Mastronardo & Anor v Commonwealth Bank of Australia Ltd & Ors

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] The appellants, Mr Carmelo Adriano Mastronardo ("Adrian Mastronardo") and his wife Mrs Claudia Mastronardo guaranteed facilities provided by the first respondent, the Commonwealth Bank of Australia t/a Bankwest, to Remo Corporation Pty Ltd. The first facility, the commercial advance facility, commenced on 6 November 2006. Subsequently, a further commercial advance facility, a bank guarantee facility, and an overdraft facility were provided to Remo Corporation by the Bank. Advances were made under the terms of these facilities. The expiry date for the further commercial advance facility and the overdraft was extended to 31 May 2010. The initial commercial advance facility was due for repayment on 31 December 2012. The bank guarantee facility had been discharged previously. The guarantors of these facilities were Mr and Mrs Mastronardo, Mr Antonio Mastronardo (Adrian's father), Via San Antonio Pty Ltd (which owned a property in Coonarr Beach, Queensland), and AM Property Investments Pty Ltd. The appellants' guarantee included their interest in their properties at 8 and 8A Pile Street, Gladesville. This was the extent of Mrs Mastonardo's guarantee. 8A Pile Street had been purchased using an advance made under a separate facility known as the Mastronardo facility. From 6 November 2007, it was a term of Remo Corporation's facilities that the security interest over the appellants' Pile Street properties would be released conditional on there being no event of default and the Loan to Value ratio following the release of the properties not exceeding 70%. It was implied that Remo Corporation could seek the release of these securities if the conditions were satisfied. As 31 May 2010 approached, the Bank expressed increasing discomfort with Remo Corporation's facilities. On 12 March 2010, the Bank requested that all Remo Corporation facilities be refinanced. At a meeting between the Bank and the appellants on 31 May 2010, before the facility had expired, the Bank indicated that the Pile Street properties would not be released. The appellants commenced proceedings against the Bank. In substance, their case was one for damages in contract for breach of the release provision and for damages under s 12GF(1) of the Australian Securities Investments Commission 2001 (Cth) on the footing that the same conduct was unconscionable. The Bank cross-claimed for money judgments in respect of the amounts owing under the Remo and Mastronardo facilities. They sought possession of the properties in Pile Street and Coonarr Beach. The primary judge (Hammerschlag J) dismissed the appellants' claim and allowed the Bank's cross-claim, awarding money judgments and possession of the properties at Pile St and Coonarr Beach. His Honour found that the Bank had repudiated the release provision but held that its conduct was not unconscionable within the meaning of s 12CB(1) of the ASIC Act. Nor did the appellants establish that any loss or damage was caused by the Bank's conduct. The appellants were unable to show that they would have been able to meet the requirements necessary to exercise their rights under the release provisions, namely providing $4.5 million to the Bank.

The Court held (Per White JA; Bathurst CJ and Macfarlan JA agreeing) dismissing the appeal: (1) There was nothing unconscionable in the Bank's reliance on and enforcement of its terms of the contract of loan by its indication that it would not discharge its security over the Pile Street properties. It was not unconscionable for the Bank to request Remo Corporation to refinance their facilities: [62], [75]-[76] Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15; Paciocco v Australia and New Zealand Banking Group Limited (2016) 258 CLR 525; Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 considered. (2) The primary judge did not use the word "repudiated" in any technical legal sense. The Bank did not commit a breach or anticipatory breach of contract. There was no realistic possibility that it could be required to perform its implied obligation to release the properties: [72]-[74]. (3) The primary judge was correct in finding that the appellants could not have paid $4.5 million to the Bank on or before 31 May 2010: [93]. (4) It was unnecessary to consider the calculation of damages advanced by the appellants as a contravention of s 12CC of the ASIC Act had not been established: [95].

Judgment

1. BATHURST CJ: I agree with the orders proposed by White JA and with his Honour's reasons.
2. MACFARLAN JA: I agree with White JA.
3. WHITE JA: This is an appeal from orders of the Equity Division (Hammerschlag J) dismissing the appellants' claim against the respondent for, amongst other things, damages for alleged unconscionable conduct, and giving judgment for the respondent on its cross-claim (Carmelo Adriano Mastronardo v Commonwealth Bank of Australia trading as BankWest [2017] NSWSC 1052).
4. The appellants, Carmelo Adriano Mastronardo ("Adrian Mastronardo") and his wife Claudia Mastronardo, guaranteed facilities provided by the respondent ("BankWest" or "the bank") to Remo Corporation Pty Ltd. Initially, Claudia Mastronardo's guarantee was limited to her interest in a property at 8 Pile Street, Gladesville. Adrian and Claudio Mastronardo also borrowed $3 million from BankWest to purchase an adjoining property at 8A Pile Street, Gladesville. The properties at 8 and 8A Pile Street, Gladesville (the "Pile Street properties") were then security for both the $3 million facility provided to Mr and Mrs Mastronardo and three separate facilities provided to Remo Corporation. Claudia Mastronardo's liability as guarantor was limited to her interest in the two Pile Street properties.
5. One of the facilities provided to Remo Corporation was called a commercial advance facility. It was initially provided pursuant to a letter of offer dated 6 November 2006. On 6 February 2007 it was reduced to $6,070,000. There were further variations on 20 April and 6 November 2007, 1 April 2008 and 5 August 2009. On 5 August 2009 that facility was reduced to $3,302,000. The time for repayment of that advance was extended to 31 December 2012. The other facilities provided to Remo Corporation were a further commercial advance facility, a bank guarantee facility and an overdraft facility. The bank guarantee facility was discharged on 1 April 2008 and can be ignored. The further commercial advance facility was provided from 6 November 2007 and initially was for $5 million and due for repayment by 31 March 2008. Over time it was reduced to $645,000 (which was fully drawn) and was due for repayment by 30 September 2009. The overdraft facility was provided from 6 November 2007 in the amount of $1.5 million. Following the variation on 5 August 2009 it was reduced to $1.3 million and was due for repayment on 30 September 2009. Thus the further commercial advance and the overdraft were due to be discharged by 30 September 2009, but time was extended to 31 May 2010.
6. From 6 November 2007 it was a term of the facilities provided to Remo that: "Post the proposed sale of properties, the release of the security at 8 and 8a Pile Street, Gladesville as support to the Remo Corporation facilities is conditional on there being no event of default and the resultant LVR after the release of the properties not exceeding 70%."
7. From 1 April 2008 a slightly different term, albeit to similar effect was included in subsequent loan agreements. The term was as follows: "The release of the Security Properties at 8 and 8A Pile Street, Gladesville as security for the loan facilities is conditional on there being no event of default and the LVR following the release of the properties not exceeding 70%." This term has been called the "release provision".
8. It can be implied from that term that Remo Corporation could seek the release of the mortgages over 8 and 8A Pile Street, Gladesville if there were no event of default and the ratio of the resulting loan debt to the value of the remaining secured properties did not exceed 70 per cent.
9. The primary judge noted (at [125]) that: "125 Despite their pleadings ranging widely, Adrian and Claudia confined their case to one for damages in contract for breach by the Bank of the release provision and for damages under s 12GF(1) of the ASIC Act on the footing that the same conduct was unconscionable. They made no attack on the efficacy of their guarantees, nor did they put in issue the quantum of the Bank's claim."
10. The primary judge found that the bank repudiated the release provision. The repudiation found by the primary judge was that at a meeting on 31 May 2010 Ms Elise Cockerill, BankWest's Director/Property Risk Property Finance repudiated the bank's obligation under the release provision. The primary judge said: "134 From as early as 10 March 2010, the Bank's position was one of discomfort with the Remo facility, not least of all because it considered the pricing for the risk was not appropriate. It did not want the business. 135 Cockerill denied having said that the Bank did not care what the agreement said. However, I am satisfied, having regard to the Bank's objective contemporaneous behaviour that on 31 May 2010 she conveyed the message that the Bank did not consider itself obliged to adhere to the release provision. Albeit that 31 May 2010 was the last day of the extended second commercial advance and overdraft, and default may have been thought to be imminent, Remo Corporation had not to that point defaulted in the making of any payment. The Bank had no entitlement to require an entire refinancing given that the first commercial advance was to expire more than two years later. Its demand for entire refinancing was consistent with its attitude of not being bound by the release provision. 136 Whilst the Bank repudiated the release provision, I do not consider that its conduct was unconscionable within the meaning of s12CB(1) of the ASIC Act. Unconscionable conduct within that provision requires a high level of moral obloquy: see Paciocco v Australia and New Zealand Banking Group (2016) 258 CLR 525 at 587 [188]. The Bank's conduct did not have that quality, particularly having regard to the fact that it occurred in the context of the Bank having given multiple extensions of the second commercial advance and overdraft, including on 29 March 2010 when it offered the extension to 31 May 2010. Only because of these extensions was the Remo facility not in default by non-payment on 31 May 2010. Its conduct was no more than a common or garden breach of contract."
11. The primary judge went on to find that the plaintiffs had not established that they suffered any loss by reason of the "repudiation". His Honour said that "[a]s at 31 May 2010, and at all times thereafter, the Bank was not obliged to release [the Pile Street properties] under the release provision because there had been or were events of default" (at [138]). The primary judge also found that the Mastronardos "had not established that they could or would have paid $4,500,000 to the Bank at any time, let alone on 31 May 2010" (at [141]). The primary judge also held that the Mastronardos would have defaulted to any new lenders (at [147]).
12. In their amended statement of claim Mr and Mrs Mastronardo had sought numerous declarations and orders, including damages under s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). The primary judge dismissed their claim. Judgment was given in favour of BankWest against Carmelo Mastronardo in the sum of $18,247,162.43 as at 17 July 2017. Judgment was given in favour of BankWest against Claudia Mastronardo in the sum of $8,308,208.16 as at 17 July 2017. The Court declared that Claudia Mastronardo was liable to BankWest under the guarantee and indemnity provided by her to it on 12 January 2007 (as varied from time to time) in respect of the obligations of Remo Corporation in the sum of $9,938,954.27, and declared that the maximum amount the bank could recover from Claudia in respect of that guarantee amount was the amount the bank obtained from enforcing its right in connection with its mortgages over the Gladesville properties. Interest was ordered on the judgment debts at the rates applicable under the mortgages and facilities relied upon by BankWest. Judgment for possession was given in respect of the Pile Street properties and also an additional mortgaged property at Coonarr Beach in Queensland.
13. By their notice of appeal Mr and Mrs Mastronardo challenge the primary judge's finding that BankWest's conduct was not unconscionable within the meaning of s 12CB(1) of the ASIC Act (ground 1 of the notice of appeal). The other grounds of the notice of appeal are as follows: "1A The primary judge erred in: (a) Finding that the Appellants failed to establish that they could, or would, have paid $4.5m to the First Respondent on or before 31 May 2010, when the evidence supported the contrary conclusion: J [141], [143]-[146] and [148]-[150]; (b) Failing to hold, in the alternative to the above, that there was a real, as opposed to fanciful, chance that the Appellants could have paid $4.5m to the First Respondent on or before 31 May 2010, which chance/opportunity they were deprived of by reason of the First Respondent's unconscionable conduct (which opportunity was of substantive, as opposed to negligible, value). 1B The primary judge erred in holding that the Appellants would have defaulted on their obligations to any new lenders in any event, when the evidence supported the contrary conclusion: J [147]. 1C In the above circumstances, the primary judge erred in failing to: (a) Reduce (by way of damages pursuant to s 12GF of the Act) the amount otherwise payable to the First Respondent by the amount of $3,785,194.65 as at 17 July 2017 (or such other amount reflecting the loss of opportunity); (b) Order, pursuant to s 12GM of the Act, that upon payment of $7,092,403.11 to the First Respondent (being the figure as at 17 July 2017): (i) The First Respondent was obliged to give to the Appellants an executed and registrable discharge in respect of its mortgages over 8 and 8A Pile St; and (ii) Such sum was to be considered sufficient to discharge the Mastronardo Facility, as well as reduce the balance of the Remo Facility (as at 17 July 2017) by the sum of $1,261,731.55."
14. Mr and Mrs Mastronardo alleged that BankWest had engaged in unconscionable conduct in contravention of s 12CB of the ASIC Act. As noted above, by their first ground of appeal they contend that the primary judge erred in not finding that BankWest contravened that provision. The pleading was drawn by reference to the ASIC Act as it stood when proceedings were commenced, not when the impugned conduct occurred. The relevant provisions were ss 12CB and 12CC as in force in 2010. Prior to 1 January 2012 s 12CB dealt with unconscionable conduct in connection with the supply of financial services of a kind ordinarily acquired for personal, domestic or household use (s 12CB(5)). It would have been the relevant provision for the case in relation to the $3 million advance to Mr and Mrs Mastronardo to enable them to buy 8A Pile Street. Section 12CC dealt with unconscionable conduct in connection with the supply of financial services for the purpose of trade or commerce (s 12CC(6)). It would have been the relevant provision for the case relating to the facilities provided to Remo.
15. From 1 January 2012 ss 12CB and 12CC were repealed and replaced with new provisions to materially the same effect as the old. Section 12CB(1)(a) now provides that a person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person other than a listed company (an exclusion also contained in the former s 12CC) engage in conduct that in all the circumstances is unconscionable. Section 12CC(1) sets out circumstances to which the court may have regard in making that determination. These are generally the same circumstances as were formerly contained in s 12CC(2) before its repeal. (The provisions of the new s 12CC(1)(j)(ii)-(iv) were not contained in the old s 12CC(2)(j).)
16. The provisions in force at the time the impugned conduct occurred are the relevant provisions to be applied. Although Mr and Mrs Mastronardo did not plead that BankWest had contravened s 12CC, it is common ground that in substance it did so and the appeal should be determined on that basis. Section 12CC relevantly provided: "12CC Unconscionable conduct in business transactions (1) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of financial services (see subsection (6)) to another person (other than a listed public company); or (b) the acquisition or possible acquisition of financial services (see subsection (7)) from another person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (2) Without in any way limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) in connection with the supply or possible supply of financial services to another 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 person is a corporation - the requirements of any applicable industry code (see subsection (11)); and (h) the requirements of any other industry code (see subsection (11)), 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) the extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the financial services with the service recipient; and (ja) 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 (k) the extent to which the supplier and the service recipient acted in good faith. ... (5) For the purpose of determining whether a person has contravened subsection (1) in connection with the supply, possible supply, acquisition, or possible acquisition of financial products or financial services: (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 circumstances existing before the commencement of this section but not to conduct engaged in before that commencement. (6) Subject to subsection (8), a reference in this section to the supply or possible supply of financial services is a reference to the supply or possible supply of financial services to a person whose acquisition or possible acquisition of the financial services is or would be for the purpose of trade or commerce. ..."
17. The parties agreed that the approach to be adopted to s 12CC was that taken in Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15 in relation to the comparable provision contained in s 22 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)).
18. As set out above, the primary judge found that whilst BankWest had repudiated the release provision on 31 May 2010 its conduct was no more than a common or garden breach of contract and did not have a "high level of moral obloquy" required before conduct could be characterised as unconscionable (Judgment at [136] quoted at [10] above). Mr and Mrs Mastronardo submitted that to apply a standard of a "high level of moral obloquy" was wrong. The primary judge cited the reasons of Gageler J in Paciocco v Australia and New Zealand Banking Group Limited (2016) 258 CLR 525 at 587; [2016] HCA 28 at [188] where his Honour said that according to the ordinary meaning of "unconscionable" a "high level of moral obloquy" on the part of the person said to have acted unconscionably was required, citing Spigelman CJ in Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583, [121].
19. Mr and Mrs Mastronardo noted that in Paciocco in the Full Court of the Federal Court (Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50) Allsop CJ, with whose remarks Besanko and Middleton JJ agreed, said (at [305]) that: "The task is not limited to finding 'moral obloquy'; such may only divert the normative inquiry from that required by the statute, to another, not tied to the words of the statute." They submitted that none of the other justices of the High Court in Paciocco had endorsed the reasoning of Gageler J that the primary judge applied.
20. In Ipstar Australia Pty Ltd v APS Satellite Pty Ltd, Leeming JA did not find it of assistance to ask whether Ipstar's conduct involved a "high level of moral obloquy" and did not consider that the expression assisted in the task of giving legal meaning to "unconscionable" in ss 20 or 21 of the Australian Consumer Law which had to be applied in its terms (at [275]-[278]). Bathurst CJ, with whom Beazley P agreed, said that: "[195] It seems to me that it is unhelpful to seek to redefine the statutory concept of unconscionability. However, the use of terms such as 'moral obloquy' may be of assistance to the extent that they emphasise that what is required is such a departure from accepted community standards as can objectively be seen to be against conscience. [196] In this context, it is important to bear in mind that the question of whether certain conduct is unconscionable does not involve an idiosyncratic determination of what is 'fair' and 'just' in a particular case. Rather, it involves a consideration of all the circumstances to conclude whether or not the conduct in question falls below acceptable norms, standards or values such as to warrant it being determined to be unconscionable. [197] In considering that question, it is appropriate to have regard to, first, the terms of the statute itself, second, the approach taken by the courts in dealing with cases under the unwritten law, whilst recognising these cases do not limit the scope of the provision, and third, judgments in related areas including cases involving want of good faith. It is also necessary to have regard to all the circumstances surrounding the transaction. This was emphasised in Paciocco HC by Gageler J at [189] and Keane J at [294]. [198] As Gageler J pointed out in Paciocco HC at [189], the criterion in s 12CB(2) of the ASIC Act, which, prior to 1 January 2012, was the equivalent of s 22(2) of the ACL, spelt out that 'circumstances relevant to the determination of whether conduct was objectively to be characterised as "unconscionable" … might or might not include, in respect of particular conduct, all or any of' the matters in the subsection. It should be noted that s 22(2)(l) expressly incorporates the concept of acting in good faith. In the context of the exercise of contractual powers, the concept is well understood as including, relevantly for present purposes, 'compliance with honest standards of conduct' and 'compliance with standards of conduct which are reasonable having regard to the interests of the parties': Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 at 367D-E; Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187 (Burger King) at [171]; United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618; [2009] NSWCA 177, although, as was pointed out in Burger King at [172], referring to Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] ATPR 41-703 at [37], the obligation does not restrict a party from promoting its own legitimate interest."
21. Bathurst CJ also said that a party is generally entitled to exercise its bargaining power to protect its legitimate commercial interests by driving an advantageous bargain (at [200] and [211]).
22. The basis upon which Ipstar was found to have acted unconscionably in that case is of no assistance in determining whether BankWest acted unconscionably in the present case. As Allsop CJ said in Paciocco, a determination as to whether a party's conduct falls foul of a general standard expressed in terms of what is unconscionable requires a close examination of the facts.
23. Before turning to an examination of the facts it is convenient to identify the matters referred to in s 12CC(2) that have potential relevance in determining whether BankWest acted unconscionably in its dealings with Mr and Mrs Mastronardo whilst recognising that the matters referred to in s 12CC(2) do not limit that inquiry. The paragraphs in s 12CC(2) of potential relevance are: (a) the relative strengths of the bargaining positions of the parties; (b) whether the Mastronardos or Remo Corporation were required to comply with conditions not reasonably necessary for the protection of the legitimate interests of BankWest; (d) whether any undue pressure was exerted on or any unfair tactics were used against Remo Corporation or Mr and Mrs Mastronardo; (i) whether BankWest unreasonably failed to disclose any intended conduct; (j) the extent to which BankWest was willing to negotiate the terms and conditions for lending; and (k) the extent to which BankWest and Remo Corporation and Mr and Mrs Mastronardo acted or did not act in good faith.
24. There was no reliance on appeal upon an industry code.

Remo Corporation's facilities and the Mastronardo facility

1. As noted above, BankWest provided a facility called a commercial advance facility to Remo Corporation on 6 November 2006. The facility was for an advance of $6.6 million. On 6 February 2007 the advance was reduced to $6,070,000. On 6 November 2007 it provided a further commercial advance of $5 million. That further commercial advance was reduced to $4,070,000 on 1 April 2008. On 6 November 2007 BankWest also provided an overdraft facility of $1.5 million.
2. On 16 May 2007 the bank agreed to provide Mr and Mrs Mastronardo an advance of $3 million for the purchase of a property at 8A Pile Street, Gladesville. This property adjoined their existing residence.
3. On 5 August 2009 the existing commercial advance facility was reduced to $3,302,000 and the time for repayment of that advance was extended to 31 December 2012. The further commercial advance facility of $645,000 was due to be repaid by 30 September 2009. The overdraft facility was reduced to $1.3 million and that facility expired on 30 September 2009.
4. On 12 January 2010 the further commercial advance facility and the overdraft facility were extended to 28 February 2010. The existing commercial advance facility was due to be repaid by 31 December 2012 and the facility of $3 million provided to Mr and Mrs Mastronardo as borrowers was due to be repaid on 30 November 2010. Its repayment date had been extended on 19 December 2007.
5. The Pile Street properties were security for both the Mastronardo facility of $3 million and each of the facilities provided to Remo Corporation. Another security for the Remo facilities was a mortgage over a property in Coonarr Beach, Queensland, owned by Via San Antonio Pty Ltd ("VSA"). VSA guaranteed both the Mastronardo facility and the Remo facilities. Adrian Mastronardo was the sole director of VSA. The mortgage secures VSA's obligations as guarantor. Other securities for the Remo Corporation facilities were provided by companies controlled by Adrian Mastronardo's father, Antonio Mastronardo. Antonio also guaranteed the Remo facilities.
6. On 22 May 2007, Adrian, Claudia, Antonio, VSA and Bertino Pty Ltd ("Bertino") (a company of which Antonio was the sole director) executed a deed of acknowledgment. It acknowledged that securities given by Adrian and Claudia the Pile Street properties, a mortgage given by Bertino over 22 Spencer Street, Five Dock, mortgages given by Antonio over 14 Millenium Court, Silverwater and 10 Regatta Road, Five Dock, and the mortgage given by VSA over a property at Coonarr Beach, secured all moneys owing by Adrian, Claudia, Antonio, Bertino and VSA to BankWest whether as borrower, mortgagor, chargor or guarantor.
7. The guarantee given by Claudia provided that the maximum amount BankWest could recover from her under the guarantee was the amount it obtained from enforcing its rights as mortgagee over the Pile Street properties.

Proposal by Antonio and Adrian Mastronardo to segregate the securities

1. Antonio and Adrian had both been directors of Remo Corporation. The sole shareholder of Remo Corporation is AM Property Investments Pty Ltd ("AM"). It also provided a guarantee of Remo Corporation's obligations to BankWest. The primary judge recorded that in July 2009 Antonio and Adrian agreed to separate their interests. On 12 August 2009 they signed a document called "Separation - Terms Sheet" that set out agreed general principles upon which they would separate their interests. "Antonio Group" was to take over the development of certain properties in Queen Road. Adrian's group was to take over both a project at West Ryde and the land which was a prospective development site at Coonarr Beach in Queensland. The Terms Sheet stated that "Adrian Group" was to take over three identified loans. One was a loan from a different financier in respect of the West Ryde project. The other two were described as two loans from BankWest for $2 million and $4.3 million respectively in respect of Coonarr Beach and the Pile Street properties.
2. On 23 February 2010 a meeting was held at the offices of BankWest with, amongst others, Mr Malcolm Ng, the bank's Director - Property Finance NSW. On 23 February 2010 Mr Ng sent an email to Antonio and Adrian attaching a summary of the Remo group's present loan facilities and securities and outlining the proposed split of the loan facilities discussed at a meeting on that day at BankWest's offices. He recorded that as at February 2010 Remo Corporation's facilities consisted of the commercial advance no. 1 with outstanding principal of $3,302,000, commercial advance no. 2 (the further commercial advance facility) with outstanding principal of $650,000, an overdraft of $1,300,000 and $3 million on the facility advanced to Mr and Mrs Mastronardo. The total outstanding debt as at February 2010 was $8,252,000. He described the proposed restructure of the facilities as follows: Current Post Split Up Post Split Up As at Feb 2010 Remo/Antonio Veritas/Adrian $m $m $m Facilities 3,302 2,000 1,302 Comm Advance No. 1 0.650 - 0.650 Comm Advance No. 2 1,300 - 1,300 Overdraft 3,000 - 3,000 Comm Advance - A & C Mastronardo Total 8,252 2,000 6,252 Security 1,570 1,570 - Regatta Rd, Five Dock 1,550 1,550 - Spencer St, Five Dock 2,800 - 2,800 Coonarr Beach 6,600 - 6,600 8 & 8a Pile St, Gladesville 12,520 3,120 9,400 66% 64% 67%

1. Mr Ng wrote: "As discussed, the proposed splitting up of the loan facilities and security assets is not a straightforward exercise. The proposition needs to take into account, amongst other things: the different types of security assets and the reliance/weighting the Bank would place on the individual assets i.e. the vacant land at Coonarr Beach is not a preferred security asset for the Bank and a lower advance ratio is likely to be applied; cashflow streams to support the respective interest servicing need to be demonstrated - on the information provided to date, interest servicing is not fully evident. As mentioned, if the loan restructuring is approved/proceeds, there will be a full review of the existing loan pricing and an increase in interest margin is likely. To assist the Bank to consider the proposed loan restructuring, we will require up to date details of the Group's business activities, cashflow projections and development projects (including 49 & 97 Queens Road and West Ryde development). …"
2. There was no evidence that the details requested by Mr Ng were ever provided to the bank. The proposed restructuring referred to in Mr Ng's email was different from the later proposal for a release of the Pile Street properties. As at 23 February 2010 the second commercial advance facility and the overdraft facility were in default, although that default was remedied by the extension later granted. It is not irrelevant to an assessment of whether the bank was acting unconscionably that it was prepared to entertain a submission for a restructuring of facilities. That proposal was not progressed in a timely way by the Mastronardos.

Extension of overdraft and further commercial advance facilities

1. The second commercial advance and the overdraft were due to be repaid on 28 February 2010.
2. The borrowers requested an extension of the overdraft and further commercial advance facility to 31 May 2010. On 29 March 2010 the bank agreed to that extension. A bank internal document referred to at [61] of the judgment notes that Mr Martin Lee, the bank's senior manager, Business Credit, considered the group was in a precarious financial position and that whilst it had met its commitments to date, the bank was uncomfortable with the ongoing position and should ask the client to refinance. The bank also noted that the pricing was not appropriate for the risk.
3. For their part, Antonio and Adrian did not want to refinance the commercial advance facility that was not due to expire until 31 December 2012 because the interest rate was favourable.
4. On 12 March 2010 Mr Ng wrote to Antonio and Adrian in response to their request for the temporary extension until 31 May of the facilities that had by then expired. Mr Ng advised that: "In conjunction with the temporary extension please be advised that the bank is not prepared to consider any further extensions and requests that you arrange the refinancing of all the Remo group loan facilities by 31 May 2010."
5. One of the conditions of the general terms for business lending that were incorporated by reference into the loan agreements was that an event of default occurred if the customer did not pay on time any amount payable under any Facility Document in the manner required under it (clause 16.1(a)). Clause 16.2(b) provided that if an event of default had occurred the bank could give notice declaring the "Total Outstanding Amount" to be either payable on demand or immediately due for payment. "Total Outstanding Amount" was defined as follows: "Total Outstanding Amount means, at any time, the sum of all Outstanding Amounts plus the total of all amounts which you owe us, or which you may owe us under any other arrangement between you and us, whether actually or contingently and whether such amounts are then due for payment or will or may become due for payment or which remain unpaid and includes: ... (b) all other interest, Costs and fees."
6. The effect of these terms was that the bank could accelerate the time for repayment of the facilities that were not then due for payment if there were default in repaying the moneys that had become due for payment.
7. On 26 March 2010 Mr Rajeev Sharma of Remo Corporation sent an email to BankWest identifying the four facilities with BankWest, namely a $3 million commercial bill facility (the Mastronardo facility), a $1.271 million overdraft, a $3.302 million commercial bill facility (the first commercial advance) and a $650,382.92 commercial bill (the further commercial advance). Mr Sharma said that the properties attached to those loans were 8 and 8A Pile Street, Gladesville; Coonarr Beach, Queensland; 10 Regatta Road, Five Dock; and 22 Spencer Road, Five Dock. He asked that the bank identify which property was attached to which loan. The bank's response on 7 April 2010 (Mr Shying) was that the mortgages were not tied to specific loan facilities but were cross-collateralised against all of the loan facilities and this made it difficult to split the loan between the properties.
8. On 7 April 2010 Antonio wrote to the bank (judgment at [65]) stating that the commercial bill for $3.3 million would be expiring in December 2012 and they would like to sustain that commercial bill. He said that he could not understand why the bank called for all the money to be repaid by 31 May 2010, given that they had had a long relationship with the bank and never defaulted in paying interest.

BankWest's request for all facilities to be refinanced

1. As noted above at [39] on 12 March 2010 BankWest had requested all facilities be refinanced by 31 May 2010. On 8 April 2010 Mr Scott Shying of the bank, who had taken over the conduct of the file from Mr Ng who had been retrenched, wrote to Mr Sharma of Remo Corporation and Mr Ian Mirels, the general manager of Veritas Property Group Pty Ltd, being the company through which Adrian operated his property development business, attaching the letter of variation dated 29 March 2010. Mr Shying said that he assumed that both parties were looking at their options to refinance their respective debts at the end of the term and that when "this facility" expired the penalty rate (then 17.5 per cent) would apply.
2. On 8 April 2010 Antonio Mastronardo wrote to Adrian noting that the commercial facility of $3.3 million that expired on 31 December 2012 had a very favourable interest rate that worked out at approximately 5.25 per cent per annum at that time and suggested that they should strongly pursue with BankWest to retain the $3.3 million commercial bill.

Enforcement warrant over Coonarr Beach

1. On 13 April 2010 the Queensland Department of Justice and Attorney-General obtained an enforcement warrant under the State Penalties Enforcement Act 1999 (Qld) against VSA in respect of an outstanding amount of $1,339. The warrant was issued under s 63(2)(a) of the State Penalties Enforcement Act. The warrant was issued to all "enforcement officers". It authorised an enforcement officer to seize and sell real and personal property (other than exempt property) in which the enforcement debtor had a legal or beneficial interest to satisfy the total amount outstanding. This included the Coonarr Beach property. On appeal, there was no issue that the warrant authorising the sale of the Coonarr Beach property was a default under the facility agreement.
2. The appellants submitted that neither the bank nor they had any notice of the issue of the enforcement warrant. It is clear that the bank did not have notice. Adrian Mastronardo gave no evidence as to whether or not he had notice. He was the sole director and shareholder of VSA. He argued that it was not suggested to him that he had notice of the enforcement warrant. The warrant stated that the address of VSA was 10 Regatta Road, Five Dock, a property owned by Antonio's company. There was no explanation as to why the enforcement warrant nominated that address.
3. The State Penalties Enforcement Act provided for the issue of an infringement notice in relation to a particular offence for which an offender was fined (ss 13 and 15). If a person served with an infringement notice failed to pay the fine the relevant administrative authority could give to the State Penalties Enforcement Registry (SPER) a certificate for the relevant infringement notice called a default certificate (s 33). On registration of a default certificate the SPER became responsible for collection of the fine. The registrar of the SPER after registering a default certificate was required in writing to order the person (the enforcement debtor) to pay the amount stated in the order (s 38). An enforcement order was required to be served in the case of a corporation, on the head office, registered office or principal office of the corporation (s 40). If payment were not made after service of the enforcement order the registrar could issue an enforcement warrant for the unpaid amount (s 63). A copy of the enforcement warrant was required to be served on the enforcement debtor (s 63(5)). The enforcement debtor was VSA, Adrian Mastronardo's company. It would be surprising if it did not receive notice of the proceedings leading to the issue of the warrant.
4. Although it was not suggested to Adrian Mastronardo in cross-examination that he knew of the issue of the enforcement warrant, there was an evidentiary onus on him to establish that he did not know of the issue of the enforcement warrant if that were the fact (Commercial Union Assurance Co of Australia Pty Ltd v Ferrcom Ltd (1991) 22 NSWLR 389 at 418-419 per Handley JA).

Proposal for release of security over Pile Street properties

1. On 14 May 2010 Mr Mirels sent the bank an email proposing that, subject to Antonio's agreement, the debt owed to BankWest would be reduced by paying $4.5 million to "refinance 8 and 8A Pile Street", that is, to release 8 and 8A Pile Street from the bank's mortgages, by $3 million being paid from the sale of properties at 10 Regatta Road and 22 Spencer Street, Five Dock, although this was to be confirmed by Antonio, by adding $650,000 described as "retention of sale proceeds" leaving a residual debt of $1,402,000, the security for which would be Coonarr Beach said to have a value of $2.8 million.
2. Later that day Mr Shying wrote to Mr Mirels saying that one of the facilities would expire on 15 May and that "as creditor are not willing to extend the term penalty interest will apply. The current penalty rate is 18.6 per cent".
3. No facility was due to expire on 15 May. Two facilities were due to expire on 31 May. Mr Shying did not explain why he asserted that one of the facilities would expire on 15 May. He was not cross-examined. The likely explanation for Mr Shying's email of 14 May is that on 27 April a Michael Cohen of BankWest Property Finance wrote to Mr Martin Lee, Business Credit, Risk Management, seeking internal approval to an informal extension of the Remo facilities from 30 April to 14 May 2010 because the formal letter of variation had not been returned by the borrower. That approval was given.
4. Adrian Mastronardo responded by an email sent by Mr Mirels on 17 May 2010. The email referred to a meeting that took place that day. There was no meeting on that day, but there had been one between Mr Shying's email sent at 16.56 on Friday, 14 May and 17 May. The precise timing of the meeting is of no moment. Adrian Mastronardo said that "It is apparent in your email BankWest is not willing to honour their agreement." He said that he would now organise to discharge his loans over the Pile Street properties and Coonarr Beach. He said that he would endeavour to arrange settlement of the loans as soon as possible and by the end of the week would confirm his timeline for that to occur. On 17 May Mr Sharma of Remo group sent an email to Mr Shying, copied to Adrian Mastronardo, noting the expiry dates for the three Remo group facilities, namely, 31 December 2012 for the $3,302,000 facility, and 31 May 2010 for the facilities for $645,000 and $1,300,000. He asked Mr Shying to make it clear which facility he said had expired on 15 May. There was no response to that enquiry. The Mastronardos do not say that they were misled by Mr Shying's incorrect statement that one of the facilities would expire on 15 May.
5. On 17 May Antonio Mastronardo advised Mr Shying that properties at 22 Spencer Street and 10 Regatta Road, Five Dock had been placed on the market for sale. He said that he expected the properties to be sold within six to 12 months.
6. An "inward transfer memo" dated 19 May 2010, apparently transferring responsibility for the file from Mr Shying to Mr Ogilvy, Credit and Asset Management, recorded that: "The Borrower has advised that the[y] wish to restructure their facilities as follows: 1. Security Properties at Five Dock are to be sold (currently on the market). Until sold, Antonio wishes to split the debt to have a $1,947k facility secured by the properties at Five Dock. Proposed LVR of 62.4% ($1.947k/$1,570k+$1,550k). 2. Adrian wishes to refinance the Gladesville properties into a Home Loan of circa $4,500k and retain the Coonarr Beach property. Adrian has strongly advised that the Coonarr Beach property is not for sale. The Borrower has been advised that the Bank wishes for them to refinance their facilities."
7. On 20 May 2010 Mr Mirels sent an email to Mr Shying as follows: "Please can you confirm the following: If Adrian repays: 1. $4.5m for 8 Pile St and 8a Pile St and 2. $1.7m for Coonarr Beach will Credit release the above mentioned properties from the current cross securitised pool of securities. Please note due to timing it will not be possible to repay both the $4.5m and $1.7m at the exact same time. So first it will be $4.5m and thereafter the $1.7m."
8. Adrian Mastronardo gave evidence that at that time he and his father were at odds as to who would be taking what in relation to the debt owed to BankWest and they wanted "clarity around the numbers".
9. Mr Shying responded to Mr Mirels saying that he had passed the email onto the Credit and Asset Management Team. As noted above the file had been transferred from Mr Shying to Credit and Asset Management.
10. On 24 May 2010 Mr Sharma sent an email to Mr Shying referring to his email of 17 May 2010 in which he noted the expiry dates for each of Remo Corporation's facilities. He asked "Can I presume that Bank West has accepted our proposition and we need not to look for any refinance at the [moment]?". Mr Shying responded by saying that he was no longer the account manager and could not confirm the account expiry dates. He said the new account manager would be in contact with Mr Sharma shortly.
11. The file was transferred to an area in the bank called Credit and Asset Management. In a memorandum dated 19 May 2010 from Mr Shying and Ms Daniela Kariotakis to Mr Peter Ogilvy of Credit and Asset Management, Mr Shying and Ms Kariotakis reported that two of the group's facilities expired on 28 February 2010 and documents for extension to 31 May 2010 were not executed due to some of the guarantors being in administration. However, the primary judge found that the facilities were extended to 31 May 2010. This finding was not challenged on appeal. Mr Shying and Ms Kariotakis reported that one of the securities held by the bank was vacant rural land at Coonarr Beach in Queensland. They reported that: "The land is vacant without DA. Part of the land has eroded due to the beachside location. The property does not produce any income and the Borrower has strongly indicated that he does not wish to sell this property."
12. Further information was provided about that property, including that in the past the area had eroded and about 50 per cent of the land area lost, but the borrower had attempted to reverse the trend with the erection of a carpet- bagged groyne at the northern end of the parcel and that that had to date proven successful. They reported that: "Adrian wishes to refinance the Gladesville properties into a Home Loan of circa $4,500k and retain the Coonarr Beach property. Adrian has strongly advised that the Coonarr Beach property is not for sale. The borrower has been advised that the bank wishes for them to refinance their facilities."

BankWest did not act unconscionably by requesting refinance of all facilities

1. It was not unconscionable for the bank to request Remo Corporation and Mr and Mrs Mastronardo to refinance all their facilities. Mr and Mrs Mastronardo must have known that their conditional right to have the Pile Street properties released from the mortgage security was dependent upon there being no event of default. That term referred to in para [7] above was a term of the agreement for variation of the existing facilities of the Remo Corporation that included the further commercial advance facility and the overdraft facility. A default under either of those facilities would mean that the condition for release of the security over the Pile Street properties, that there be no event of default, would not be met. BankWest had given no assurance or indication that it would waive that condition. It gave no assurance or indication that it would extend the time for repayment of the facilities falling due on 31 May. It had made it clear that it wished all of the facilities to be discharged. It may not have been entitled to insist on early discharge of the first commercial advance facility that did not expire until December 2012, [1] but it was not unconscionable for it to request that that facility be discharged. Nor is that the ground of unconscionability relied on.

Proposal to discharge mortgages over Pile Street properties

1. On 26 May 2010 Mr John Poulos, General Manager of Lion Pacific Finance, sent an email to Mr Mirels stating: "As l verbally advised you earlier today ANZ is interested and willing to progress to a conditional approval with Adrian's loan requirements. The proposed facility will be an interest only loan for 3 years with bullet repayment of the principal amount at maturity. Principal amount of loan proposed $6.500m. The properties offered (house and land at Gladesville and the lifestyle property at Coonarr Beach QLD) are acceptable as first mortgage securities to the Bank. Tile Maximum lending ratio for the above properties will be restricted to: For the Gladesville properties 70% of the valuation amount and for the Coonarr Beach property 65%. The Bank was made aware that your current facility with BankWest involves as co borrowers and Guarantors Mr Antonio Mastronardo and entities controlled by Mr Antonio Mastronardo. The Bank will not be able to progress with Mr Antonio Mastronardo's refinance application therefore it will be necessary for your current financier (Bank West) to be aware and willing to release the abovementioned securities. Upon confirmation that Bank West is willing to release the Gladesville and Coonarr Beach properties we will commence the formal process of seeking credit approval."
2. On 27 May 2010 Mr Mirels sent an email to Mr Shying stating: "Scott We have been advised that we have conditional approval for the refinance as proposed below. Please as a matter of urgency advise in writing with the confirmation from Credit that we can proceed as discussed below."
3. The reference to the discussion below was to Mr Mirels' earlier email of 20 May 2010 in which he sought confirmation that if Adrian repaid $4.5 million for the Pile Street properties, and $1.7 million for Coonarr Beach, Credit would release those properties from the cross-securitised pool of securities. Mr Mirels' statement that Adrian Mastronardo had obtained conditional approval for such refinance overstated the advice from Mr Poulos that the ANZ Bank was interested and willing to progress to a conditional approval.
4. On 28 May 2010 Mr Shying sent an email to Mr Mirels and to Adrian Mastronardo stating "I have not issued an approval authorising the below restructure. This will be the subject of our meeting with Elise [Cockerill] on Monday [31 May]."
5. That email was sent at 10.23 am on Friday, 28 May. At 10.42 am on that day Mr Mirels sent an email to Mr Shying and others stating: "Understand you have not granted approval. However we have a financier requesting this letter as a condition to moving things forward. Understand the meeting is important to you, which Adrian and Antonio have agreed, however we are trying to get the refinance sorted."
6. At 8.00 am on Monday 31 May Mr Mirels sent an email to Mr Poulos stating that they were meeting with BankWest that morning and would advise "Re letter you require for release from security pool." He asked "On the assumption we could get letter to you say Wed, how long thereafter would it take to get a letter of offer from ANZ?"

31 May 2010 meeting

1. The meeting was arranged for 10.30 am on 31 May. The amounts payable under the second commercial advance facility and the overdraft facility were payable by 10.00am Sydney time on 31 May (General Terms for Business Lending (December 2007) clause 10.1(c); clause 23(p); and clause 22, definition of "Relevant State"; offer letters were issued from New South Wales). [2] The effect of this was that Remo Corporation was in default before the commencement of the meeting on 31 May 2010. Further, unbeknownst to the bank, Remo Corporation was in default because of the issue of the enforcement warrant against the Coonarr Beach property.
2. The primary judge set out (at Judgment [80] and [81]) the versions of the discussions that took place on 31 May 2010 put forward by Adrian Mastronardo and by Ms Cockerill. According to Adrian Mastronardo the conversation was as follows: "Cockerill: You need to refinance all of the properties. Adrian: Coonarr won't be easy to refinance. In fact, it's impossible to refinance a property like Coonarr Beach in a GFC. We've got a deal on foot and a facility expires in late 2012. It's much harder for us to go to another bank. You can hold Coonarr with a LVR of 50%. What's the problem with that? Cockerill: The Bank wants all of the facilities repaid which it has the right to do. We're not interested in holding Coonarr Beach - that's the one we don't want. We own more property in Queensland than anyone else. Adrian: The Pile Street properties are different and can be refinanced. As long as the facilities are at 70%, you should be able to release them. Cockerill: No - we don't care what the agreement says. You need to get refinanced."
3. Ms Cockerill's version of the conversation, relevantly, was that the bank wanted to be repaid in full and had no appetite to continue to fund Coonarr Beach and did not wish to enter into further funding arrangements with the group. The primary judge held that "She conveyed the message that the Bank did not consider itself obliged to adhere to the release provision." His Honour found that Remo Corporation had not to that point defaulted in the making of payment, albeit that 31 May 2010 was the last day for making payment and default was imminent. In fact default had already occurred. It appears that the primary judge was not taken to the General Terms that meant that the facilities were in default from 10.00 am (Clause 10.1(c)).
4. By its notice of contention BankWest challenged the primary judge's finding that the bank had repudiated the release provision and conveyed that it did not consider itself obliged to adhere to the release provision. It contended that the primary judge should have found that it would not have been in breach of its contract with Remo Corporation if it had conveyed that it would not adhere to the release provision. That contention should be accepted.
5. In any event, it is not clear what would follow from the primary judge's conclusion that BankWest had "repudiated" the release provision. The primary judge did not use repudiation in the sense of repudiation of all of a party's obligations under the contract that, if accepted, entitles the opposite party to accept the repudiation and terminate the contract. BankWest had substantially performed its obligations under the contract by making the advances. I think what was meant was that BankWest had committed an anticipatory breach of the contract by indicating that it would not discharge its security over the Pile Street properties on payment in reduction of its loans that maintained a loan to value ratio of the rest of its securities of 70 per cent, notwithstanding that Remo Corporation was not in default. But that was not a plausible scenario, even if default had not already occurred at 10.00 am on 31 May. There was no suggestion that $4.5 million would be paid later that day to obtain release of the mortgages over the Pile Street properties. What was sought was an indication from BankWest that it would be prepared to release the properties if finance were obtained from the ANZ Bank.
6. Once the loan went into default BankWest was not required to release those securities. Even if there had been no default by the issue of the enforcement warrant over the Coonarr Beach property and even if the two loans were not repayable until the close of business on 31 May 2010, BankWest did not commit an anticipatory breach of contract because there was not a realistic possibility that it could be required to perform its implied obligation to release the properties from its security. In my view in saying that BankWest had repudiated the release provision, his Honour was not using the word "repudiated" in any technical legal sense, but was saying that BankWest had made it clear that it would not release its securities over the Pile Street properties. That was neither a breach nor an anticipatory breach of contract.
7. That conclusion does not necessarily answer Mr and Mrs Mastronardo's complaint that BankWest engaged in unconscionable conduct. In their written submissions Mr and Mrs Mastronardo contended that BankWest acted unconscionably in refusing to release the Pile Street properties on 31 May 2010 pursuant to the release provision in response to the appellants' proposal to repay $4.5 million. They emphasised what they called BankWest's outright refusal to honour the release provision, that is, its repudiation of the release provision addressed above. They also relied upon BankWest's refusal to co-operate with their exercise of the release provision by failing to provide a request to the letter confirming that the Pile Street properties would be released from its securities upon payment of $4.5 million. They also relied upon BankWest's subsequent reliance on the enforcement warrant as establishing a prior event of default that in any event justified the asserted prior repudiation of the release provision.
8. I do not perceive the bank's conduct in that light. Notwithstanding that Remo Corporation and the Mastronardos had paid all instalments on time, the bank considered that Remo Corporation's business was risky, an opinion borne out by the events when, from September 2010, it simply stopped making the interest payments on the first commercial advance. It stopped paying interest on the further commercial advance and the overdraft in May 2011. Mr and Mrs Mastronardo stopped paying interest on their $3 million loan in May 2011.
9. There was nothing unconscionable in the bank's reliance on and enforcement of its terms of the contract of loan. Remo Corporation, Adrian Mastronardo and his father were property developers in what appears to be a substantial way. The BankWest facility was not the only facility used by Remo Corporation or other entities associated with the Mastronardos for property developments at Five Dock and West Ryde. Adrian Mastronardo appears to have been an experienced and successful businessman. He was on notice from at least February or March 2010 that BankWest wanted all of its facilities to be discharged. Whilst Remo Corporation was entitled to insist on the first commercial advance facility that was then at an advantageous interest rate continuing until its term in 2012, it was only entitled to do so if there were no event of default under the other facilities. Mr Mastronardo knew that there would be an event of default under the other facilities if they were not discharged by 31 May 2010. He knew or should have known that he could only insist on a release of the Pile Street properties from the security if both the loan to value ratio of 70 per cent were maintained and no event of default had occurred. But it appears that no steps were taken until the last moment to attempt to obtain refinance that would permit the discharge of the second commercial advance facility and the bank guarantee facility and to obtain a release of the Pile Street properties.
10. BankWest did not refuse a request that it release its securities over the Pile Street properties if Adrian paid $4.5 million in reduction of the debt. It declined to provide an assurance that it would do so. The proposal for refinance came to nothing.
11. Although the bank had obtained valuations of the properties that formed its mortgage security, it could be expected that if Mr and Mrs Mastronardo were to pursue a proposal to have the Pile Street properties released from the security the bank would require new valuations of its remaining securities in order to be reasonably satisfied that a 70 per cent LVR would be maintained. The bank had serious reservations about the value of the security over Coonarr Beach. A credit risk submission prepared on 18 October 2007 recorded that in October 2006 a commercial advance facility of $6.6 million had been approved to refinance a NAB facility of $4.3 million and provide $2.3 million of working capital. The facility was to have been secured by five properties valued at $10 million, that is, at an LVR of 66 per cent, but the approved facility was reduced to $6.07 million because the property at Coonarr Beach had been assessed with an "as is" value of $1.7 million and an "as if" value of $2.5 million conditional upon the completion of a groyne that was expected to stem the further erosion of the property and regain lost land. If the proposal were to release the security over the Pile Street properties with the preservation of an LVR of 70 per cent, the bank would be expected to obtain fresh valuations of the remaining securities, in particular in respect of the security over Coonarr Beach.

Attempts to refinance the Pile Street properties

1. It was not until 20 May 2010 that Mr Mirels sought the bank's confirmation that if Adrian Mastronardo repaid $4.5 million for the Pile Street properties, and $1.7 million for Coonarr Beach, that the bank could release those properties from its pool of securities. He noted that the $4.5 million would have to be repaid first. Hence, the bank could be expected to obtain fresh valuations of its remaining securities, including Coonarr Beach, before agreeing to discharge its mortgages over the Pile Street properties.
2. It was not unconcionable for the bank not to have confirmed that it would be willing to release its mortgages over the Pile Street properties and over Coonarr Beach having regard to the paucity of the information provided by Remo Corporation and the Mastronardos and the lateness of the hour at which the possibility of obtaining refinance for part of the debt was raised.
3. The bank did not reject the proposal out of hand. On 1 June 2010 Ms Cockerill sent an email to Mr Mirels stating as follows: "I look forward to receipt of your offer of finance. As discussed yesterday, you need to supply the Bank with a letter of offer for finance if you wish us to even consider your proposal to dissaggregate [sic] the facility. I did not say at any stage that l would issue a letter that the Bank would release the Gladesville and Coonarr Beach properties from the security pool. I said I would review the facility (I will have questions for the borrowers in this process), visit the properties, consider the way the Bank wishes to proceed and inform the parties in due course."
4. On 18 June 2010 Mr Mirels sent an email to Ms Cockerill stating: "Please see attached Refinance offer for 8a Pile Street Gladesville (land). We are waiting for Refinance approval for 8 Pile Street (House) and Coonarr Beach and will keep you posted. Please can you provide any comments on current offer?"
5. The "attached refinance offer" was contained in a letter from Balmain Commercial, apparently a broker, that advised that "... we have arranged approval in principle for a facility in the sum of $2,000,000.00 ... The Intending mortgagee is Origin and the terms of the approval in principle are contained in the attached letter."
6. Balmain Commercial set out what was said to be a summary of the information which included that "[t]he loan has been approved subject to the updated valuation being received and deemed satisfactory by the lender" and that "[t]here are some other minor ... loan conditions that need to be satisfied as per the lender's list on page 2 of the attachment." The attachment was forwarded under separate email by Mr Mirels on 18 June 2010. It was an attachment from another broker called Barnes Home Loans addressed to Ben Wardley at Balmain NB Commercial Pty Ltd stating that "[p]lease be advised we have received and are processing the above loan application as it appears to fit our criteria." The proposed loan amount was $2 million as Balmain Commercial had advised Mr and Mrs Mastronardo. The offer was made on the basis of a maximum loan to value ratio of 60 per cent. It included a curious statement that "Lender's Mortgage Insurance Premium - N/A - if LVR remains at 60% or below". It stated that a full valuation for 8A Pile Street, Gladesville would be required. Even by the end of June no definite proposal was forthcoming.
7. On 28 June 2010 Mr Mirels sent an email to Ms Cockerill attaching a letter of offer for 8 Pile Street for $2 million. He said: "Total funding approval now in place is $4m (i.e. $2m for 8a pile Street and $2m for 8 Pile Street) which is $500k short of the previous amount advised. In the first instance we would like to request that Bankwest confirm whether $4m is sufficient to release 8 and 8a Pile Street. In the event that this is not acceptable to Bankwest and we are not able to arrange finance with another financier then plan B will be for Adrian to sell the front block of land (i.e. 8a Pile Street) and apply the proceeds to Bankwest debt reduction (up to $2.5m) and then only finance his house 8 Pile Street. In regard to the Coonarr Beach property, we only have one financier who may be interested in this property and should have an answer soon."
8. In the email chain forwarded to Ms Cockerill Mr Wardley had advised Mr Mirels that in respect of approval of a loan for 8 Pile Street: "Adelaide Bank will be the mortgagor [sic] and please note that unlike Origin (the funder for 8a Pile Street) they will require the valuation to be completed before issuing the offer document".
9. On 12 July 2010 Ms Cockerill wrote to Mr Mirels and Mr Sharma saying: "My understanding is that: 1. Antonio has obtained finance from St George for $2m to pay-out the following facilities: 100-119893-1 $1.302m 100-161640-6 $650k 2. Adrian has obtained finance from Adelaide Bank / Barnes for $4m to pay-out the following facilities: 100-161398-7 $3.000m 100-161642-2 $3.302m So I'm $2.302m short (against Coonar Beach). Rajeev - could I please obtain a copy of the finance offer and confirmation that all conditions precedent have been met. Ian - could I please obtain confirmation that the conditions precedent for the refinance have been met. Could I please also obtain your re-finance arrangements for Coonar Beach."
10. Valuations of the Pile Street properties were obtained on 10 August 2010. On a current market value "as is" basis the valuation of the two properties was $5.55 million ($2.55 million for 8 Pile Street and $3 million for 8A Pile Street). On the basis "as if complete" subject to boundary adjustment and completion of the development consent for, amongst other things, the extension of an existing jetty, and replacement of a pontoon, the valuation of the two properties was $6.15 million. As the Mastronardos did not apparently have the funds to repay the moneys payable to BankWest that were already overdue, the "as is" basis of the valuations was the only realistic basis for BankWest to have assessed the position. This was insufficient to satisfy the indicated requirements of Origin as a potential lender on security of 8A Pile Street who required a maximum LVR of 60 per cent (requiring a valuation of $3.33 million, not $3 million for even a $2 million loan).
11. On 11 August 2010 Ms Cockerill advised Adrian Mastronardo: "BankWest is not willing to dissaggregate [sic] the loans as set out in my Email of 12/7/10. The imperative for the bank is to have Coonar Beach and two Five Dock facilities refinanced simultaneously."
12. As noted above, in September 2010 Remo Corporation ceased paying interest on the first commercial advance. On 30 November 2010 the date for payment of the facility provided to Mr and Mrs Mastronardo expired. On 21 March 2011 the bank varied that facility to extend the repayment to 31 August 2011. In May 2011 Remo Corporation ceased paying interest on the commercial advance and the overdraft. Mr and Mrs Mastronardo stopped paying interest on their facility.
13. At no point did BankWest accelerate time for payment of the principal on the first commercial advance. BankWest was entitled to do that from at least 31 May 2010. That facility expired on 31 December 2012.
14. The evidence summarised above shows that the primary judge was correct in his finding that Mr and Mrs Mastronardo could not have paid $4.5 million to the bank on or before 31 May 2010. They were not deprived of the opportunity or chance to make that payment by reason of anything done or omitted by the bank. They had made no arrangements that gave them even a negligible chance to have arranged such funding. Later events showed that such funding was not available.
15. Returning to the particular considerations in s 12CC(2): (a) the bargaining positions of the parties was not a prime consideration. The terms of the loan had been established well before the events of 2010. There was scope for the parties to bargain as to the enforcement of the terms of the loan contract or for a variation of the contract. Mr and Mrs Mastronardo and Remo Corporation did not lack bargaining strength as evidenced by the bank's agreement to extend the term of the second commercial advance facility and the overdraft facility and, later, to extend the term for repayment of the Mastronardo facility. The bank faced the prospect of substantial loss that was ultimately reflected in the judgments it obtained that enhanced the appellants' bargaining position; (b) neither Remo Corporation nor Mr and Mrs Mastronardo were required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of BankWest; (d) no undue pressure nor any unfair tactics were used against Remo Corporation or Mr and Mrs Mastronardo; (i) BankWest did not fail to disclose its intended conduct; (j) BankWest evidenced its willingness to negotiate the terms and conditions for lending; (k) BankWest did not fail to act in good faith. Remo Corporation and Mr and Mrs Mastronardo did not demonstrate that they acted in good faith towards BankWest.

Conclusion

1. The primary judge's finding that Mr and Mrs Mastronardo or Remo Corporation would have defaulted on their obligations to any new lenders was relevant only to an assessment of damages if a contravention of s 12CC of the ASIC Act (or, in the case advanced before the primary judge, a breach of contract) had been established. The question depended upon the hypothesis that Mr and Mrs Mastronardo could have obtained a loan or loans from new lenders. That hypothesis is not established. It is unnecessary to consider the calculation of damages advanced by the appellants.
2. For these reasons the primary judge did not err in finding that BankWest did not engage in conduct that, in all the circumstances, was unconscionable. The appeal should be dismissed with costs.

Endnotes

1. Clause 1.2 of the General Terms for Business Lending provided that the bank could review the Facilities at such times as it determined and could revise the conditions if in its absolute discretion it considered there had been an adverse change to, amongst other things, the creditworthiness of the customer or any guarantor or the value of any security property. The bank did not seek to review the facilities in reliance on that clause or at all.
2. The last offer letter extending the period of the second commercial advance and the overdraft was dated 29 March 2010 (Blue 1439). It provided that once accepted, it replaced the Offer Letter dated 5 August 2009 and any variation letters. These were together called the "Agreement". The Offer Letter of 29 March 2010 provided that from the date of acceptance, the terms and conditions for all existing Facilities were as set out in the Offer Letter and the attached Facility Terms, any additional terms and conditions referred to in the Facility Terms, and BankWest's General Terms for Business Lending dated December 2007. The letter was issued from BankWest's office in Sydney. The December 2007 general terms and conditions are those referred to above. 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: 22 June 2018