Commission Act 2001 (Cth), and they claim compensation and damages for those contraventions and breaches.

Background

1. The property is a chicken farm producing free-range eggs. The First Defendant, DCL, bought the farm in about 2010. On 16 July 2010 the National Australia Bank extended to DCL a facility of $2.65 million plus a $200,000 overdraft.
2. For the financial year 30 June 2012 DCL suffered a loss of $333,577. For the following two years DCL showed a profit of $1,238,211 and $1,088,274 in those two years respectively.
3. On 10 April 2014 DCL entered into an agreement with Farm Pride Foods under which Farm Pride agreed to supply DCL with a flock of 15,000 birds to arrive at the farm around 20 June 2014. The usual productive life of a chicken is 18 months although the Second Defendant, Stuart Howe, the principal of DCL, told Rabobank that improvements in nutrition extended their productive life to three years. That flock of chickens was destroyed by September 2015.
4. From July to September 2014, according to Mr Howe, the relationship between DCL and NAB soured. A letter issued by NAB dated 9 December 2014 indicated a payout figure for DCL loans of $2.4 million payable at the end of March 2015.
5. On 3 March 2015 DCL applied for a loan from Rabobank at its Tamworth office. DCL sought a loan of $2.95 million to cover the total NAB indebtedness of about $2.8 million plus $140,000 for working capital.
6. On 26 March 2015 the Rabobank representative, Garry Littlejohns told Mr Howe that $2.7 million was the maximum amount that was able to be advanced by Rabobank.
7. The letter of offer from Rabobank was dated 22 April 2015 and included the following terms: (a) Loan limit of $2.7 million being $2.4 million to refinance the NAB loan and $300,000 in working capital; (b) Loan expires on 30 May 2020 (i.e. a 5 year loan); (c) Compulsory Principal Repayments (CPRs) of $25,000 per month were to commence from November 2015; (d) Mortgage over the farm, a security agreement from DCL and a guarantee from Mr Howe; and (e) A special condition prior to settlement that DCL must provide Rabobank with evidence satisfactory to Rabobank in its sole discretion to the effect that DCL had entered into a contractual arrangement for the sale of free range eggs produced.
8. The following day, DCL signed the letter of offer and its solicitor, Mario Bellantonio, returned it to Rabobank. Mr Howe also signed a guarantee of DCL's obligations under the facility.
9. On 9 May 2015 DCL gave Rabobank a copy of a signed purchase agreement between DCL and Bartlett Farms for the purposes of fulfilling the condition precedent ([8(e)] above).
10. Settlement took place on 25 May 2015.
11. A flock of chickens is 15,000 chickens. DCL's farm had seven sheds and four of them had been converted to free-range operation. When DCL first approached Rabobank it had three flocks. Between that time (3 March) and the approval of the loan two of the flocks had been culled.
12. The usual arrangement is that pullets arrive at the farm at 16 weeks. They start laying eggs at 20 weeks and by 80 weeks their productive life is finished. At that point they are normally culled. Some businesses that supply pullets simply supply them and the pullets must be paid for up front. Other businesses like Farm Pride supply the chickens with the costs of supply being taken out of the eggs which the farmer supplies to Farm Pride. The obvious advantage of the latter arrangement is that the farmer is not required to pay for the purchase of the flock up front. For reasons that were not made clear, DCL did not continue with its arrangement with Farm Pride during 2015 but entered into separate supply agreements for the eggs with Bartlett farms. DCL did not use any part of the working capital of $300,000 to purchase any further flocks. The result was that in September 2015 when it had to cull its one remaining flock it had no source of income, no chickens and no money to buy any more. It was in that situation that it again approached Rabobank in November 2015.
13. In the meantime, in about September 2015 Mr Howe told Mr Littlejohns that the contract with Farm Pride had been terminated and he would have to destroy the birds. Mr Littlejohns and his manager Mr Ellis, attended the farm at which time Mr Howe claims the topic of borrowing money to finance two more flocks of birds was raised. However, DCL's application for approximately $325,000 was not made to Rabobank until 11 November 2015.
14. The cash flow forecast then presented by DCL to Rabobank revealed that, for the 2015/2016 financial year the forecast gross sales was $832,431 compared to the forecast figure of $1,636,144 in the original application for the loan of $2.95m and $2,574,487 in the updated cash flow provided in late March 2015.
15. In mid-November or early December 2015 Mr Howe told Mr Littlejohns that he needed a letter of comfort for Baiada Poultry by 7 December 2015 to obtain a flock of pullets. The $300,000 provided for working capital as part of the loan in May 2015 had not been used to buy chickens and had been used on other things.
16. On 30 November 2015 DCL failed to pay its first CPR of $25,000 due on that day. That was an event of default under the Facility, the mortgage and the General Security Agreement. Such default entitled Rabobank to appoint receivers without notice.
17. Instead of appointing receivers Rabobank decided to assist DCL to trade its way out of difficulty. By the agreement of 4 December 2015 it agreed to increase the loan to DCL by $325,000. The letter of offer was issued on 4 December 2015. The money was needed by DCL to pay for birds that were arriving in December.
18. On 4 December 2015 Mr Howe came into Rabobank's office in Tamworth to read the loan documents and take them away with him. He arrived without his reading glasses. The documents were read out to him and he was given the opportunity to take them away and get advice on them from his solicitor but he declined. He signed the loan offer. On 7 December he signed a Deed of Extension of Guarantee.
19. The two terms inserted into the offer of 4 December 2015 that are now impugned by DCL are these: The loan period provided for the facility to expire on 31 December 2016. Condition 4. Unless Rabobank otherwise agrees in writing, for as long as any amount is outstanding under any Facility or any Security or any amount of a Facility is available for drawdown, the Borrower undertakes to Rabobank that it will not incur any further new cumulative secured borrowings in excess of $60,000 per annum without the written consent of Rabobank.
20. The first of the two flocks of new birds arrived at the farm around 22 December 2015. The invoice for the chickens included a levy of $12,770. Mr Howe told Mr Littlejohns that he had no money to pay the levy and that led to Rabobank approving a further application on 24 December 2015 by DCL to lend $12,770 to meet that levy.
21. Under the varied arrangements flowing from the further loan agreement on 4 December 2015 the requirement to pay the CPR on 30 November 2015 was effectively waived. CPRs then became payable on 30 April and 31 May 2016.
22. DCL paid the monthly interest payments in December 2015 and January 2016. However, on 5 February 2016 DCL's new solicitors, Jackson & Associates, wrote to Rabobank issuing a notice under section 9(1A) of the Farm Debt Mediation Act 1994 (NSW) asserting that the facilities had restricted DCL's ability to conduct its business sustainably and that Rabobank had taken advantage of DCL. DCL did not pay the monthly interest payment due on 29 February 2016.
23. On 3 March 2016 a mediation was held. The outcome was that Rabobank would lend DCL a further $150,000 to cover its temporary cash flow difficulties until such time as the chickens were able to start laying eggs. That money was lent. DCL, nevertheless, failed to pay the monthly interest payments to Rabobank at the end of March, April and May 2016. It also failed to pay the $20,000 monthly CPRs due on 30 April 2016 and 31 May 2016. By reason of those failures, DCL also defaulted by exceeding the facility limit of $2.7m.
24. Rabobank issued a letter of default on 1 June 2016 and appointed Receivers on 6 June 2016. They attempted to take possession of the farm but were refused entry. That led to the Receivers commencing these proceedings on 8 June 2016.

The course of the proceedings

1. DCL then filed a motion seeking an interlocutory injunction to prevent the Receivers obtaining possession. On 20 June 2016 McCallum J made orders including such an injunction: Marsden v DCL Developments Pty Ltd (Receivers and Managers appointed) [2016] NSWSC 823. The effect of those orders was to leave DCL to operate the business but subject to a number of conditions in the orders which gave the Receivers some supervision. The proceedings were fixed for final hearing on an urgent basis.
2. After the conclusion of the final hearing and whilst my judgment was reserved, the Receivers sought to dissolve the injunction granted by McCallum J by reason of breaches on DCL's part. I dissolved the injunction and granted interlocutory relief enabling the Receivers to enter into possession of the business and the land. My reasons for doing so appear later in this judgment.
3. At the final hearing DCL agreed that it had defaulted and that Rabobank was entitled to appoint the Receivers. The only case run was the cross-claim. However, the cross-claimants no longer seek that the agreements of 4 and 24 December 2015 be set aside or declared void. Rather, they seek that those agreements be varied to remove the impugned conditions, being the $60,000 limit on other borrowings and the condition changing the term of the loan from five years to one year. Further, in the event the Court holds that Rabobank acted unconscionably and that as a result the cross-claimants suffered loss and damage, they seek an order under s 12GM of the ASIC Act that the Receivers retire.
4. They claim that clause 28.2 of the Banking Code was breached and that this breach amounts to a breach of contract. Mr Howe also seeks that the second Guarantee given by him on 7 December 2015 be set aside under the Contracts Review Act 1980 (NSW) and on the basis of unconscionability.
5. Compensation is still sought but it was accepted that there would be a need to offset amounts that were due and unpaid to Rabobank by DCL. The basis for the compensation is two-fold. First, it is said there is a loss of chance claim in relation to the Woolworths contract. Secondly, a claim is made that the unconscionable conduct resulted in a decreased output of production from a shortage of feed.
6. I was informed at the outset of the hearing that although Mr Howe had sworn two affidavits, it was not intended to read those affidavits. Indeed, the cross-claimants read no affidavits and called no oral evidence. Rather, they relied on certain documents contained in Exhibit A (being a two volume bundle of documents in the possession of Rabobank), the tender of some other documents and evidence obtained from two of the Plaintiffs' witnesses in cross-examination.
7. I was also informed that a number of affidavits filed by the Plaintiffs would not be read because Mr Howe's affidavits were not being read. Ultimately the affidavits which were read were the following: 1. Talysha Sabatino sworn 14 July 2016; 2. Jonathon Reichel sworn 2 September 2016; 3. Joshua Braidwood sworn 7 September 2016; 4. Christopher John Nicolopoulos sworn 7 September 2016; 5. Garry Francis Littlejohns sworn 6 September 2016. Of those persons, only Messrs Braidwood and Littlejohns were cross-examined. Bundles of documents were also tendered.

The cross-claimants' case

1. The cross-claimants submitted that when DCL suffered financial difficulties in the middle and second half of 2015 Rabobank was contractually obliged and required under the Banking Code to "try to help" DCL. The cross-claimants focused particularly on the second sentence of clause 28.2 of the Code to indicate that the nature of the Bank's obligation was co-operative, that it might ordinarily be willing to defer its legal entitlements and that there would be a capacity for discussion and compromise. The cross-claimants emphasised the development of a repayment plan.
2. The cross-claimants submitted that the Bank knew of the financial difficulties. The cross-claimants submitted that the analysis in the cash flow prepared by Mr Littlejohns for the finance application in late November 2015 showed that if a GST refund for an egg grader of $68,000 was included, DCL would have had a positive end of month working capital balance (except for February 2016) rather than a negative working balance up to September 2016.
3. The cross-claimants submitted that the imposition of condition 4 cannot be viewed as Rabobank complying with its obligation to "try to help" DCL overcome its financial difficulties. That is because Rabobank knew that DCL would be in a cash negative position without a GST refund on the grader of about $68,000. They submitted that Rabobank knew that inserting the borrowing limitation would prevent DCL obtaining finance which was required for the purchase of the grader. They submitted that not only did Rabobank not "try to help" DCL but by inserting condition 4 did so to prevent DCL taking steps to overcome a cash flow shortage.
4. In relation to the 12 month expiry on the facility, the cross-claimants submitted that the Rabobank documents show that its aim was to have DCL sell its business. In particular, that derived from the only two options proposed which were the funding of the purchase of two flocks so that the business could be sold as a going concern in 12 months' time or exiting the deal at December 2015.
5. The cross-claimants submitted that undertaking a course of action which is intended to have the customer sell a going concern cannot be characterised as trying to help overcome financial difficulties with a credit facility.
6. In relation to the guarantee given by Mr Howe, the cross-claimants submitted that that guarantee does not have the matters required under clauses 31.3 and 31.4 of the Code which are mandatory requirements.
7. The cross-claimants submitted that Rabobank knew that if it did not provide the letter of comfort for Baiada by 7 December 2015 the purchase of the flocks would not proceed, the business would continue not to earn cash and would come to an end. In that way Rabobank knew that DCL had to take whatever deal was proposed no matter how unfavourable. Rabobank was in a stronger bargaining position. The cross-claimants submitted that condition 4 was not reasonably necessary to protect the legitimate interests of Rabobank.
8. The cross-claimants submitted that, viewed as a whole, Rabobank's conduct demonstrated a high level of moral obloquy and was irreconcilable with what is right or reasonable.
9. The cross-claimants complain that the Branch Manager determined that the account was to be an exit account with the sale of the business being contemplated by 30 November 2016. The cross-claimants relied on various internal Rabobank documents including a work request entry by Mr Nicolopoulos which recommended a sale without re-finance because a re-finance was extremely unlikely (Ex A p 506). They submitted that the documents show that Rabobank had decided to force DCL to sell its business by 4 December 2016. That was contrary to clause 28.2 of the Banking Code which required the Bank to try to help a borrower who had encountered financial difficulties. Further, no reasonable notice was given for the imposition of the impugned terms contrary to cl 20.4 of the Code. Those breaches show that the Bank acted unconscionably.

The legislation

1. Relevant parts of the ASIC Act are these: 12CB Unconscionable conduct in connection with financial services (1) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of financial services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of financial services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (2) This section does not apply to conduct that is engaged in only because the person engaging in the conduct: (a) institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or (b) refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition. (3) For the purpose of determining whether a person has contravened subsection (1): (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section. (4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of: (i) the terms of the contract; and (ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to formation of the contract. 12CC Matters the court may have regard to for the purposes of section 12CB (1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the service recipient; and (b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and (e) the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and (f) the extent to which the supplier's conduct towards the service recipient was consistent with the supplier's conduct in similar transactions between the supplier and other like service recipients; and (g) if the supplier is a corporation - the requirements of any applicable industry code (see subsection (3)); and (h) the requirements of any other industry code (see subsection (3)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier unreasonably failed to disclose to the service recipient: (i) any intended conduct of the supplier that might affect the interests of the service recipient; and (ii) any risks to the service recipient arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and (j) if there is a contract between the supplier and the service recipient for the supply of the financial services: (i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and (ii) the terms and conditions of the contract; and (iii) the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and (iv) any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract; and (k) without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the service recipient for the supply of the financial services; and (l) the extent to which the supplier and the service recipient acted in good faith. (2) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the acquirer) has contravened section 12CB in connection with the acquisition or possible acquisition of financial services from a person (the supplier), the court may have regard to: (a) the relative strengths of the bargaining positions of the acquirer and the supplier; and (b) whether, as a result of conduct engaged in by the acquirer, the supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and (c) whether the supplier was able to understand any documents relating to the acquisition or possible acquisition of the financial services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the supplier or a person acting on behalf of the supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the financial services; and (e) the amount for which, and the circumstances in which, the supplier could have supplied identical or equivalent financial services to a person other than the acquirer; and (f) the extent to which the acquirer's conduct towards the supplier was consistent with the acquirer's conduct in similar transactions between the acquirer and other like suppliers; and (g) the requirements of any applicable industry code (see subsection (3)); and (h) the requirements of any other industry code (see subsection (3)), if the supplier acted on the reasonable belief that the acquirer would comply with that code; and (i) the extent to which the acquirer unreasonably failed to disclose to the supplier: (i) any intended conduct of the acquirer that might affect the interests of the supplier; and (ii) any risks to the supplier arising from the acquirer's intended conduct (being risks that the acquirer should have foreseen would not be apparent to the supplier); and (j) if there is a contract between the acquirer and the supplier for the acquisition of the financial services: (i) the extent to which the acquirer was willing to negotiate the terms and conditions of the contract with the supplier; and (ii) the terms and conditions of the contract; and (iii) the conduct of the acquirer and the supplier in complying with the terms and conditions of the contract; and (iv) any conduct that the acquirer or the supplier engaged in, in connection with their commercial relationship, after they entered into the contract; and (k) without limiting paragraph (j), whether the acquirer has a contractual right to vary unilaterally a term or condition of a contract between the acquirer and the supplier for the acquisition of the financial services; and (l) the extent to which the acquirer and the supplier acted in good faith. (3) In this section: applicable industry code, in relation to a corporation, has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010. industry code has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010.

The Banking Code

1. The relevant provisions of the Banking Code are clauses 20, 28 and 31.
2. Clause 20 relevantly provides: 20.4. If: (a) you are a small business with a banking service being a credit facility; and (b) we make a variation (other than a variation referred to in clause 20.1 or 20.2) to only the terms and conditions of your credit facility (and not to the terms and conditions of the credit facilities of other small business customers), and we reasonably consider the variation will be materially adverse to you, we will give you a reasonable period of notice (not less than 10 business days) in writing of that variation, unless we consider a shorter notice period is necessary for us to avoid or reduce an increase in the credit risk to us.
3. Clause 28 of the Banking Code is headed "If you are experiencing financial difficulties with your credit facility". It thereafter relevantly provides: 28.1 This clause 28 applies to a credit facility you have with us. 28.2 With your agreement and co-operation, we will try to help you overcome your financial difficulties with any credit facility you have with us. We could, for example, work with you to develop a repayment plan.
4. Clause 31 headed "Guarantees" relevantly provides: 31.1. This clause 31 applies to every guarantee and indemnity obtained from you (where you are an individual at the time the guarantee and indemnity is taken) for the purpose of securing any financial accommodation or facility provided by us to another individual or a small business (called a "Guarantee"), except as provided in clauses 31.15 and 31.16. … 31.3. A Guarantee must include a statement to the effect that the relevant provisions of this Code apply to the Guarantee but need not set out those provisions. 31.4. We will do the following things before we take a Guarantee from you: (a) give you a prominent notice that: i. you should seek independent legal and financial advice on the effect of the Guarantee; ii. you can refuse to enter into the Guarantee; iii. there are financial risks involved; iv. you have a right to limit your liability in accordance with this Code and as allowed by law; and v. you can request information about the transaction or facility to be guaranteed ("Facility") (including any facility with us to be refinanced by the Facility);

Legal principles

1. Mr Katekar of counsel for the Receivers set out the relevant legal principles associated with s 12CB of the ASIC Act and what amounts to unconscionable conduct. Mr Dooley of counsel for the cross-claimants said that the Receivers' summary of legal principles in that regard was not disputed and that he was prepared to accept those principles. They are as follows.
2. Section 12CB provides that a person must not, in trade or commerce and in connection with "the supply or possible supply of financial services to a person", engage in conduct that is, in all the circumstances, unconscionable. Emphasis is on the conduct of the person said to have engaged in conduct that is unconscionable. As observed by the Full Court of the Federal Court in Australian Securities and Investments Commission v National Exchange Pty Limited (2005) 148 FCR 132; [2005] FCAFC 226 at [43], "[t]he law is not, of course, intended to protect the reckless or the unreasonable".
3. This provision is not limited to conduct that is unconscionable within the meaning of the unwritten law. In Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; (2011) 15 BPR 26,699, Allsop P (with whom Bathurst CJ and Campbell JA agreed) made the following observations regarding s 12CB at [291]: Aspects of the content of the word "unconscionable" include the following: the conduct must demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably: Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557 at 583 [121]; the conduct must be irreconcilable with what is right or reasonable: Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at 140 [30]; Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62; 117 FCR 301 at 316-317 [44]; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262; factors similar to those that are relevant to the CRA are relevant: Spina v Permanent Custodians Ltd [2009] NSWCA 206 at [124]; the concept of unconscionable in this context is wider than the general law and the provisions are intended to build on and not be constrained by cases at general law and equity: National Exchange at 140 [30]; the statutory provisions focus on the conduct of the person said to have acted unconscionably: National Exchange at 143 [44]. It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances. (emphasis added)
4. The "starting point" in determining whether conduct contravenes s 12CB(1) is the non-exhaustive list of factors enumerated in s 12CC(1). Section 12CC(l)(a) directs attention to "relative strengths of the bargaining positions" of the financial services provider and the consumer respectively.
5. However, the mere existence of a disparity in bargaining power is not sufficient to enliven s 12CB of the ASIC Act. Moreover, the fact that a party uses its superior bargaining position is not necessarily unconscionable. In Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28; (2016) 90 ALJR 835, Keane J (with whom French CJ and Kiefel J agreed) said: [293] …The existence of a disparity in bargaining power, which is an all-pervading feature of a capitalist economy, does not establish that the party which enjoys the superior power acts unconscionably by exercising it. … [294] …Further, to focus upon the relative strengths of the bargaining positions of [the parties] is to ignore the requirement of s 12CB(1) to consider "all the circumstances". Section 12CB(1) does not proscribe the existence of a disparity in bargaining power as opposed to the manner of its exercise.
6. To similar effect are the observations of Gleeson CJ in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18, where his Honour noted: [11] A person is not in a position of relevant disadvantage, constitutional, situational, or otherwise, simply because of inequality of bargaining power. Many, perhaps even most, contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests. ... [14] Unconscientious exploitation of another's inability, or diminished ability, to conserve his own interests is not to be confused with taking advantage of a superior bargaining position. There may be cases where both elements are involved but, in such cases, it is the first, not the second, element that is of legal consequence. It is neither the purpose nor the effect of s 51AA [of the Trade Practices Act 1974 (Cth)] to treat people generally, when they deal with others in a stronger position, as though they were all expectant heirs in the nineteenth century, dealing with a usurer.
7. Thus contracting parties are not required to subordinate their own interests to those of the other party in order to adhere to the standard of dealing prescribed by s 12CB(1). The reference to "good faith" in s 12CC(1)(l) of the ASIC Act embodies good faith or fair dealing "by reference to the bargain and its terms that is called for, be [the parties] both commercial parties or business dealing with consumers".
8. Section 12CA of the ASIC Act prohibits unconscionable conduct based on the unwritten law. Section 12CA does not apply to conduct prohibited by s 12CB. Nevertheless, to understand unconscionability in s 12CB it is necessary to understand what the unwritten law is concerned with in that regard.
9. The equitable doctrine of unconscionability "is not a principle of what 'fairness' or 'justice' or 'good conscience' requires in the particular circumstances of the case". Rather, conduct that is "unconscionable" in the requisite sense must demonstrate "a high level of moral obloquy"; it must be "irreconcilable with what is right or reasonable".
10. In Kakavas v Crown Melbourne Limited (2013) 250 CLR 392; [2013] HCA 25, the High Court emphasised that the conduct proscribed by the equitable doctrine of unconscionability is exploitative in character. The Court observed at [161]: Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this purpose. The principle is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm's length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned. (emphasis added)
11. Also illustrative is the High Court's decision in Paciocco. In that case, the appellants contended that the respondent bank engaged in unconscionable conduct in contravention of s 12CB(1) of the ASIC Act through the imposition of late payment fees in accordance with its standard consumer credit contract. The appellants submitted that the general disparity in bargaining power between the parties, and their own consequent inability to negotiate the relevant terms, rendered the respondent's conduct unconscionable in the requisite sense.
12. The High Court rejected that claim. Keane J (with whom French CJ and Kiefel J agreed) found that the appellants' focus upon the superior bargaining power of the respondent bank ignored the requirement of s 12CB(1) to consider "all the circumstances". His Honour observed that nothing in the manner of the respondent's exercise of its superior bargaining strength "fell foul" of the balance of s 12CB(2). Justice Gageler noted that the bank "did not cause" the appellants to enter into credit card contracts but rather presented those contracts "on a take-it-or-leave-it basis".
13. Accordingly, the imposition of conditions on the part of a supplier of financial services which have not been the subject of negotiation between the contracting parties will not of itself engage the protection of s 12CB.
14. Finally, it is relevant when construing s 12CB to recall that the conduct which that section proscribes is "of sufficient seriousness" to warrant the imposition of a civil penalty. The penal character of the provision supports a construction of its terms that errs on the narrower end of the spectrum.

Did the Bank act unconscionably?

1. There are a number of matters which indicate that the Bank did not act unconscionably nor did it fail to comply with clause 28.2 of the Banking Code.
2. First, at the time DCL applied for finance from the Bank in March 2015 it made statements and put forward financial documents to the effect that throughout 2015 the Company would be operating three sheds of chickens. Mr Littlejohns was shown three sheds of chickens when he inspected the property. Mr Howe told him that he was budgeting on $150,000 to replace one flock and he had budgeted for the remaining flocks to be supplied by Farm Pride "with the same arrangements as are in place at the moment".
3. Mr Howe provided Rabobank with a cash-flow forecast on 3 March 2015 that contained figures based on there being three flocks from July 2015. The total for egg sales for the 12 month period from July 2015 to June 2016 was $1,536,144.
4. In late March 2015 Mr Howe provided to the Bank a further cash-flow forecast from July 2015 to June 2016. The covering note said this (inter alia): Please note I have put an exact science to these monthly sales figures. Using actual past figures in given months over the years where we know the exact bird numbers were the 3 sheds with birds at different ages at the time. We have allowed for initially the birds to be new and it gradually declines at the percentages that we know to be true. Again this is to give a real indication. As you will see the profits are very substantial for 3 sheds producing. Of course a fourth shed could be introduced very easily should it be desired …
5. The figures for egg sales in this further cash-flow forecast were considerably higher than in the earlier one and totalled $2,574,487 for the 12 month period. Mr Littlejohns gave evidence that the figures in the row headed "Egg sales" on the cashflow forecast were figures based on three sheds operating. His hand written figures in the margin then performed calculations on the basis of two sheds or one shed.
6. On 26 March 2015 Mr Howe sent an email to Mr Littlejohns which said in reference to the further cash-flow provided in late March 2015 (inter alia): As mentioned I thought it now appropriate that I give you the secondary cashflow budget so that you can see what at least three sheds will produce and the resulting profit before tax. … So as I have already alluded to in my notes on your desk, these are not figures plucked from the air, they are real…
7. In fact, the position was that the Company had not purchased two flocks of chickens in late 2014 or early 2015 to enable production from three sheds throughout 2015 and it did not have an arrangement in place with Farm Pride for the further supply of birds.
8. There then appears to have been no contact between the cross-claimants and Rabobank until September 2015 when Mr Littlejohns and the Tamworth branch manager Denevan Ellis attended at the property. Mr Littlejohns said that he said he expected to see three flocks in production. Instead he saw only one flock being the ageing flock which was at the property in April 2015.
9. The Defendant submitted that Mr Littlejohns should not be accepted when he said that the first flock the bank was expecting was to go in shortly after loan settlement, and when he denied knowing that the only flocks the Company was receiving were those to be delivered in late December 2015. The questions to Mr Littlejohns in cross-examination to that effect appeared to be based on the fact that Mr Howe was negotiating with chicken suppliers in April and May 2015 to purchase new flocks.
10. However, purchases in April, May or June 2015 of new chickens could only result in delivery much later in 2015. It could not be those chickens which would give the production identified in the cash-flow budgets earlier than November or December 2015. Mr Littlejohns' belief that new flocks would be arriving at or about the time the loan agreement was finalised in May 2015 and not those arriving in late December 2015 is entirely supported by Mr Howe's own documents.
11. Counsel for the bank said that the bank made no submission that Mr Howe misled Mr Littlejohns or the bank. No such case was pleaded in answer to the cross-claim to suggest a defence to the claims of acting unconscionably. However, any consideration of whether the bank acted unconscionably must take into account all the relevant surrounding circumstances. The significant matter is that DCL's financial position had significantly changed and the position in late November was no longer as the bank had earlier reasonably believed it would be by reason of information provided to it before it agreed to the loan in April 2015.
12. Secondly and related to the first matter is that one of Mr Howe's stated purposes for borrowing $300,000 on top of the $2.4 million to pay out NAB was to use part of that money to purchase a further flock of chickens. For example, in the email of 26 March 2015 referred to earlier Mr Howe said that a facility of $2.7m would payout the NAB at $2.4Million, give me say $200K to buy some chooks and to upgrade basically one maybe two sheds with nest mats and or electrical, plumbing.
13. It may be accepted that a flock purchased in May 2015 would not be laying until (probably) September 2015 but that flock would then replace the flock that was culled in September 2015. Mr Howe did not use any of the $300,000 provided to purchase a further flock. He appears to have had some problems with Farm Pride which he first spoke about to Mr Littlejohns in September but there was no evidence when those problems presented themselves to the cross-claimants. His failure to use part of that money as intended meant that after the ageing flock was destroyed in September 2015 DCL had no chickens and therefore no income. That was the specific need that gave rise to the further application in late November 2015.
14. Of course, Mr Littlejohns' handwritten figures on the second cash-flow projection demonstrate that, overall, DCL would have been operating at a loss if he only had one shed, so that the position DCL was in by November 2015 was also from the failure to have organised new flocks before entering the loan agreement in April 2015. Although I do not take that into account as misleading behaviour on the part of the cross-claimants it is relevant to note, when considering assertions that the bank acted unconscionably, that the position DCL was in by November 2015 was of its own doing.
15. Thirdly, the Company defaulted on its obligation to pay the first CPR on 30 November 2015. That was a default which entitled the Bank to put receivers in and take whatever other action the loan agreement and mortgage authorised. In that sense, the position had moved considerably beyond the borrower experiencing financial difficulties. DCL could be said to have been potentially in that position almost since it entered the loan agreement (because of the lack of arrangements to purchase new flocks at that time). It was probably in financial difficulties once the $300,000 working capital had been spent on other than a new flock, and by the time the flock was culled in September 2015 it was most certainly in financial difficulties because it had no income. No approach was made to the bank at any of those times.
16. The first approach was made in late October or early November 2015. The cross-claimants sought $325,000 to purchase two further flocks. Whilst this was being considered DCL defaulted. Mr Howe continued to press the bank for a letter of comfort to Baiada, who were supplying another flock, which letter he said had to be provided by 7 December or Baiada may sell the birds elsewhere.
17. These are three matters of significance in the background to the further application for finance and to the assessment of whether the bank either breached the Banking Code or acted unconscionably.

The Banking Code

1. It may be accepted that the Banking Code formed part of the loan contract between the bank and DCL (see clause 18.1). Whether clause 28.2 of the Code imposes any enforceable obligation on the bank must be doubted when it contains such vague and amorphous concepts as "try to help you overcome your financial difficulties". These terms seem to me to be similar to an agreement to negotiate in good faith which has been held not to be enforceable: Walford v Miles [1992] 2 AC 128 at 138.
2. If, on the other hand, the words are commensurate with "using best endeavours" then the obligation is not to go beyond the bounds of reason but to do all he, she or it reasonably can: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 64; Foster v Hall [2012] NSWCA 122; [2012] NSW ConvR 56-297 at [33] - [34]. This imports an objective test. On the assumption that the clause does impose an enforceable obligation in this way I am entirely satisfied that the bank complied with that obligation.
3. DCL's financial difficulties consisted of a lack of income because it had no birds laying eggs. The most obvious way of helping DCL to overcome those financial difficulties was to assist it in buying birds. That was exactly what the bank did. It went beyond "trying" to help. It did help. Moreover, it did exactly what the cross-claimants asked, that is, it made a further loan of $325,000. They did not ask for anything more. It is not easy to understand how it can be asserted that the bank did not try to help when they did exactly what was asked of them.
4. However, the "help" went further. Although DCL had defaulted on making a CPR in November, and was obliged under the existing arrangement to make such a payment each month thereafter, the bank did not require another CPR until April 2016.

The conditions

1. The only possible basis for the assertion that the bank did not "try to help" is the imposition of the two conditions complained of. Unless, however, it could be shown that either or both of the conditions imposed had the effect of significantly undermining the positive steps the bank took, it could not be concluded that the bank had not tried to help. Moreover, the bank was not obliged to ignore its own interests when it tried to help: Berbatis at [11].
2. It is more helpful to discuss the imposition of the conditions when discussing whether the bank acted unconscionably. For similar reasons, the only basis on which it could be said the bank acted unconscionably is because of the two conditions imposed about which complaint is now made. In my opinion the bank did not act unconscionably for the reasons which follow.
3. First, it could not reasonably be expected that the bank would simply accede to DCL's request for further funds without imposing some conditions. The bank had, in making the loan in April 2015, lent beyond its policy as far as the Loan Security Ratio (LSR) was concerned. It did that to enable DCL to pay out the NAB and to give DCL some working capital to keep the business operating. That was why one of the conditions in April was the making of CPRs so that the lending would be within policy in two years. The first such payment did not need to be made until November 2015 by which time, on the cash-flow projections provided by Mr Howe, DCL would have had three sheds producing eggs from July. That was a considerable indulgence to DCL.
4. By reason of the matters already discussed DCL so mismanaged the business that it was not in a position to pay the first CPR in November and went into default. It was open to the bank to put receivers in at that time and to force a sale but, instead and consistent with its obligations under the Banking Code, it not only lent the further money sought by DCL but postponed until April 2016 the first CPR. With the extra money lent, the lending was now well outside the bank's policy.
5. In Australia and New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149; [2005] NSWCA 344 the Court rejected the notion that a transaction may be set aside "on the basis of unconscionable conduct, absent any special disability, in circumstances where all that can be said is that the victim 'is by pressure impeded' from following his or her best interests". The Court continued at [68]: The fact that one party is in financial difficulties, of which the other party is aware, as in the present case, will be relevant, but not sufficient to establish unconscionable conduct on the part of the stronger party. Something more is required and may be sought in the terms of the particular transaction. However, even unusual terms will not necessarily demonstrate taking unconscientious advantage of the situation of the weaker party. The greater the financial risk, the greater the justification for increased security.
6. No fault could be attributed to the bank for the position the business was in by November, and the bank was certainly entitled to protect its own interests by imposing conditions on the further lending. It could have insisted on payment of CPRs immediately (from January 2016) but recognised that it would take some months before the new flock would be producing a good income flow. It was not at all unreasonable for the bank in those circumstances to have imposed some control over further borrowing which would or might impact on DCL's ability to make either interest or capital repayments to the bank in the short term. Condition 4 did not prohibit further borrowing. Borrowing was permitted below $60,000 with no restriction and over that sum with consent.
7. Mr Littlejohns explained in his affidavit why the limit was $60,000. DCL wanted to build silos to store food ingredients at the property. That would be a costs saving measure. The silos would be built for less than $60,000. In that way condition 4 was crafted bearing in mind DCL's needs. It struck a balance between the interests of DCL and those of the bank.
8. As far as the expiry date of the facility was concerned, the significant matter is that by November 2015 it was apparent that that DCL's business was in a very different financial position from what it would have been in if DCL had in fact done what it made out in March and April 2015 it would be doing. It is apparent that on the figures presented at that time that the business would take some time to get back on to a sounder basis than it had been when it banked with NAB. Hence, Rabobank was prepared to lend outside policy with gradual repayments of capital to assist DCL towards that end.
9. By November 2015 it was apparent that, for whatever reason, the expectations engendered by the financial information provided by Mr Howe were unlikely to be fulfilled. Things had gone backwards and the bank was faced with a decision about how it dealt with the new situation. As the Plaintiffs submitted, it was really DCL and Mr Howe who had the bank over a barrel rather than the other way around.
10. In ANZ v Karam the Court rejected the respondents' (the Karams) contention that certain security transactions entered into with the appellant bank (ANZ) should be set aside on the basis of unconscionability. In that case, the Karams were directors of a company which borrowed money from ANZ. ANZ obtained security over the assets of the company and the personal assets of the Karams. However, unbeknown to the Karams, ANZ entertained doubts about the enforceability of the original securities.
11. The financial condition of the company subsequently deteriorated, causing the Karams to seek additional credit from ANZ. To shore up its security position, ANZ made the provision of further accommodation dependent on the Karams executing additional documents, including acknowledgments that they were personally liable for the company's debts. Further, at the request of ANZ, the Karams sold various properties to reduce the company's indebtedness.
12. The Court of Appeal held that the Karams understood the nature and effect of their actions in signing the additional documents and did so because they understood it was necessary for the survival of the company. The Court said at [95]: Once it is accepted, correctly, that the perilous financial circumstances of the Company were "not the Bank's doing", there is no basis for saying that the Bank, in a legal sense, subjected the [respondents] to pressure. Rather, it was the [respondents] who were seeking that the Bank provide additional credit, without which the Company would have to cease trading. The Bank was under no obligation to extend the credit facilities already granted, nor to do so without securing its own position. Nor was the Bank reacting over hastily to some sudden and unexpected downturn in the affairs of the Company.
13. The position in the present case might be thought to be stronger. The bank did not insist on further security. It merely sought to protect its own position, as it was entitled to do, by limiting further large borrowing without consent and by making it clear to DCL that it would have to refinance or sell within a year. Again, it is difficult to understand an assertion of unconscionability when the bank, being entitled to act on the November default immediately, not only gave DCL a further year to sort itself out but endeavoured to assist in that process by extending a further loan in the amount requested.
14. It needs also to be mentioned that when DCL did not have even $12,770 to pay a levy for the supply of the new flock the bank paid that amount in addition by approving a further variation on 24 December 2015.
15. Secondly, regard must be had to the reason for the conditions.

Condition 4

1. In his affidavit Mr Braidwood, the State Credit Manager NSW - Country Banking Credit said of condition 4: 79. In my opinion, and based upon my experience, in view of DCL's increased credit risk, the inclusion of special condition 4 was not unusual. I would otherwise observe that, in my experience, negative pledge clauses such as special condition 4 are common in many commercial loan transactions. He was not challenged on that statement when cross-examined.
2. A credit submission was prepared within Rabobank in early December 2015. It was reviewed and approved by Christopher Nicolopoulos who was the Manager of Major Agriclients - Country Banking Credit with Rabobank. That submission provided for the imposition of three new special conditions, one of which was the limit on borrowings without Rabobank's consent. The credit submission said in respect of this condition: This will allow Rabobank to take a tighter control over business expenditure, to be able to adequately monitor cash flow is capable of meeting of loan obligations (sic).
3. In his affidavit Mr Nicolopoulos said of that special condition: [T]his was consistent with the recommendation contained in the DCL November submission and, in my opinion and experience, given the circumstances in which this funding was sought, reasonable and appropriate.
4. Although Mr Nicolopoulos had been required to be present to be cross-examined, the cross-claimants ultimately determined not to cross-examine him. There was no challenge to the reasons given in either the November submission nor in his affidavit concerning the imposition of this condition.
5. Mr Littlejohns gave evidence in his affidavit that the $60,000 threshold for further borrowings was arrived at by the Bank to permit DCL to borrow money to build silos enabling it to store feeding ingredients at the property. Mr Littlejohns understood that there were potential costs savings from that approach.
6. An obvious reason for such a condition is to minimise the risk of over-commitment by the borrower to finance providers which could impact on the ability of the borrower to service the existing loan from Rabobank. At least partly, for similar reasons, is a standard term employed by registered first mortgagee lenders that do not permit a second mortgage without consent.
7. The imposition of the two conditions about which the cross-claimants now complain must be viewed in the light of the foregoing.
8. The complaint DCL makes about condition 4 is specifically directed to the proposed entry into a finance arrangement with Westpac for $975,000 for the purchase of a grading machine and five mobile feed bins.
9. In November 2015 Mr Howe said that he had applied for and obtained approval for a loan of up to $975,000 for an egg-grading machine with funds to be provided by Westpac who would be given a second mortgage over the farm. This related to an intended contract with Woolworths for the supply of eggs. Mr Howe said that, if that loan had proceeded, he would have received a GST rebate of $68,000 in January which would have enabled DCL to cover the cash flow shortfall over January and February while the chickens were continuing to grow before they started producing eggs. (Counsel for the cross-claimants accepted, correctly, from the documents that it would leave the cash flow position negative in February.)
10. An email from Finlease to Mr Howe of 20 November 2015 attached what was said to be an approval from Westpac in these terms: Approved at $975k with Bill and Ben The Plants Men P/L as Borrower and Guarantees from DCL Developments P/L and Stuart Charles Howe on 60 months 30% and 60 months 25% terms as proposed subject to: Clear CRAA/VEOA/ASIC searches on all parties. Security over the assets to be funded. Collateral security by way of first or second mortgages over real property with minimum available equity on a Fair Market Value basis as assessed by a valuer of Westpac's choosing, of $400k. All of Westpac's standard terms and conditions and documentation requirements for a transaction of this style to apply. Transaction to be documented and settled by no later than 20 January 2016 otherwise this approval lapses. Westpac reserves the right to withdraw or vary the terms of this approval at any time.
11. A subsequent letter from Mr Hermann of Finlease to the Company of 30 November 2015 altered the third condition to read: Collateral security by way [of] second mortgages over real property being "Ruby Hill", Kootingal NSW 2352 with minimum available equity on a Fair Market Value basis as assessed by a valuer of Westpac's choosing of $500K.
12. The objection now made to condition 4 is that if this term had not been there DCL could have gone ahead with the $975,000 loan which in turn would have achieved for it the GST rebate of $68,000 that would have solved its cash flow shortage in January.
13. Mr Littlejohns invited Mr Howe to put forward a business case to persuade Rabobank to approve the entry into such a loan for that purpose but it was never provided. Mr Littlejohns said in his affidavit that he never received any request from Mr Howe to approve a loan to Westpac although he recalled that Mr Howe showed him a letter about funding of equipment in early December 2015 (that seems to have been the Finlease letter). There was no evidence that Mr Howe or DCL ever sought approval for that loan either to satisfy the condition limiting further borrowing to $60,000 without consent or because the Bank's consent would have been needed for a second mortgage to have been given over the Ruby Hill property. Indeed, the cross-claimants conceded that no consent was ever sought but then submitted that the bank's documents suggested that consent would not have been forthcoming if sought. However, the most likely reason consent was never sought is that there never was a contract with Woolworths.
14. There is no evidence that DCL ever entered into a contract with Woolworths. During cross-examination of Mr Littlejohns concerning a projected cash flow document that Mr Littlejohns prepared in December 2015 the following exchange occurred: Q. You were aware that if Mr Howe purchased the grader, there would be a GST credit of $68,000 set for January. Do you agree? A. It says here that - the rest of that sentence is "If Stuart were to agree to terms with Woolworths". Q. Yes, I accept that. A. Yes, which he never did. Q. Yes, I accept that too. … That exchange confirmed what the absence of any other evidence indicated, namely, that DCL did not enter into a contract with Woolworths so that the loan from Westpac did not need to go ahead.
15. The evidence never rose to the height of there being a chance to enter a contract with Woolworths which condition 4 thwarted. The only evidence at all about a contract with Woolworths are statements recorded in the bank's documents about what Mr Howe said to the bank officers suggesting some prospect of a contract with Woolworths. In circumstances where Mr Howe did not read his affidavits I can draw an inference that any evidence he could give in this regard would not be helpful to him. Further, in the light of the remainder of the evidence, including the exchange recorded above, I find that there never was a contract with Woolworths. Nor did DCL lose a chance for such a contract, and certainly it did not lose it because of condition 4.
16. Properly analysed, the Company would only have a complaint, which might or might not be legitimate, at the time it sought specific consent for the Westpac borrowing including the second mortgage and that consent was not forthcoming from the Bank. It is difficult to see how when no such application was made, the imposition of the $60,000 borrowing limit without consent was unconscionable.
17. The cross-claimants fail also to show that any loss was caused to DCL by the imposition of this condition. Even on the assumption that DCL had sought consent for the borrowing and consent had not been forthcoming, the evidence shows that the GST rebate would not have meant that the cash-flow problem would have been solved.
18. The GST rebate was said to be $68,000. As noted earlier, notwithstanding the extra funds advanced in December 2015, DCL required a mediation under the Farm Debt Mediation Act. The bank agreed to lend a further $150,000 to cover its temporary cash flow difficulties. The money was lent immediately. Notwithstanding, DCL failed to make interest payments in March, April and May, and failed to make CPRs due at the end of April and May 2016.
19. The cross-claimants fail to show that a rebate of $68,000 received in January would have made any difference to DCL's ability to meet its commitments. DCL made its interest payment in January but not February. The cross-claimants accept that even with the GST rebate February would not have been a cash-flow positive month. The failure to meet the interest and capital repayments due from March to May shows positively that the inability to receive the GST rebate of $68,000 did not cause any loss to DCL.

The 12 month expiry

1. The second condition complained of is the reduction of the loan period from five years to one year. As the bank's documents make clear, the bank decided to fund the purchase of the birds by the further loan of $325,000 to enable the business to be sold as a going concern within 12 months in circumstances where the bank saw refinancing as extremely unlikely. In the circumstances it would not have been unreasonable for the bank to have taken the view that the company needed to sell or refinance immediately. Instead, it provided funds to help it recover so that at least a sale at other than a fire value could take place after 12 months when the business had some chance of being back on its feet.
2. A significant matter in relation to this 12 month expiry and whether that was unconscionable must be that the Company does not assert up to the present time that this condition has caused it any loss or detriment. In a sense, its loss is only the possibility or chance that at the conclusion of the 12 month period it will not be able to refinance. However, the defaults which led to the appointment of the receivers have overtaken consideration of this complaint. The cross-claimants do not show any loss from the imposition of a 12 month expiry of the facility.
3. The imposition of this condition, so far from being unconscionable, was a reasonable one in all the circumstances. If moral obloquy is needed, there was none. Even if, contrary to that holding, its imposition was unconscionable no loss is shown to have flown from it.

Mr Howe's guarantee

1. Mr Howe seeks to set aside the guarantee he gave in December 2015 for the further lending. That seems partly to be based on the asserted breach of the Banking Code in relation to notice under clause 31 and partly on the provisions of the Contracts Review Act.
2. A number of matters result in it being entirely inappropriate to set aside the guarantee. First, it was not unreasonable or unfair for the bank to seek an extension of the guarantee it already had from Mr Howe when it was lending a further $325,000 to DCL. Unlike many situations involving guarantees that arise for consideration under principles governing the Contracts Review Act and unconscionability, DCL was Mr Howe's company. Indeed, the cross-claim pleads that Mr Howe was the controlling mind of DCL. He and Mrs Howe ultimately receive the benefits that flow from DCL's business.
3. Secondly, assertions of inequality of a bargaining position without more do not demonstrate unconscionability: Paciocco at [293]; Berbatis at [11]. There is simply no evidence that the bank took advantage of its superior bargaining position. It was entitled to protect its interests to ensure that the person who ultimately benefited from and controlled the borrower was liable for the borrower's defaults. Further, despite the pleading of the cross-claim there is no evidence of illegitimate pressure and coercion on the bank's part.
4. Thirdly, Mr Littlejohns details in his affidavit that he told Mr Howe to take the guarantee and the Letter of Offer home to think about it and get some legal advice but Mr Howe said that he wanted to sign it "here and now". The claim in the cross-claim that Mr Howe did not obtain legal advice rings hollow in the circumstances.
5. Finally, no breach of clause 31 is pleaded. However, even if clause 31.4 applied to this guarantee when it was merely an extension of the existing one, it is not clear where any breach of it leads. The urgency was brought about by the cross-claimants who made the application well after the time it must have been clear that DCL needed further funds to purchase more birds and then insisted that it had to be finalised by 7 December or Baiada may sell them elsewhere.
6. Mr Howe knew all of the matters referred to in clause 31.4(a) because of the guarantee he had given in April. He signed the guarantee in December acknowledging that he had been recommended and had the opportunity to obtain advice before signing (which, as Mr Littlejohns said, Mr Howe was offered) and that he entered into the guarantee freely. I can easily infer, not only from the failure of Mr Howe to give any evidence, but from all of the circumstances that Mr Howe would have signed this guarantee in any event, not because the bank employed unfair tactics or took advantage of Mr Howe, but because it was very much in DCL's and Mr Howe's interests for him to sign it.

Interlocutory application

1. After I had reserved my decision in this matter the Plaintiffs' sought to have the matter re-listed to raise concerns about certain developments in the operation of the business by the Defendant and ultimately to seek that the injunction granted by McCallum J on 20 June 2016 be dissolved.
2. The matter was re-listed and evidence was led by the Plaintiffs dealing with four matters that the Plaintiffs submitted should lead to the injunction being dissolved and ancillary orders being vacated. After hearing argument on that day, and by reason of the urgency of the matter as far as ongoing conduct of the business was concerned, I made orders dissolving the injunction, vacating orders 2, 6, 7, 9, 11, 14 and 15 of the orders made by McCallum J on 20 June 2016 as varied on 21 July 2016 and gave to the Plaintiffs immediate possession of the business and assets of the Defendant and the property at 47 Yarrol Road, Kootingal (excluding the residence) and gave possession of the residence from 23 November 2016. I said that my reasons for doing so would be provided in this judgment. These are my reasons.
3. The Receivers identified four matters which were said to have given rise to the inference that the orders made by McCallum J in June and July 2016 were not being observed by the Defendants. The four matters were these: (a) Excessive payments out of the ANZ account; (b) A 44% drop in income since 2 October 2016; (c) Non-payment of monthly interest to Rabobank; and (d) Non-supply of MYOB records and the RATA.
4. The background to the position that currently obtains with respect to the land and business is set out in the first judgment of McCallum J: Marsden v DCL Developments Pty Ltd (Receivers and Managers appointed) [2016] NSWSC 823. In short, on a Motion filed by DCL McCallum J restrained the Receivers from taking possession of the business and left DCL to operate the business subject to a number of conditions set out in the orders.
5. Difficulties arose within a short period of time and the proceedings were re-listed on the application of both parties alleging a failure of the regime that had been put in place. After a further hearing before McCallum J the orders made on 20 June 2016 were varied: Marsden v DCL Developments Pty Ltd (Receivers and Managers Appointed) (No 2) [2016] NSWSC 1038.
6. The regime under which the business has been operated since 21 July 2016 is reflected in consolidated Short Minutes of Order which relevantly provide: 1. Upon D.C.L. Developments Pty Ltd by its director giving to the Court the usual undertaking as to damages, order that until further order, the First, Second and Third Plaintiff be restrained from: (a) taking any steps pursuant to their appointment as receivers of the First Defendant, except as set out in these orders, or as required by the Corporations Act or other relevant legislation; (b) taking possession of the property known as "Ruby Hill", 47 Yarrol Road, Kootingal in the State of New South Wales being the whole of the land contained in certificate of title folio identifiers 1/355485, 2/355485 and 31/635403; or (c) taking possession of any other property of the First Defendant, by themselves, their servants or agents.

Operation of the business 2. Until further order, the Defendants, through their counsel, undertake whether by themselves, their servants, agents or otherwise: (a) to refrain, howsoever, from doing any act that in any way puts at harm the livestock located at "Ruby Hill", 47 Yarrol Road, Kootingal in the State of New South Wales; b) to provide sufficient feed to the livestock to ensure continuity of production in the ordinary course; (c) to continue to operate the business in the ordinary course, including maintaining supply to customers of the business, including but not limited to Bartlett Farms, in accordance with agreed trading terms. 3. The plaintiffs are to inform in writing, in terms agreed between the parties, each of the first defendant's creditors, suppliers, financiers and providers of leased equipment that the plaintiffs are not in control of the first defendant's business and that the plaintiffs will not assume responsibility for any liabilities, unless explicitly authorised in writing by the plaintiffs. 4. The plaintiffs are to advise the Australian Taxation Office that they are not in control of the business of the first defendant and will not be reporting the transactions from the first defendant's business under the plaintiffs' client account code. 5. The defendants are to provide the plaintiffs with details of all insurance policies in respect of the first defendant's business and the property at 47 Yarrol Road, Kootingal (Property). Management of funds 6. The first defendant is to use its ANZ bank account as a trading account pending the resolution of this matter and deposit all receipts for sales from the business of the first defendant into this ANZ account. 7. The first defendant to recommence paying interest to Rabobank from 30 June 2016 with the first payment being made from the $18,000 held by the plaintiffs, and any residual funds to be paid into the first defendant's ANZ account. 8A. Within 2 business days the defendants are to instruct the banks to provide the Plaintiffs with view only access of the first defendant's CBA accounts. 8B. If the defendants open any new account in the name of the first defendant, then the defendants must inform the plaintiffs within 2 business days of the account opening the new account details and must on opening that account instruct that Bank to provide the plaintiffs with view only access. 9. The defendants will be responsible for completing monthly business activity statements reporting transactions arising from the business and will provide to the plaintiffs copies of the monthly business activity statements along with detailed transaction reports showing the composition of each reportable value within 21 days of the end of each month. 10. The defendants are to provide to the plaintiffs' monthly management accounts of the first defendant within 21 days of months' end. Access to property 11. The defendants are to provide the plaintiffs (or their delegates) with weekly access to the Property, on being provided with 24 hours' notice in writing to the defendants' solicitors which specifies a time at which the access is to occur and which identifies the details of the delegates who are to attend, being no more than 2 persons on each occasion, on the understanding that the defendants are not entitled to object to the attendance of the identified persons, and in the event of a change in the identity of the delegates within the 24 hour notice period such a change is to be notified to the defendants' solicitors as soon as practicable. Such access does not include access to the residence of the second and third defendants. 12. The defendants are to provide the plaintiffs with a list of the first defendants' customers and creditors, which includes details of the address and ABN/ACN of each customer and amounts owed or owing. 13. The plaintiffs and the plaintiff is to ensure the delegates keep confidential and not to disclose: (a) the information from any inspection, other than to Rabobank; (b) details of the customers to any third party (other than to Rabobank), or contact those customers without the prior consent of the first defendant. Other matters 14. The defendants are to provide by 30 June 2016: (a) The defendants are to provide the Plaintiffs with a back up of the electronic (for example MYOB) records (or a copy financial records in whatever form they may be) of the first defendant by close of business on 28 July 2016 from 1 January 2016 to 30 June 2016 and thereafter are to provide the monthly electronic/MYOB records (or hard copy records) of the first defendant within 7 days of the end of each month and (b) The defendants are to provide by 28 July 2016 a completed Report As To Affairs, "Directors Questionnaire and other completed documents contained in the Receivers and Managers letter dated 6 June 2016. 15. The plaintiffs to take any steps necessary to enable: (a) DCL Developments Pty Ltd to operate its bank accounts; (b) DCL Developments access to its ATO accounts so that it can manage and comply with its taxation obligations (including re-instating DCL Developments' Auskey). 16. The first defendant is not to enter into new loan facilities with any financial institutions without the prior written consent of Rabobank or the plaintiffs.

1. I will now deal with each of the four bases for the application.

(a) Excessive payments out of the ANZ account

1. The Second Plaintiff, Richard Stone, swore an affidavit in support of the present application. He said in that affidavit that he was aware from information provided to the Receivers by DCL in accordance with the orders of McCallum J that equipment leased by a company associated with DCL and Mr Howe, Bill & Ben The Plants Men Pty Ltd from the Commonwealth Bank of Australia was on-leased by Bill & Ben to DCL for use in DCL's business. Mr Stone said that he was also aware that DCL had entered into other financing arrangements for equipment used in connection with the business with both Westpac and ANZ.
2. His review of profit and loss statements for DCL indicated that payments made in the ordinary course for lease of equipment were as follows: (i) In the case of Westpac, equipment expenses of approximately $3,072.21; (ii) In the case of the CBA (payments to Bill & Ben for on-payment to CBA for lease of equipment used by DCL), lease and equipment expenses of approximately $20,000; (iii) In the case of ANZ, equipment expenses of approximately $1,493.56.
3. In addition to those ordinary course payments the profit and loss statements indicated a monthly payment being made described as "Interest Expense - Hallidays". These expenses appeared to relate to two properties owned by Mr Howe at Hallidays Point which were mortgaged to Westpac. When those amounts were added to the equipment expenses paid monthly to Westpac, Mr Stone said he would expect there to be withdrawals from the ANZ Trading Account in favour of Westpac for $5,461 per month. In total, therefore, the regular expenses per month should be in the vicinity of $27,000.
4. Mr Stone's analysis of the payments that have gone out of the ANZ account from 19 June to 6 November 2016 on a weekly basis show that for the period between 19 June and 24 July (after the first orders were made by McCallum J and until the matter was returned to Court on 21 July) and from 25 September to the present (after the conclusion of the final hearing) amounts very considerably in excess of the ordinary course payments have been debited to the account. Most of these payments have either gone to Bill & Ben or in respect of what the ANZ accounts describe as "Wpac Loa" (presumably, Westpac Loan) that is not able to be explained by the equipment leases and the payments in respect of the Hallidays Point properties. Between 21 July and the final hearing of these proceedings on 19-21 September 2016 the amounts paid out of the ANZ account were roughly equivalent to the ordinary course payments.
5. In the period July to October 2016 the amounts paid to Bill & Ben's CBA account exceeded the ordinary course payments attributed to Bill & Ben by $79,645. The total of the apparent Westpac overpayments and the apparent overpayments to Bill & Ben between 22 September and 30 October was $71,957.

(b) No interest payments

1. Monthly interest payments due by DCL to Rabobank on 30 September 2016 and 31 October 2016 were not made. The interest payment for the month of August was short paid by $1,346.60. Order 7 required monthly payments of interest due to Rabobank to be paid by DCL.

(c) Drop in income since 2 October 2016

1. In his affidavit Mr Stone said that one of the matters relied upon by the Court when making orders in June 2016 was evidence from Mr Howe in which he said that DCL was receiving approximately $27,000 from the sale of eggs per week. That level of income did not permit DCL to repay the monthly principal repayments but did permit interest payments to be made.
2. Mr Stone has examined the accounts and found that egg sales were below $27,000 per week prior to the second hearing on 21 July 2016. Thereafter they rose above that level and remained above that level until 2 October 2016 with the week of 2 October 2016 recording a sales level of about $32,000. In the five weeks since that time sales have fallen to about $18,000 a week, representing a fall of about 44% since 2 October 2016.
3. A representative of the Receivers, Mr Tim Hoad together with an expert qualified in the egg farming business, Mr Bob Hanson, visited the farm on a number of occasions. Mr Hanson observed that the health of chickens in Shed 5 had not materially declined from prior inspections and was in line with expectations. In relation to the chickens in Shed 1, the feathers appeared dull and feather loss appeared greater than on prior occasions. Based on that evidence Mr Stone expressed an opinion, which I permitted only to be led as evidence of his belief after objection, that whilst there had been a degree of decline in the health of the chickens, the extent of the decline was not so great as to suggest that it would cause a 44% decline in egg sales. Based on that belief, Mr Stone's concern was that the decline in egg sales represented either insufficient feed being made available to the chickens (in contravention of order 2(b)), or alternatively that DCL had failed to deposit all income from egg sales into the ANZ Trading Account (in contravention of order 6).

(d) Non-supply of MYOB records and the RATA

1. Order 14 of the interim orders required DCL to provide: (i) by 30 June 2016, a back-up of the electronic records for the period 1 January 2016 to 30 June 2016 and monthly electronic/MYOB records (or hard copy records) of DCL within 7 days of month end; and (ii) by 28 July 2016 a completed Report as to Affairs, Director's Questionnaire and other documents contained in the Receivers' letter of 6 June 2016 (RATA Documents).
2. Mr Stone said that DCL has not provided the electronic records for the period 1 January 2016 to 30 June 2016 and has provided only partially completed RATA Documents. This is despite demands for these having been made in letters dated 3 and 16 August 2016 and an email dated 11 October 2016.

Consideration

1. As at the final hearing of the matter, Mr Howe read no affidavits on the Receivers' application. He tendered two emails which went only to what the Receivers intended when they re-listed the proceedings because of the concerns identified earlier.
2. On 2 November 2016 the solicitors for the Receivers wrote to DCL's solicitors asserting three of the four breaches now complained of (the failure to pay interest to Rabobank was not mentioned). Details were provided particularly in relation to the overpayments.
3. The Receivers required undertakings by 3 November 2016 as follows: (i) to return or reimburse all amounts exceeding the Ordinary Course Payments transferred to other accounts, including in the name of B & B, back to DCL's ANZ Trading Account within three business days. On present calculations, this amount is approximately $117,288; (ii) To immediately cease and desist from making further transfers of funds away from DCL's ANZ Trading Account, other than the Ordinary Course Payments, and to carry on the business of DCL using only that account in accordance with order 6 of the interim orders.
4. No undertakings were forthcoming. Instead, Mr Howe wrote a long letter on behalf of DCL. In answer to the assertion of funds being diverted away from the business, Mr Howe simply maintained that the Receivers had visual access to his accounts so that they could see his accounts and exactly what money had been expended. He said further that the BAS Reports show that income was outstripped by expenses for nearly every month so that it was impossible to suggest there were additional funds being diverted.
5. What Mr Howe said did not come to grips with the matters identified. Ultimately he provided no explanation for the greatly increased payments out in the periods identified.
6. Mr Howe's explanation in relation to the eggs sales was an assertion that it was the Receivers' failure to assist in January and February 2016 that led to initial starvation of the flocks at a critical time in their life cycle. Mr Howe said that those events delayed productivity and substantially shortened the production life of the two flocks. He said further that the Receivers had not factored in that the birds were towards the end of their producing life and that they did not produce at the same rate as earlier in the life cycle.
7. It is not possible to discern any answer to the assertion that DCL had failed to provide all of the MYOB records but I do not consider that that matter has any real significance for whether the status quo should remain for the operation of the egg farm business.
8. The remainder of Mr Howe's letter contained assertions and allegations against the Receivers. The letter did not say anything about the undertakings sought.
9. During the course of submissions on behalf of DCL Mr Dooley of counsel offered that his client would undertake to the Court through Mr Dooley what was contained in paragraph 2 of the undertaking sought by Gadens in its letter of 2 November 2016. I indicated that I would not accept such an undertaking unless Mr Howe was present in Court so that he could be made aware of the consequences of a failure to abide by an undertaking to the Court.
10. An application was made on behalf of DCL to adjourn the proceedings to a day later in that week so that Mr Howe could be present. It was made clear, however, that on any adjourned date Mr Howe would be seeking leave to appear personally for DCL and that neither Mr Dooley nor his instructing solicitors would be appearing. When I enquired what the purpose of the adjournment would be I was told that Mr Howe may wish to give evidence in response to the claims made by the Receivers.
11. I declined to adjourn the proceedings because I could no see utility in doing so. When it was entirely speculative what would happen on the adjourned date and where I would no longer have the assistance of counsel and solicitors to deal with the matter I did not consider that DCL's position would be assisted or advanced by the adjournment.
12. Counsel for DCL accepted that for the period after the final hearing from 22 September to date there was a prima facie case made out by the Plaintiffs as to a material change in circumstances that enlivened the Court's discretion in terms of what was said in Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46. That concession inevitably means that some answer was required from the Defendants to explain the greatly increased amounts going out of the ANZ account. No answer was forthcoming either in affidavit evidence nor in the letter from DCL to Gadens of 4 November 2016. I am entitled to draw, and I do draw, a Jones v Dunkel inference that any evidence from the Defendants would not have assisted it.
13. The concern about whether the orders were being complied with in terms of expenses being paid out was further magnified by a comparison of the profit and loss statement for July 2016 prepared by the Defendants with the ANZ bank statements. The statements disclose that in July amounts totalling $71,848 were transferred to Bill & Ben. On the other hand, the profit and loss statement not only identifies two figures totalling $21,105.78 in respect of equipment leases funded by the CBA but does not identify elsewhere in those expenses where the remaining $50,000 transferred to Bill & Ben is accounted for. The reasonable inference is that the profit and loss statement put forward is not a true picture of transactions for July 2016.
14. I am satisfied that the undertaking referred to in order 2(c) of the consolidated orders has been breached.
15. There is no answer to the evidence of the Receivers concerning the non-payment of interest for September and October to Rabobank and the short payment in August 2016. I am satisfied in that regard that order 7 has been breached.
16. In relation to the drop in recorded earnings, whilst I accept that there may be an issue about the production capacity of the flocks, the sudden and significant downturn in income is not explained by that matter. The two flocks identified arrived at the farm in February and March 2016 or thereabouts and could be expected, on all the evidence in the case, to be at the height of their production cycle. The explanation contained in DCL's letter of 4 November is not a discharge of the evidentiary onus that was on the Defendant to explain the considerable drop in income. If, as the Receivers' evidence tends to suggest, the cause of the reduction in income is not egg production levels, the alternative inference must be that all of the receipts for the business are not, contrary to order 6, being deposited into the ANZ bank accounts.
17. Whilst I accept that there is a small measure of uncertainty about this complaint and whether there may be a legitimate explanation for it, when taken in conjunction with the clear breaches earlier identified, I was satisfied that the status quo put in place in June 2016 and varied in July 2016 should be altered so as to allow the Receivers to run the business themselves. Accordingly, the orders of 15 November 2016 were made.

Application by the cross-claimants

1. On 1 December 2016 my associate received an email from Mr Howe informing her that he no longer had resources to retain his solicitors and asking that the proceedings be re-listed so that he, presumably on the part of both cross-claimants, could agitate matters concerning the way the Receivers were running the business.
2. The matter was re-listed on 7 December 2016. Mr Kelly, the solicitor who had acted for the Defendants, sought leave to file in Court a Notice of Removal of Solicitor. He was granted that leave and then withdrew. Mr Howe then appeared for the cross-claimants. He provided me with what was said to be submissions and a folder of documents to which reference was made in those submissions. The general complaint was that the Receivers were not paying the ordinary course expenditure of the business with the result that Mr Howe feared that other creditors would move against him and, in particular, that the Commonwealth Bank would move to bankrupt him. Mr Howe said that he was seeking clarification of the orders put in place when the injunction was dissolved. He said that he was also seeking an order "to push the receivers into paying the bills as per the ordinary course".
3. When I had read the material I pointed out to Mr Howe that there was no evidence about what the Receivers were doing one way or the other to pay or not to pay bills of the business. Mr Howe agreed that he did not have any evidence about those matters. In all of the circumstances, I declined to make any orders.

Conclusion

1. The Plaintiffs sought various orders including a declaration that they had been validly appointed by Rabobank as Receivers and Managers of the property known as "Ruby Hill" at 47 Yarrol Road, Kootingal and all present and after acquired property of the Third Defendant. There was no dispute that the Receivers had been properly appointed and no declaration to that effect is necessary.
2. On 15 November 2016 the Receivers were granted orders giving them possession of the property but subject to conditions and on an undertaking to pay damages if required because the order was interlocutory. The Defendants are no longer in occupation of the property.
3. In those circumstances the only orders that I make are as follows: (1) Judgment for the Plaintiffs for possession of the land known as "Ruby Hill" at 47 Yarrol Road, Kootingal in the State of New South Wales being the whole of the land contained in folio identifiers 1/355485, 2/355485 and 31/635403. (2) The cross-claim filed 22 July 2016 is dismissed. (3) The Defendants/Cross-Claimants are to pay the Plaintiffs'/Cross-Defendants' costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 December 2016