Parras Holdings Pty Ltd v Commonwealth Bank of Australia

Appeal on the facts 11 The appellants' submissions sought to challenge numerous findings of fact by the trial Judge. His Honour's reasons for decision were detailed, extensive and carefully considered the factual issues raised before him and, in particular, issues of credit. In those circumstances, there are a number of difficulties confronting the appellants. 12 First, his Honour made adverse findings as to credit in respect of a number of witnesses, and in particular Michael Phontos, who were called to give evidence on the appellants' behalf. On all of the significant issues Davies J, giving detailed reasons for doing so, preferred the evidence of the CBA's witnesses to that of the appellants' witnesses. His Honour had the advantage, denied to this Full Court, of seeing and hearing the witnesses give their evidence. After giving consideration to the appellants' detailed written submissions, we are satisfied that it was clearly open to his Honour, as the trial Judge, to make the factual findings he made including rejecting significant parts of the evidence of Michael Phontos and certain other witnesses called by the appellants before the trial Judge. 13 The appellants' written submissions were put to the Court as if it were hearing the matter at first instance. The principle to be applied was stated in Devries v Australian National Railway Commission (1993) 177 CLR 472 at 479 where Brennan, Gaudron and McHugh JJ said: "More than once in recent years, this Court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against - even strongly against - that finding of fact. If the trial judge's finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge 'has failed to use or has palpably misused his advantage' or has acted on evidence which was 'inconsistent with facts incontrovertibly established by the evidence' or which was 'glaringly improbable'." None of these circumstances has been shown in the present case. We would add that, in any event, we have not been persuaded that his Honour erred in his approach to the evidence. We are satisfied that the probabilities and the contemporaneous documentation relied upon by his Honour, amply support his findings of fact. 14 There is a further difficulty confronting the appellants. The oral and documentary evidence was substantial. Thus, even where the primary facts were not in dispute and the trial judge's evaluation of the facts did not depend on an assessment of the credibility of witnesses, there is nevertheless a need for appellate caution in reversing the trial judge's evaluation of the facts. As was said recently by Lord Hoffmann (with the agreement of all other members of the House of Lords) in Biogen Inc v Medeva plc [1997] RPC 1 at 45: "The need for appellate caution in reversing the judge's evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance (as Renan said, la vérité est dans une nuance), of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation." See also Esso Australia Ltd v The Commissioner of Taxation (1998) 98 ATC 4768 at 4779. 15 We have approached the issues arising in the present appeal with these considerations in mind. However, the appellants' counsel was conscious of these difficulties and, as a consequence, his primary submissions were put on the basis that his Honour erred in law. It was submitted that his Honour's construction of the terms of the contractual arrangements relating to the CBA's loan facilities led his Honour into error in the assessment of the facts relevant to the issues of unconscionability and economic duress.

The CBA Loan Facilities 16 The documents recording the agreement to grant the loan facilities fall into four categories; documents relating to the PEP overdraft, the CBA Terms Sheet, the mortgages and guarantee and Parras' application for accommodation. (a) The PEP overdraft 17 On 1 July 1988 the CBA agreed to provide PEP with overdraft accommodation with an approved limit of $220,000. The accommodation was secured by a letter of acknowledgment over a term deposit of PEP for $220,000 held at the CBA and was to be "reviewed annually". The facility was subject to the CBA's "usual terms and conditions". One of those terms and conditions, which was set out in PEP's application for the overdraft, was that the CBA may: "from time to time at its pleasure cancel or vary the limit of accommodation granted…" 18 On 7 December 1988 the CBA agreed to increase the approved overdraft limit to $370,000 and accepted as security a further term deposit. The total of the two term deposits, together with accrued interest, approximated $370,000. In agreeing to extend the limit to $370,000 in December 1988, the CBA stated that "limit arrangements are to be respected at all times". 19 Notwithstanding that statement, during the first half of 1989 PEP continued to draw on its overdraft accommodation in excess of the approved limit. The CBA honoured PEP's cheques which exceeded the approved limit, without any arrangement in place to increase the approved limit. As a consequence, by 6 June 1989 PEP's overdraft with the CBA stood at $1,123,096. 20 An internal memorandum of the CBA at that time recorded that the excesses "have been approved by management" and that an establishment fee of $2,100, which was stated to be half of the "scale" fee, had been imposed by the CBA in respect of the excesses. By a letter dated 30 June 1988, PEP was informed by the CBA of the charging of the additional establishment fee "to cover the increased borrowing since early this year". Subsequently, during July 1989 further cheques, which were drawn on PEP's CBA account, were dishonoured by the CBA. 21 The entitlement of the CBA, in June and July 1989, to treat PEP's overdraft as remaining subject to an approved limit of $370,000 was an issue raised by the appellants on the appeal. It was contended by counsel for the appellants that the managerial approval of the excesses and the imposition of the establishment fee in respect of the excesses notified by the CBA by letter dated 30 June to PEP, constituted an agreement by the CBA to increase the approved overdraft limit to the amount of the overdraft at that time. 22 Davies J found that the excesses had not "been formally approved by the CBA". His Honour concluded that the meeting of cheques in excess of $370,000 and imposition of the establishment fee "did not constitute the grant of an increase in the approved overdraft level" which, accordingly, remained at $370,000. 23 In our view, the submission of the appellants fails to distinguish between approval of excesses constituted by the honouring of cheques above the approved limit (for which the establishment fee was charged) and an approval of an increased overdraft limit. In the present case the former, but not the latter, situation had occurred. We would add that, having regard to the care taken to ensure that the overdraft of $370,000 was secured by term deposits, it is most unlikely that a further approval, without security, was intended to be granted by the CBA. 24 In any event, at all times the approved overdraft limit was subject to the terms and conditions in PEP's application that the CBA may from time to time "cancel or vary the limit of accommodation granted…". Although there may be a question as to the period of notice that is required before the CBA cancels or varies the limit, there is no doubt as to the CBA's entitlement to do so. Accordingly, we do not accept the appellants' contention that the CBA had no such entitlement. The fact that the overdraft was subject to "annual review" does not alter that situation. That provision does not operate to prevent the CBA from varying the overdraft pursuant to its express power to do so. Rather, it means that, subject to the exercise by the CBA of its right to cancel or vary the overdraft accommodation, the accommodation was to be reviewed annually. 25 The consequences of our conclusions are that in June/July 1989: · PEP had exceeded its approved overdraft limit of $370,000 by approximately $700,000 without the CBA having received additional security in respect of the excess; · the CBA was entitled to dishonour PEP cheques which exceeded the limit and had not been specifically approved; · the CBA was "at its pleasure" entitled to give notice of its intention to vary or cancel the accommodation or to require payment of the amount by which the overdrawn account exceeded the approved limit. (b) The Terms Sheet 26 By a letter dated 31 August 1988, the CBA offered to provide new loan facilities to Parras for the benefit of the Phontos group. The letter of offer provided, inter alia, that the facilities: "…are in addition to and not substitution of the Group's existing facilities with our Gladesville branch and will be on CBA's usual terms and conditions together with the specific conditions detailed in the 'Terms Sheet' attached hereto." 27 The PEP overdraft was an existing facility with the Gladesville branch. The Terms Sheet provided: "Commonwealth Bank of Australia is pleased to offer the Phontos Group of Companies a finance package of $4,782,700 on the following terms and conditions: BORROWER PARRAS HOLDINGS PTY LTD (PARRAS) LENDER Commonwealth Bank of Australia (CBA) FACILITIES Progressive Full Drawn Loan of $2,600,000 Full Drawn Loan of $2,000,000 Bank Guarantee of $182,700 Progressive Full Drawn Loan - To assist - PURPOSE acquire a property at Wharf Road, Gladesville NSW for $945,000: restore the cottage thereon at a cost of approximately $50,000 construct 12 units and four townhouses on the Gladesville property at a total cost of approximately $1,360,000: and capitalise interest during the construction phase. Fully Drawn Loan - To assist refinance existing facilities with the ANZ and a private mortgage. Bank Guarantee - Provide a back to back guarantee in respect to a guarantee issued by the ANZ in favour of the Housing Commission of NSW. INTEREST RATES FEES, ETC: Progressive Fully Drawn Loan and Fully Drawn Loan CBA's reference rate plus 1.5% pa. Interest will be calculated on a daily balance outstanding and charged in March, June, September and December each year. CBA's reference is presently 15.0% pa. CBA's normal account keeping and maintenance fee charges to apply. Note: An undrawn commitment fee of 0.15% per month will be levied against the Progressive Fully Drawn Loan. The fee will commence three months from initial drawdown and be charged monthly in advance on the undrawn commitments of the Progressive Fully Drawn Loan while such exceeds $25,000. The facility limit will be set at $2,300,000 for the purpose of calculating this fee (ie capitalisation of interest amount excluded). Bank Guarantee - Fee of 0.5% per half year charged six monthly in advance. REDUCTION ARRANGEMENTS: Progressive Full Drawn Loan - Capitalisation of interest during construction and marketing stages (say 9 months) subject to limit ceiling of $2,600,000 not being exceeded. Repayment in full within three months thereafter (ie overall term not to exceed 12 months) from sale of the proposed units, town houses and restored cottage. Fully Drawn Loan - Progressive reduction and ultimate clearance from sale of residual townhouses at Bannerman Street, Cremorne and profits from Housing Commission contracts and the Gladesville development. Bank Guarantees - Annual review SECURITY Registered First Mortgage (third party) by Phontos, Peter and Elli over freehold house property at Hunters Hill NSW. Registered first mortgage (third party) by Costas, Harry and Mary and Phontos Investments Pty Ltd over freehold house property at Hunters Hill NSW. Unregistered first mortgage (third party) by Fulanga Pty Ltd over two townhouses at Cremorne NSW. Registered First Mortgage by Parras over freehold property in Gladesville (purchase property). Guarantee, unlimited as to amount, noting: Debtors Guarantors All companies All companies Phontos, Peter & Elli Costas, Harry and Mary Note: CBA's valuation of the properties to be taken as security to achieve a combined `on completion' figure of at least $6,400,000. In this respect the opinion of CBA's valuers will be final. OTHER CONDITIONS: . Front-end fee of $9,000. This fee is payable on your written acceptance of this loan offer. . Progressive Fully Drawn Loan - Funds will be released on a progressive basis against architects or quantity surveyors certificates. . Proceeds of up to $1,000,000 if forthcoming in respect of the disputed claim with the Housing Commission (Ryde project) being directed to reduction of Parras' facilities with CBA. . Written confirmation that no outstanding taxation will be payable in respect of fiscal years 1986, 1987 and 1988. . P & E Phontos Pty Ltd's existing overdraft arrangement with CBA to remain undisturbed. . All documentation being to the satisfaction of CBA. In this respect, the opinion of CBA and its solicitor will be final . ..." 28 A number of observations need to be made in relation to the Terms Sheet. The first is that the finance set out in the Terms Sheet was to be "in addition to" the existing facilities provided to the Phontos Group, including the PEP overdraft. In that context, the statement in the Terms Sheet that PEP's existing overdraft arrangement with the CBA is "to remain undisturbed" confirms the fact that the new facilities are "additional" to those already being provided by the CBA. We do not accept the appellants' contention that those words mean that the terms on which the new facilities were to be granted necessarily excluded any provision which might make the overdraft facility part of the overall Phontos Group liabilities arising as a result of the provisions in the Terms Sheet. Whether such an outcome was intended depended upon other terms in the Terms Sheet. 29 The Terms Sheet provided for a "Guarantee, unlimited as to amount" to be given by the Phontos parties, other than Michael Phontos, in respect of the indebtedness of the Phontos Group. The Terms Sheet also provided that: "All documentation being to the satisfaction of CBA. In this respect, the opinion of CBA and its solicitor will be final." 30 The CBA "documentation" referred to was the CBA's usual form of mortgage, guarantee and any other loan documentation prepared for the purpose of giving effect to the agreement by the CBA to provide the loan facilities set out in the Terms Sheet. That documentation, to which we will shortly refer, was executed by all of the parties to the Terms Sheet, including PEP, on 15 September 1988. The documentation provided for each of the Phontos parties (other than Michael Phontos) as mortgagors, to become liable as principal debtors for the loan facilities and to guarantee, and therefore become liable for, all liabilities of any of the other Phontos Group debtors to the CBA. Consequently, under that documentation all of the Phontos parties, other than Michael Phontos, became liable for the PEP overdraft. 31 This matter is of some importance as it was a primary submission of the appellants that the PEP overdraft facility was agreed not to be affected in any way by the new facilities. Accordingly, so it was said, the CBA was not entitled to treat that facility, or any exceeding of its limit, as relevant to any right the CBA may have in relation to the loan facilities agreed to be provided under the Terms Sheet. In our view that submission cannot be accepted. The documentation executed by the Phontos parties pursuant to the terms of the Terms Sheet, made each of those parties liable for the PEP overdraft with the consequence that that liability was part of, and not extraneous to, the liabilities arising in relation to, or as a consequence of, the CBA's agreement to provide the loan facilities set out in the Terms Sheet. 32 In our view Davies J accurately described the situation as at June/July 1989 when his Honour said: "The applicants appear to have looked upon the Parras facility as a separate facility limited to the Wharf Road development. A basic allegation in this case is that, because the Bank did not treat the Wharf Road development separately from all other considerations and comply with the terms sheet according to its terms, the Bank engaged in unconscionable conduct. Yet, the Parras facility did not concern only Parras' development of the Wharf Road property. The facility encompassed the taking over of PEP's debt to the ANZ of approximately $2m. The terms of the facility included the retention of PEP's overdraft facility with the Bank which had already been established and included provisions for the payment of $1m to the Bank out of the moneys claimed from the Housing Commission. The arrangements made to establish the Parras facility therefore encompassed PEP within the overall arrangement. And, of course, PEP was to be the builder of the Wharf Road development." the Progressive Fully Drawn Loan of $2.6 million ("FDL 1") was to be for a term which was stated as "an overall term not to exceed 12 months". The interest estimated to be payable in respect of FDL 1 was to be capitalised for the first nine months so that it would only be charged at the conclusion of that period. The feasibility study submitted by the appellants to the CBA calculated interest of $263,000 for the 12 month period estimated for the completion of the development. The Term Sheet noted that the facility limit was set at $2.3 million. Thus, FDL 1 allowed for $0.3 million for capitalisation of interest and any other relevant expenses. 33 Davies J, concluded that, as a matter of construction, the terms of FDL 1, was to be 12 months from the first draw down. Counsel for the appellant contended that his Honour erred as the term was only to commence at the commencement of the construction and marketing stages (stated in the Terms Sheet to take nine months) with repayment three months thereafter. Although the two periods of nine months and three months indicate how the term of twelve months came to be arrived at, in our view, it is clear from the structure of the transaction and the language used that the intention of the parties was that the loan of $2.6 million was to be payable no later than twelve months from the date of the initial drawn down. The view contended for by the appellants would leave the actual commencement date and therefore the term of the loan uncertain, as it would depend upon commencement of "construction". It would also provide for an interest free period between the draw down for purchase of the Wharf Road land and the later draw down for construction which is inconsistent with the charging and capitalisation of interest. Plainly, interest is to commence to be charged as from the first draw down. The consequence of our conclusion is that as the first draw down was on 16 September 1988, the amount advanced under FDL 1, and any unpaid interest, was to be paid by 16 September 1989. 34 The Fully Drawn Loan of $2 million ("FDL 2") was to replace the existing ANZ loan facilities. Save for the provision for a "progressive reduction" of principal, no other provision was made as to when the principal or interest on FDL 2 was to be payable. FDL 2 stands in a different situation to FDL 1 which was a loan for the Wharf Road development expected to be repaid, with interest, no earlier than 12 months. Funding for repayment of FDL 2 and interest was to be obtained out of the cash flow of the Phontos Group. Interest was to accrue on FDL 1 and FDL 2 at the CBA's reference rate plus 1.5% pa on the daily balance and be charged in March, June, September and December each year. Although there was no provision as to the date for payment of interest on FDL 2 in the Terms Sheet, the CBA documentation, to which we will shortly refer, provided that in the absence of agreement as to the date for payment of interest, it was to be payable on demand. That conclusion is of some significance as it means that as at June/July 1989 interest of about $251,300 had accrued and been charged on FDL 2 and was payable on demand. 35 FDL 2 was expected to be reduced progressively out of the cash flow of the Phontos Group including the developments referred to in the Terms Sheet. We do not accept the appellants' contention that the obligation of the Phontos Group in respect of FDL 2 was limited to repayment of the loan from the proceeds of those developments. Plainly, the obligation was intended to be imposed initially on Parras as the borrower and, through cross-collateralisation, on the Phontos Group; it was not intended to be a non-recourse loan. In fact, the only reduction made in respect of FDL 2 prior to the imposition of the Mason conditions on 30 August 1989, was the payment of $90,000 on 7 July 1989. Clearly, there had not been a progressive reduction of FDL 2. 36 The Bank Guarantee resulted in the payment by the CBA of the amount of the guarantee, $182,700, on or about 4 October 1988. Accordingly, that amount became a fully drawn loan ("FDL 3") which was also payable with interest, on demand, after that date. 37 of particular importance was the condition in the Terms Sheet which later became the subject of the $3 million amendment. That condition provided that proceeds of up to $1 million "if forthcoming in respect of the disputed claim with the Housing Commission" was to be directed to reduction of Parras' facilities with the CBA. At the time the Phontos Group was engaged in an arbitration with the Housing Commission in respect of the disputed claim. It was of significance to the CBA to ensure that the proceeds, of up to $1 million, which might be received from that arbitration be applied in reduction of Parras' indebtedness in respect of the facilities the subject of the Terms Sheet. As indicated earlier, the later requirement by the CBA to increase the amount of the proceeds from the disputed claim from $1 million to $3 million was a cental element of the appellants' claim of unconscionable conduct against the CBA. (c) The mortgage and guarantee documentation 38 Mortgage and guarantee documents were executed by the Phontos parties on 15 September 1988 in anticipation of a draw down on the new CBA loan facilities on 16 September 1988. 39 Parras and certain of the other Phontos parties granted mortgages to the CBA to secure payment, inter alia, of all monies owing by Parras to the CBA on any account whatsoever. The mortgages provided that the loans were to be repayable in such manner as may have been agreed in writing between the parties and in the absence of any such agreement "on demand". The mortgages also provided for interest to be charged on the amount of the loan at the agreed rate or, in the absence of agreement, at the prevalent rate charged by the CBA at the relevant time. An important feature of the mortgages is that they provided for the principal and interest, the subject of the loan facilities provided by the CBA to Parras, to be payable in the manner agreed or "on demand". Thus, as there was no agreement in the Terms Sheet for the date for payment of interest on FDL 2, it was to be payable "on demand". Although it is not necessary to decide the point, we are of the view that in the absence of progressive reductions of FDL 2 it is likely that the principal amount outstanding would be payable on demand. 40 The property mortgaged to secure all monies owing included the Wharf Road land. A failure to meet a demand entitled the CBA to take possession of all of the mortgaged land, including the Wharf Road land. 41 A guarantee was also executed, inter alia, by Parras and the other Phontos parties, except for Michael Phontos, in favour of the CBA. Payment was guaranteed "on demand" of the amount owing by Parras, PEP or other companies in the Phontos Group. Thus, under the guarantee, Parras and the other Phontos parties, apart from Michael Phontos, became liable for the PEP overdraft as one of the terms and conditions on which the loan facilities agreed to be provided under the Terms Sheet were provided on 16 September 1988. (d) Application for accommodation 42 The final document required by the CBA to be executed was an application, containing the "usual terms and conditions" for loan facilities offered by the CBA. The document was in the same form as the application for accommodation executed by PEP in respect of its overdraft. The application form stated that the accommodation agreed to be provided was to be on the CBA's "usual terms and conditions", the terms and conditions set out elsewhere in the application and on such other terms and conditions as the CBA may from time to time impose. The terms in the application form are intended to give effect to the terms in the Terms Sheet which sets out the basic obligations in respect of the accommodation granted. Thus, the application form's relevance is that, to the extent that the terms and conditions of the accommodation are not provided for in the Terms Sheet, the terms in the application form are to apply. In the event of conflict, the specific terms in the Terms Sheet would be likely to prevail. However, we have construed the contractual documents as a whole and in a manner which seeks to give effect to, rather than defeat, the terms of each of those documents. The construction we have arrived at in doing so has not resulted in conflict between the terms of the respective documents to which we have referred. 43 Execution of the contractual documentation was completed on 15 September 1988. On 16 September 1988, the first draw down was made to enable Parras to purchase the Wharf Road land. 44 In our view by the middle of 1989, whilst there would be a serious question as to the period of notice required for a demand, the PEP overdraft, FDL 2 (with accrued interest) and FDL 3 (with accrued interest) and interest on FDL 1 (as from 16 June 1989) were payable on demand.

The $3 million amendment 45 By the middle of 1989 the Phontos Group was experiencing serious liquidity problems. As a consequence, the PEP overdraftwas some $700,000 in excess of the approved limit. The Wharf Road development had been delayed and the expected reductions in FDL 2 had not materialised as the Phontos Group's cash flow, such as it was, was directed to meeting other obligations or projects of the Group. By early June 1989, officers of the CBA were of the view that the Phontos Group was "virtually bankrupt" and were recommending that the CBA take steps to call up its debts. The initial objective of the CBA was to "maximise the available security position". 46 That situation led to meetings between officers of the CBA and Michael Phontos at which Mr Phontos was informed that the CBA was not prepared to increase the level of debt on the group accounts beyond their current level. The immediate problem was that a cheque for $80,000 was required by PEP for the Wharf Road development but it had no loan overdraft facility to enable the payment to be made by it. Michael Phontos indicated that if the cheque was not forthcoming, work on Wharf Road would have to cease. Mr Phontos requested that the CBA allow the release of the additional $80,000. The request was approved by the CBA subject, inter alia, to an additional condition that the $1 million expected to come to the CBA from the Housing Commission dispute, be increased to $3 million. The payment was made after the condition was accepted verbally by Michael Phontos on behalf of PEP. 47 On 19 July 1989, the CBA made the first progress payment of $75,000 for the Wharf Road development under FDL 1. However, as from 30 June 1989, the CBA dishonoured PEP's cheques drawn on the overdraft without authority. On 19 July 1989, a bank officer informed Michael Phontos that cheques could only be issued on the overdraft when further income was received. Also, at about the end of July 1989 Phontos was informed that unless the $3 million amendment was executed, the CBA would not advance any further funds for the construction for the Wharf Road development. On 2 August 1989, the $3 million amendment was executed and delivered to the CBA. His Honour found that the consideration for the $3 million amendment was the "continuation of the ongoing relationship". We would add that the amendment was made pursuant to the agreement in June 1989 by the CBA to honour a further cheque of $80,000 drawn by PEP in excess of its overdraft. Davies J said of the amendment: "It should also be noted that, apart from expressing the request for the amendment in terms of a requirement, no additional pressure was placed upon the applicants to execute the document. The applicants had the document for approximately four weeks before it was returned. Michael Phontos was a solicitor and would have advised the other individuals. Peter Phontos and Harry Costas were experienced businessmen. In my opinion, the amendment to the terms sheet was executed because, although the applicants did not wish to execute it, they thought that the demand was not unreasonable and that it was in the best interests of the applicants that they should do so." 48 Although there were a number of problems with the Wharf Road development and the Phontos Group had failed to reduce its borrowings, it was the PEP overdraft that caused the CBA to impose its requirement of the $3 million amendment. His Honour's findings in respect of those matters were as follows: "In my opinion, the course which the Bank had taken prior to June 1989 of meeting PEP's cheques when presented did not constitute the grant of an increase in the approved overdraft level. The approved overdraft level remained at $370,000. That remained the position even after the imposition of the additional establishment fees. Bank memoranda thereafter continued to distinguish between the approved limit of the overdrafts and the balances outstanding. The approved limit in respect of PEP remained at $370,000. Nor did this situation change when, on 5 July 1989, Mr Ronan by letter sought the $3m amendment or when that amendment was executed and returned on 2 August 1989. That amendment was not sought or granted in consideration of the grant of an increased limit in PEP's overdraft. What was sought and effected was an amendment to the terms of the Parras facility. It was this problem with PEP's overdrafts which led Mr Mason and Mr Perkins to act. PEP had consistently drawn cheques to meet expenditure unrelated to the Wharf Road development. The members of the Phontos family were well aware that the cheques were drawn otherwise than in accordance with the facilities which had been arranged with the Bank and that, because the expenses were not part of the Wharf Road development, their payment did not add to the Bank's security, save insofar as money spent on the Housing Commission claim tended to benefit the Bank. I am satisfied that the Bank would have been entitled to call up and require payment of the balance outstanding in the PEP overdrafts. No doubt, reasonable notice would have been required. I need not determine what period of notice would have been reasonable. It is sufficient that the Bank was entitled by notice to call upon PEP to pay the balance outstanding on its overdrafts. If the Bank had done so, the Phontos group would have faced collapse. In my opinion, the Bank was entitled to regularise the position which had arisen by the middle of 1989 and, indeed, could have been expected to have done so." 49 The situation in early July 1989 was that, according to the CBA's records, the liability (with accrued interest) of the Phontos parties (apart from Michael Phontos) to the CBA as a result of the loan facilities the subject of the Terms Sheet, and the documentation executed pursuant to it, was as follows: PEP overdraft $1,250,229 FDL 1 $1,083,186 FDL 2 $2,402,260 FDL 3 $ 204,215 50 As pointed out earlier, the CBA was entitled to make demands for payment, which the Phontos parties were unable to meet, for the amounts due in respect of the PEP overdraft, FDL 2, FDL 3 and interest which had accrued on FDL 1. Had those demands been made and, as was inevitable they were not complied with, the Wharf Road development, (which was mortgaged to secure the amounts due) would not be able to proceed and, in due course, the advances made under FDL 1 would also become due and payable. 51 In any event, FDL 1 was due for repayment by 16 September 1998. As building approval for the Wharf Road development had only been obtained on 26 June 1989, there was no possibility of the development being completed for a considerable time after 16 September 1989, even if funding for the development was made available by the CBA under FDL 1. It is likely that the CBA would have proceeded to exercise its rights in respect of the facilities and the securities it held, including the Wharf Road land, but for the legal advice it received in relation to its obligations in respect of FDL 1. 52 On 24 July 1989, a second progress claim for $113,460 was submitted to the CBA but was not dealt with because of the consideration being given by the CBA to the file. No further funds were provided to the Phontos Group and legal advice was sought by the CBA as to its liability to fund the Wharf Road development. The advice was that the CBA was not in a strong position to discontinue FDL 1 at that time. As a consequence of that advice, the CBA pursued a negotiated outcome as an alternative to making demands for payment.

The Mason Conditions 53 The Mason conditions were formulated, and later imposed, by the CBA on the Phontos parties as a condition for the continuation, rather than the calling up, of the loan facilities. The events which led to the imposition of the Mason conditions were described by Davies J as follows: "On 29 August 1989, Mr H.J. Broekhuijse, the Bank's solicitor, advised Mr Mason that the Bank was not in a strong position to cancel the commitment given in the terms sheet of 31 August 1988. Mr Broekhuijse said that a court could conclude that the Bank's claimed right to cancel the commitment at its pleasure was inconsistent with the agreement to provide a fully-drawn loan on a progressive basis to fund the development of a particular project. In the light of this, Mr Mason, on 30 August 1989, wrote an internal memorandum advising that the Bank had little alternative but to follow Parras through the development of the Wharf Road project. Mr Perkins, the General Manager of NMZ, commented on this memorandum that:- 'In the light of our legal advice which was also the writer's opinion we find it extremely difficult to `walk away' from the commitment. The former administration's tacit approval to the variations of the original term sheet leaves us with little option but to push ahead on the basis proposed above. Please undertake the discussion with all parties as indicated pointing out our concerns at the Group's present position and the need to pursue an early settlement with the Housing Commission. Progress claims are to be strictly policed.' A letter of 30 August 1989 was then prepared which set out conditions which have been described as 'the Mason conditions'. The letter was handed over and the general position discussed at a conference on 30 August 1989 which Peter and Michael Phontos and Harry Costas attended. At the conference, Mr Mason made it clear, as he recorded in a memorandum of 31 August, that the Bank's further involvement depended absolutely on all conditions being accepted and acknowledged. Mr Mason said that the Bank wanted to make sure that every penny that was advanced went into the Wharf Road project and nowhere else and that the Bank would release payment only upon invoices that came in in (sic) respect of the Wharf Road development. He said that the group would also have to pay interest as from September. Mr Mason said that no funds would be provided unless the members of the group agreed to the CBA's requirements. Mr Mason handed over the letter dated 30 August 1989 which was addressed to Michael Phontos and which read inter alia:- 'We advise that the Bank has agreed to honour its commitment to the company by further release of funds on the company's Fully Drawn Loan No. 1 for development of the 13-15 Wharf Road Gladesville, development project. Such decision carries with it certain terms and conditions which will apply in respect of the Group's overall borrowings, for which the Bank will require prior formal acceptance by all of the Group's borrowing companies, and also by yourself and all 3rd party mortgagors. Such conditions are set out hereunder:-

1. Funds which are to be provided will be for the express purpose of completing the Wharf road development project.
2. Borrowings on the Company's No. 1 Fully Drawn Loan will be limited to a maximum of $2.5M being the level of the commitment previously given.
3. Progress payments will only be made against original invoices which are to be submitted to the Bank for approval.
4. It being clearly understood and acknowledged that any shortfall in funds which may occur in completion of the project are to be provided from the company's own resources or by outside borrowing.
5. Proceeds of up to $3,000,000 if forthcoming in respect of the disputed claim with the Housing Commission (Ryde project) are to be directed to a bulk reduction of Parras Holdings Pty Ltd facilities, or to any other of the Group's borrowings as the Bank may require. ....
6. All existing Group accounts to be placed on an 'In Reduction' basis with no further drawings permitted other than on the 'Progressive' Fully Drawn Loan No. 1 of Parras Holdings Pty Ltd.
7. Debts on all such accounts to be contained within present levels with interest to be met as charged each quarter commencing September 1989. In this regard, cash flow projections from all building projects in hand and any other income source are to be made available to the Bank as soon as possible to demonstrate the Group's ability to meet such interest payments. ...
8. An unlimited guarantee supported by the security referred to in (9) above to be given to the Bank by Mr Michael Phontos in favour of all the Groups borrowings.
9. Remaining units at Bannerman St Cremorne to be sold as soon as possible with proceeds applied in permanent reduction of the Parras Holdings Pty Ltd No. 2 F/D/L. In the event that any of the above terms and conditions as set out above are not respected the Bank may need to look to resources available to it under its Securities for repayment of the borrowings. Upon acceptance of the above conditions by all parties, the Bank will release an initial progress payment of $118,000 toward further development of the Wharf Road Gladesville project.' The members of the Phontos family were reluctant to accept these conditions but finally agreed to do so. Michael Phontos, in particular, was reluctant to give the required security and guarantee supporting all of the group's borrowings. He sought a restriction of the security to the borrowings of Parras. This was not accepted. The members of the family and the companies agreed to the Bank's terms." 54 Contrary to the written submissions of the appellants, the Mason conditions resulted in benefits for the Phontos parties as well as for the CBA. From the CBA's point of view the conditions resulted in increased security, avoidance of litigation over FDL 1 and a significant tightening of controls over the financing of the Wharf Road development which had been lacking under the previous conditions in the Terms Sheet. The Phontos parties secured further time to repay the loan facilities granted under the Terms Sheet, PEP gained further time to endeavour to clear its overdraft and, in effect, payment of outstanding interest was deferred. The CBA's forbearance from exercising its rights in respect of the various loan facilities and under its securities, was a substantial benefit conferred upon the Phontos parties by their acceptance of the Mason conditions.

Application of the $3 million 55 On or about 20 November 1989 PEP settled the Housing Commission arbitration and received $3.95 million which it used to acquire the CBA Bank Bills in that amount. On 6 December 1989, in accordance with the $3 million amendment, the CBA was authorised to apply $3 million out of the bank bills in reduction of certain of the Phontos Group debts arising from the loan facilities.

Unconscionable conduct and Economic Duress (a) Unconscionable conduct 56 Neither party submitted that Davies J erred in his statement of the relevant legal principles in relation to unconscionable conduct. After discussing Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, his Honour said in respect of the legal principles applicable to unconscionable conduct: "Thus, there are two elements to be considered. The first is superior bargaining power on the one hand and special disadvantage on the other. The second is the taking of an unfair or unconscientious advantage of the opportunity thereby created. The circumstances in which the principle will apply cannot be definitely described. The facts of each particular case must be examined. Economic duress in the sense of the obtaining of unfair or unconscientious advantage from a party which, because of its financial situation, was in no position to refuse entry into a disadvantageous transaction, provides a circumstance to which the equitable principle of unconscionable conduct will apply. It has long been established that courts of equity will relieve against unconscionable transactions resulting from pressure placed on persons in a state of poverty. See O'Rorke v Bolingbroke [1877] 2 App Cas 814 at 822." 57 Counsel for the appellants submitted that, in imposing the $3 million amendment and the Mason conditions, the CBA acted unconscionably and was guilty of economic duress. In support of the submission it was contended that: · at the time there had been no breach by the Phontos parties of any of their contractual obligations to the CBA; · the CBA acted in breach of its contractual obligations by refusing to proceed with its funding obligations under the Terms Sheet until the $3 million amendment and the Mason conditions had been accepted; · the CBA acted unconscionably and illegitimately in taking advantage of the extreme vulnerability of the Phontos Group in imposing the amendment and the conditions without any legal entitlement to do so; · accordingly, the $3 million amendment and the Mason conditions are unenforceable and the CBA was obliged to fulfil its obligations in accordance with the Terms Sheet, which it did not do. 58 There is a fundamental flaw in the appellants' contentions. As at June/July 1989 the Phontos Group was unable to pay any of the principal and interest due in respect of FDL 2, FDL 3 and the PEP overdraft or the interest then due in respect of FDL 1 (all of which was payable on demand). It was equally clear that the Group would be unable to repay FDL 1 by 16 September 1989. 59 Thus, the choice confronting the CBA and the Phontos Group was for the demands to be made, which meant the collapse of the Group, or to negotiate a forbearance from making the demands under conditions which would enable the Wharf Road development to proceed and afford the Phontos Group some prospect of survival. The $3 million amendment and the Mason conditions were the outcome of the latter course which was agreed to by the CBA and the Phontos Group. It is difficult to accept that the course taken by the CBA was unconscionable or constituted economic duress. If, as we have concluded, the CBA was entitled to issue demands in accordance with the terms of the loan facilities, it is difficult to envisage how the forbearance from issuing demands on terms that better secure the risk the CBA would be undertaking, could be unconscionable. 60 Davies J described the imposition of the $3 million dollar amendment and the Mason conditions as follows: "The act of the Bank in requiring the amount to be received from the Housing Commission to be increased from $1m to $3m and the requirement that the Mason conditions be accepted if further funding was to proceed no doubt amounted to a repudiation of, in the sense of a refusal to proceed further with, the contract on its original terms. However, circumstances had arisen which called for a change in these terms. Because or partly because of this, the applicants did not accept the repudiation. Rather, the terms put forward by the Bank were accepted and there was a variation of the contractual arrangements accordingly." 61 Counsel for the appellants sought to rely on the above passage as a finding that the CBA repudiated its contractual arrangements with the Phontos parties and, as a consequence, was acting unlawfully when it imposed conditions on those parties which were inconsistent with its contractual obligations and entitlement. We do not accept that Davies J made any such finding. His Honour was stating the obvious. As explained above, the situation was that the CBA was proposing either to issue demands requiring payment of the principal sum and interest or to renegotiate the terms of the loans facilities and the securities held by it in order to afford to the Phontos Group a prospect of survival by allowing it to endeavour to trade out of its difficulties. In pursuing that course, the CBA was acting in accordance with, and not contrary to, its legal rights in requiring that renegotiation of the terms of the loan facilities was a pre-condition to it forbearing from making demands for repayment. It is in that context that his Honour said that the CBA was refusing "to proceed further with the contract on its original terms". 62 Davies J stated his conclusions as follows: (i) General "The case put for the applicants is that the Bank's conduct was unconscionable in insisting upon conditions which had not been set out in and, indeed, were inconsistent with, the terms sheet of 31 August 1988. However, by the middle of 1989, the Bank was confronted by the fact that it was dealing with people who did not comply with their arrangements. PEP had drawn far beyond the level of its facility without attempting to seek additional funds. The units in Cremorne had not been sold. Peter Phontos showed a reluctance to abide by restrictions for, after being advised not to do so, he drew cheques on the Bank for matters unconnected with the Wharf Road development. The Bank was aware that the position of PEP in 1988 had not at first been fully disclosed to it and that PEP's position had, if anything, deteriorated. In addition, there was PEP's debt of $1m to be dealt with and this had not been contemplated at the time of the 1988 arrangement. It does not seem to me to have been unfair or unconscionable for the Bank to have taken the steps which Mr Perkins and Mr Mason took to regularise the position and to ensure that moneys expended out of the funds of the Bank were directed solely to the Wharf Road project. … I have also considered the totality of the matter, to see whether, taken as a whole, the applicants' complaints of the Bank raise a case of unconscionable conduct on the part of the Bank. In my opinion, they do not. The applicants' problems arose from their own position, their inability to realise the state of their financial affairs and their determination to proceed with developments when they were financially unequipped to carry them out. I am satisfied that the Bank did not act unconscionably." (ii) The $3 million amendment "…that is not to say that the Bank acted in any unfair or unconscionable way. FDL 2 had increased because of the interest incurred. Progressive reduction had not occurred. The Wharf Road property had been acquired and interest was running on FDL 1. Yet the development was not underway and PEP's overdraft had grown to approximately $1m. In the light of those matters and the fact that the securities had not come up to valuation, it was neither unfair nor unreasonable of the Bank to seek a means of achieving payment of the applicants' debts." (iii) The Mason conditions "In my opinion, in imposing the Mason conditions and going ahead with the facility, the Bank was not acting either unconscionably or in bad faith but rather was accommodating the applicants in the project which they wished to carry out." 63 We have not been persuaded that his Honour erred in the findings he made or the conclusions he reached. Indeed, in our view the conclusions reached by his Honour were plainly correct and necessarily followed from the findings of fact that he made. 64 It may be technically correct to contend, as the appellants did, that during July or August 1989 the CBA, in stating to Michael Phontos that it would not make further advances under FDL 1 and by failing to deal with the second progress claim had repudiated its contractual obligations. However, any repudiation by the CBA was bound up with the maintenance by it of the status quo pending clarification of whether the financial relationship between the parties was to be terminated by demands for payment or renegotiated. The hiatus was resolved by the acceptance by the Phontos parties of the Mason conditions which settled past differences and provided the basis for the on-going financial relationship between the parties. In taking the course it did, we are not satisfied that the conduct of the CBA was unconscionable. In so far as the conduct amounted to a repudiation, the repudiation was not accepted or treated as such by the Phontos parties. In so far as the conduct might have constituted a breach of contract, the acceptance of the Mason conditions constituted a clear waiver of any rights the Phontos parties may have otherwise had in respect of the breach. 65 Although numerous other grounds of unconscionable conduct were raised in the appellants' written submissions, few were the subject of specific submission by the appellants' counsel who conceded (quite properly, in our view) that if the court did not accept his contentions as to the CBA's contractual obligations, the appellants had considerable difficulty in succeeding on their other claims of unconscionable conduct. It is sufficient to say that we are not satisfied that his Honour erred in respect of any of his findings or conclusions on that issue. (b) Economic duress 66 Davies J stated the principles applicable to economic duress as follows: "A somewhat different principle is that of economic duress. It was applied in Barton v Armstrong [1976] AC 104 in which the Court found that acts by Armstrong which placed Barton in real fear for the safety of his wife and family were such as to invalidate a contract between Armstrong and Barton which was thereafter entered into. At 121, Lord Wilberforce and Lord Simon of Glaisdale expressed the ground relied on as follows:- 'The action is one to set aside an apparently complete and valid agreement on the ground of duress. The basis of the plaintiff's claim is, thus, that though there was apparent consent there was no true consent to the agreement: that the agreement was not voluntary.' The principle had been applied in many cases including Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366 where, at 400, Lord Scarman said, after referring to Barton v Armstrong and Pao On v Lau Yiu Long [1980] AC 614, said:- 'The authorities upon which these two cases were based reveal two elements in the wrong of duress: (1) pressure amounting to compulsion of the will of the victim; and (2) the illegitimacy of the pressure exerted. There must be pressure, the practical effect of which is compulsion or the absence of choice. Compulsion is variously described in the authorities as coercion or the vitiation of consent'. The principle was referred to and extended in Crescendo Management Pty Limited v Westpac Banking Corporation (1988) 19 NSWLR 40 where, at 46, McHugh JA, with whom Samuels and Mahoney JJA agreed, said:- 'Pressure will be illegitimate if it consists of unlawful threats or unconscionable conduct but the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.' (emphasis added) This view has since been followed in cases such as Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298; Equiticorp Finance Ltd (in Liq) v Bank of New Zealand (1993) 32 NSWLR 50; Dimskal Shipping Co SA v International Transport Workers Federation [1992] 2 AC 152. The article by MP Sindone 'The Doctrine of Economic Duress' (1996) 14 Australian Bar Review 34, 114 contains a very helpful exposition of the doctrine. To vitiate consent, the duress or compulsion must be of such a nature, illegitimate or unconscionable, as of itself to vitiate consent. The equitable principle of unconscionable conduct as illustrated in Amadio requires rather the unconscientious taking advantage of a person in a position of special disability or special disadvantage. Although the term 'unconscionable' is used in both principles, it has in each a somewhat different operation. In the equitable principle, the term 'unconscionable' refers to the nature of the advantage taken of a person in a position of disability or special disadvantage. For the purposes of economic duress, the term 'unconscionable' looks rather to nature of the duress or compulsion exercised, to its legitimacy or illegitimacy. In both principles, present day views of acceptable conduct play a part. Since Crescendo Management, courts have tended to place more emphasis upon the lack of legitimacy in the pressure or compulsion applied, rather than upon the element of coercion of the will. In Crescendo Management at 45-6, McHugh JA said:- 'In my opinion the overbearing of the will theory of duress should be rejected. A person who is the subject of duress usually knows only too well what he is doing. But he chooses to submit to the demand or pressure rather than take an alternative course of action. The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure wnt (sic) beyond what the law is prepared to countenance as legitimate?' Similarly, in Dimskal Shipping, Lord Goff said at 166:- 'I myself, like McHugh J.A., doubt whether it is helpful in this context to speak of the plaintiff's will having been coerced.' It is therefore necessary to look at the legitimacy of what the Bank did and whether the pressure applied by the Bank was wrongful or unconscionable." at p. 127-128 Davies J then dealt with the submissions as to economic duress as follows: "I do not propose to go again into the facts on this issue. The reasons I have already given for concluding that there was no unfair or unconscientious taking advantage of the applicants' position, including the position of Michael Phontos, are sufficient to state in general the reasons why I think that the pressure applied by the Bank was not wrongful or unconscionable. Perhaps the principal point put by the applicants on this issue is that the Bank refused expressly or impliedly to proceed with the Parras facility unless the applicants accepted the conditions set out in Mr Mason's letter of 30 August 1989. It is alleged that the Bank wrongfully threatened to breach its agreement and that the compulsion was unconscionable because, were it to do so, the applicants' enterprise would have been destroyed. It is said that the applicants had no practical alternative but to accept the Bank's demands. For the reasons I have given I think that the Bank's conduct was neither unfair nor unreasonable and that the Bank acted to bring under control a situation which the applicants had brought about by drawing cheques upon PEP's account beyond the agreed limit of the overdraft. It was not unreasonable for the Bank to take steps to ensure that further moneys advanced by the Bank were spent on the Wharf Road project and it was not unreasonable for the Bank to insist that the applicants make provisions for the payment of PEP's overdraft. Moreover, on the security aspects, I consider that the provisions made put the Bank in approximately the same position as was contemplated by the terms of the Parras facility. I have not identified any action on the part of the Bank which, in my opinion, constituted economic duress within the principles I have mentioned." 67 The suggested destruction of the appellant's enterprise referred to by his Honour would not have come about as a result of any illegitimate conduct by the CBA. Rather, it would have come about as a result of the inability of the Phontos parties to meet demands for payment which the CBA was entitled to make. That inability was not caused or contributed to by the CBA. 68 We are not satisfied that his Honour erred in relation to his findings or conclusions on the claim of economic duress. Indeed, we are satisfied that his Honour's conclusions were plainly correct.

The PVD Conditions 69 The reasons to this point have dealt with the substantive submissions advanced on behalf of the Phontos Group in respect of the proceedings commenced by the appellants. However, as has already been mentioned, the grounds of appeal and excursive written submissions covered a wide range of matters, challenging almost every finding of fact and conclusion reached by Davies J which were adverse to the appellants case. Illustrative of the matters raised is a claim, in effect, for damages caused it is said to the Phontos Group by delays of the CBA in providing funds and the imposition of a system of controls designed, so it is claimed, by the CBA to ensure that monies advanced to the Phontos Group in respect of the Wharf Road Development were in fact used for that purpose. 70 To even superficially understand the gravamen of the appeal on this issue it is necessary to descend in some detail into the facts. Unless otherwise stated we set these out as found by Davies J, notwithstanding that many of these findings were criticised, even where they depended upon the rejection of the evidence of Michael Phontos. 71 The starting point of the dispute is to be found in the conditions governing the fully drawn loan account as initially imposed by the CBA. These were set out in the "terms sheet" which provided the contractual framework for the relationship between the CBA and the borrowers, until altered by the Mason Conditions. 72 The terms sheet provided among numerous conditions that funds from the progressive fully drawn loan were to be released against architects or quantity surveyor's certificates in respect of the Wharf Road project. These conditions were, of course, agreed to by the appellants. 73 On or about 2 June 1989 Michael Phontos lodged the first progress claim for $155,572. He tendered no quantity surveyor's certificate or architect's certificates. Mr Phontos employed neither an architect nor quantity surveyor for this purpose. His evidence that the CBA did not require this term to be enforced but would itself assess the value of completed work was rejected. It was the CBA's practice, so his Honour found, to have inspectors inspect the site and report on the value of the work done. His Honour found that Michael Phontos was content to have the CBA release funds in accordance with this practice. 74 There was a dispute with the very first claim. That dispute revolved around whether the progress claim should include certain "statutory overheads" and "professional fees" (for architectural work and other preliminary expenses). Evidence given by Michael Phontos of an agreement that architect's fees would be excluded was rejected by his Honour. Ultimately on 19 July 1989 an amount of $75,000 was released. His Honour found, and we agree that given that there were no quantity surveyor's or architect's certificate tendered, and having regard to the non acceptance of Michael Phontos' evidence, no greater contractual entitlement arose. 75 The procedure was varied by clause 3 of the Mason conditions. Henceforth, progress payments were to be made against original invoices to be submitted to the CBA for approval. It was submitted that the CBA should have complied with the provisions initially set out in the terms sheet and should not have imposed stricter controls. The argument that the Mason conditions were unenforceable has already been dealt with. The imposition of stricter controls in the circumstances was not in our opinion unreasonable. It was agreed to by the Phontos Group. 76 On 18 July 1989 the CBA imposed the restriction that sums needed for wages or pressing accounts in respect of the Wharf Road property could be paid if the Gladesville branch sighted invoices and accounts. The concern of the CBA was to ensure that funds it advanced be used for the Wharf Road project. 77 A register was ultimately set up, referred to in the judgment appealed from as the "funding register". By that stage the balance of funds yet to be made available was according to the CBA $1,198,076. A dispute as to the mathematical make-up of this amount was resolved by his Honour in favour of the CBA and no error has been shown in his Honour's conclusion. Whenever a payment was made against an unpaid invoice the balance in the funding register was reduced. Problems arose thereafter, not, as his Honour held, as a result of any default on the part of the CBA. Again, no error by his Honour has been demonstrated. 78 It was submitted before his Honour that delays occurred in the payment of invoices under the funding system for which the CBA was responsible. Experts agreed as to the delays which were occasioned. The appellants' submission was that his Honour's findings that these delays were not the responsibility or the CBA was in error. We do not in the interest of brevity deal with every claimed delay. 79 We have already mentioned the first delay arising from the first progress claim and the inclusion of professional fees. We agree with his Honour that the delay was in no way due to negligence on the part of the CBA. 80 A second Progress claim for $113,460.04 was lodged on 24 July 1989. It was not assessed whilst the CBA was considering its position in relation to its involvement with the Phontos Group. A request of 31 July by the CBA for a written, detailed, updated estimate of the funds required for the Wharf Road Project led to the meeting of 30 August 1989 and the agreement to the Mason conditions. They included release of a sum of $118,000 as a progress payment. In the result, the second progress claim was never directly addressed. However, acceptance of the Mason conditions operated to waive any breach by the CBA as his Honour found. 81 A delay of three weeks between 11 October 1989 and 1 November 1989 was due to a shortage of bricks. His Honour found, and we agree, that no fault was shown on the part of the CBA for this delay. 82 Between 17 August 1990 and 31 October 1990, a period of 12 weeks, there was a request by Michael Phontos for additional funds of $400,000 to complete Wharf Road. After correspondence a final offer of $300,000 additional assistance was made. With interest running at a high rate over the period of 12 weeks the amount of $300,000 promised was eroded. However, as his Honour found, the appellants made no attempt to sell two units in Cremorne - required to be sold by condition 11 of the Mason conditions. In the result, the CBA's agreement to the increased facility was subject to a requirement of a written undertaking to sell the Cremorne units. It is difficult to see how the CBA was responsible for any delay in this period. It is clear that the real problem in this period was that the Phontos Group had insufficient working capital and took no steps to realise assets which could have alleviated its position. 83 The next substantial delay - a period of 11 weeks - came about because the limit of the facility had been reached. There was also a dispute as to whether Michael Phontos' legal fees and estate agent's fees should be retained by him from the proceeds of settlement of sales of lots in Wharf Road. It is again hard to see how the CBA was liable. 84 A period of 17.5 weeks was lost due, it was submitted, to the manner in which funds were advanced under the invoice system. For example, pouring of concrete was delayed because a driver had no appropriate invoice and could not be paid. Installation and commissioning of a lift was also delayed. 85 His Honour held, however, that the invoice system was not the sole or even the major cause of the delay. There was doubt in the trade of the solvency of the Phontos Group. In addition, as his Honour held, had the Phontos Group had sufficient working capital the development would have progressed certainly more smoothly. It did not. Even if the invoice system had, contrary to his Honour's findings, been a major cause of delay it is hard to see why in the circumstances, that gave rise to some claim by the Phontos Group against the CBA. His Honour found neither breach of contractual arrangements, negligence, unfairness nor unconscionability. Given the factual findings no other conclusion is open.

The Cross-Claim 86 The challenge by the respondents to the judgment of Davies J on the cross-claim in favour of the CBA focussed in the end on what has been termed the Ankar point. Numerous grounds of appeal relating to the validity of particular demands and notices for possession and service of them were ultimately abandoned in the course of the hearing of the appeal. What is left is the Ankar point, and collateral to that, submissions based on what might be termed Anshun estoppel. 87 The grounds of appeal relevant to these matters are that his Honour: "a. erred in holding that the guarantees and mortgages were not void and unenforceable by virtue of the Bank's waiver of the $6.4 million condition; and

b. ought to have held that the guarantors and mortgagors of the debts of Parras and PEP (other than Parras and PEP in respect of their own debts as principal debtors) were discharged from any liability arising from their own debts". Further it is said that his Honour: "erred in holding that it was too late to raise the [point] that the guarantees and mortgages were void and unenforceable by virtue of the Bank's waiver of the $6.4 million condition". 88 The reference to Ankar relates to the discussion of the principles of law with respect to the discharge of securities in Ankar Pty Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549. The conclusion on this aspect of the matter of Mason ACJ, Wilson, Brennan and Dawson JJ appears at 561: "If the surety is to be discharged for breach of a promissory term in the suretyship contract, the justification for the discharge must be that the creditor has failed to comply with a provision that, as a matter of interpretation, requires strict performance as a condition precedent to the surety's obligation or at least requires substantial performance of the promise such that the surety would not have entered into the contract if it had not been assured that there would not be a breach such as the breach which in fact occurred. If on its true interpretation the term is not intended so to operate, it is not easy to understand why the surety should be discharged by its breach."

89 It will be recalled that the terms sheet, under the heading "security", referred to various mortgages and guarantees, and then stated: "Note: CBA's valuation of the properties to be taken as security to achieve a combined 'con completion' figure of at least $6,400,000. In this respect the opinion of CBA's valuers will be final." 90 The short point advanced on behalf of the appellants/cross-respondents is that: "the guarantors guaranteed a loan where the security was to be $6.4 million. The security did not reach that amount, which meant that the guarantors were guaranteeing something fundamentally different from that which they had agreed to guarantee and therefore they should be discharged". 91 Before the trial judge, the CBA disputed the application of the Ankar principle in respect of the $6.4 million valuation term of the term sheet and further submitted that, relying on the principle in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, it was then too late to raise the Ankar point. 92 The trial judge held that it was too late to raise the $6.4 million condition point at the time it was raised, but in any event, his Honour dealt with the merits of that claim and rejected it. 93 Both questions were repeated in the argument before us. It is, of course, necessary for the appellants/cross-respondents to succeed on both legs of this aspect of the matter in order to succeed on the appeal. 94 It is logical to deal with the Anshun point first. 95 After a very lengthy hearing, Davies J gave judgment on the appellants' claim on 24 October 1997. The cross-claim was heard over four days between 17 December 1997 and 24 April 1998. On 12 June 1998, judgment was given for the CBA on the cross-claim for monetary sums against the cross-respondents, and the CBA was held to be entitled to possession of the mortgaged premises. 96 In holding that it was too late to raise the point that the third party guarantors and mortgagors were released because the value of the securities did not reach the $6.4 million figure noted in the term sheet of 31 August 1988, and because the CBA's subsequent waiver of this condition materially increased their risk, Davies J said: "This case proceeded upon the footing that the cross-respondents set out in their statement of claim all their challenges to the validity of the relevant agreements, mortgages and guarantees. Amongst the allegations made were allegations based upon this particular clause it being alleged, inter alia, that the Bank breached that condition for, according to the cross-respondents, it did not value the properties on an 'on completion' basis but rather on a 'in one line' basis. It was also alleged that the Bank acted unconscionably by not informing the cross-respondents immediately that the figure of $6.4m had not been reached and by refusing to inform them prior to 5 December 1989 what the Bank's valuation was. It was further said that, by not bringing to the cross-respondents' attention at an early stage the fact that the applications did not reach the $6.4m figure, the Bank had acted so as to represent to the cross-respondents that the valuations had reached that figure. On these and other grounds, the cross-respondents by their amended application sought declarations that each of the subject mortgages and guarantees was void and unenforceable and a declaration that, inter alia, the mortgagors and guarantors were not indebted to the Bank at all." 97 In his Honour's reasons for judgment of 24 October 1997, Davies J rejected these allegations and held that the condition as to $6.4 million was one which had been inserted for the benefit of the CBA, that the CBA had waived it and that there had been no unconscionable or misleading conduct on the part of the CBA in relation to it. 98 Davies J had said in his reasons for judgment of 24 October 1997 that no claim had been made that the guarantees and mortgages were void by virtue of the CBA's waiver of the $6.4 million condition. In his Honour's judgment of 12 June 1998, his Honour commented: "Presumably, it was because of this mention that the point has now been raised." His Honour's view was that as judgment had been given on the cross-respondents' claim, it was too late to raise it on the hearing of the cross-claim. 99 The defence to the amended cross-claim pleaded, inter alia, that the mortgages and deeds of guarantee were void and unenforceable, but no particulars were given. It was also pleaded by way of equitable defence the matters referred to in the amended statement of claim. The $6.4 million point was not raised in the pleadings and his Honour noted that none of the witnesses was cross-examined on it. The question of the $6.4 million condition, which Davies J noted played quite a considerable part in the earlier hearing, was not raised at that hearing, where, in his Honour's view, it should have been raised, when all relevant persons gave evidence and were available for cross-examination. His Honour noted that the proceeding on the cross-claim was not intended to be other than a hearing on points of law and like issues going to the quantum of moneys, if any, due to the CBA, and the availability of the relief which the CBA sought. 100 In our view, if Davies J were on the hearing of the cross-claim to conclude that the guarantees and mortgages were unenforceable, that judgment would be inconsistent with his Honour's judgment in October 1997 where the contrary was held. In Anshun (supra) Gibbs CJ, Mason and Aickin JJ said at 596: "The judgment which the Authority seeks to obtain in the present action is one which would contradict the judgment which has been entered in the Soterales action.…It is this inconsistency between the judgment obtained in the first action and the judgment sought to be obtained now that is of importance." At 603 their Honours said: "It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment." Their Honours' conclusion appears at 604: "…we regard the judgment that the Authority seeks to obtain as one which would conflict with the existing judgment, though the new judgment would be based on a different cause of action, a contractual indemnity.

Taking into consideration the relevant factors we conclude that the Full Court was right in holding that there was an estoppel. The matter now sought to be raised by the Authority was a defence to Anshun's claim in the first action. It was so closely connected with the subject matter of that action that it was to be expected that it would be relied upon as a defence to that claim and as a basis for recovery by the Authority from Anshun." 101 The orders made by Davies J on 17 December 1997, based on his reasons for judgment of 24 October 1997 at para 172, constitute a finding adverse to the appellants on their plea in paragraph 172 of the statement of claim. That paragraph provides: "If the Bank was not satisfied with the value of the Security, then its failure to disclose its dissatisfaction to any guarantor, discharged any guarantee or security granted by any guarantor to the Bank." 102 To give judgment on the cross-claim based on acceptance of the appellants' submissions concerning the $6.4 million condition in the term sheet would be to give a judgment quite inconsistent with the judgment given on 17 December 1997. In our opinion, Davies J was right to hold that, pursuant to the principle enunciated in Anshun, it was too late to raise the point concerning the $6.4 million condition in the terms sheet. 103 This is sufficient to dispose of the appeal based on the cross-claim, but we also agree with the reasons of Davies J that the $6.4 million condition was not a condition which required strict performance as a condition precedent for the sureties' or guarantors' obligations, or a condition such that the sureties and guarantors would not have entered into the contract had they been told that the CBA may not enforce the condition. As earlier indicated in these reasons, the condition was not inserted for the benefit of the appellants, but was one which the CBA was entitled to waive as it did. 104 The findings of fact by the trial judge on this aspect of the matter were that the value of the securities was a matter which the cross-respondents were capable of judging, as was the CBA; the cross respondents had their own views as to the value of the properties; it was not material to them that the CBA valuation might value the Wharf Road property at a value less than they were prepared to put on it, so long as the finance was provided; the $6.4 million condition was inserted for the benefit of the CBA. These findings were well open to his Honour and there is no basis for disturbing them. His Honour found that the guarantors and sureties were not entitled to elect to be discharged, but that, if they were: " … no election to discharge the obligations of the guarantors and sureties was ever made on the ground now relied upon until counsel's submissions were produced". 105 On the question of waiver, it is relevant to record that, as at early November 1998, Mr Marshall of the CBA had explained to Michael Phontos that the CBA's valuations had not reached the anticipated value of $6.4 million. There was no attempt made then by any of the guarantors to avoid their obligations based on the fact that there was a shortfall. It is also relevant to note that on 5 December 1989, a little more than a year later, Michael Phontos, Peter Phontos and Harry Costas were told exactly what the valuations were and, again, there was no attempt by any of the guarantors to avoid their obligations pursuant to the guarantees and sureties. 106 His Honour's conclusion that the $6.4 million condition was not a condition which required strict performance as a condition precedent, or a condition such that the sureties and guarantors would not have entered into the contract had they been told that the CBA may not enforce that condition has not been shown to be erroneous. On the contrary, we agree with it. 107 Consequently, even if it were competent to argue the Ankar point (contrary to our conclusion based on the principle in Anshun), the appellants/cross-respondents would fail. 108 The general challenge to the judgment on the cross-claim fails.

The special position of Michael Phontos 109 It was submitted on behalf of Michael Phontos that, even if, contrary to the submissions made on behalf of the other respondents to the CBA's cross-claim, those respondents were liable to the CBA on guarantees and mortgages which they had given, the position of Michael Phontos was different. 110 It will be recalled that while the loan facilities agreed to be provided to Parras in September 1989 for the benefit of the Phontos Group were the subject of guarantees given, inter alia, by the seventh, eighth, ninth and tenth cross-respondents individually, they were not specifically guaranteed by Michael Phontos although, as we have said, he had played a significant role in the negotiation and renegotiation of the facilities on behalf of the Phontos parties. 111 However, the letter of 30 August 1989 addressed to Michael Phontos, containing the Mason conditions and the meeting held the same day at which Michael Phontos, Peter Phontos and Harry Costas attended and at which the Mason conditions were discussed brought about, for the first time, a demand on the part of the CBA for Michael Phontos to provide an unlimited guarantee supported by security of all the borrowings of the Phontos Group. At the meeting Mr Mason pointed out that all the other Phontos family members associated with the borrowings were parties to interlocking guarantees. Mr Mason told Michael Phontos that he was essentially the driver of the group's operations and that the CBA saw it as reasonable and proper that he demonstrate his confidence in the operations of the group by giving a guarantee. There is no suggestion that Michael Phontos demurred from the description of himself as the "driver of the Group's operations". 112 Initially Michael Phontos was reluctant to provide the requested guarantee and security. On 4 September 1989 Michael Phontos wrote requesting that the guarantee be limited to the borrowings of Parras. On the following day he wrote again to say that, as it was of the greatest importance that the Wharf Road Project not be delayed pending consideration of his letter, he would accept the condition in the event that approval of the alteration was not forthcoming by the close of that day. Approval was not forthcoming. On 6 September Michael Phontos executed a guarantee. That guarantee covered not only the debts of Parras, but of the other companies in the Phontos Group. 113 It is submitted on behalf of Michael Phontos that he should be seen in a different light from other cross-guarantors. He was, it was argued, merely the solicitor for the group and not a shareholder in PEP. In parenthesis it should be added that one of the shareholders held its interest in trust for members of the family. His Honour inferred that Michael Phontos had an interest in this trust, an inference which was not sought to be displaced during the trial. In any event, nothing turns on whether he did. 114 His Honour held, and we agree, that in the circumstances of the case where it is clear that Michael Phontos was at all times not merely the person who conducted the negotiations on behalf of the family and companies in the Phontos Groups but also the driver of the various projects for which finance was sought, it was not unconscionable for the CBA to require that if finance was to be continued, and not called up, a guarantee should be required from Michael Phontos. The evidence made it abundantly clear that if anyone had all relevant details of the transactions of the Phontos Group and its financial situation, it was Michael Phontos, who in addition to having a law degree was also a graduate in economics. He was not merely a solicitor who acted as the spokesperson for clients. He was not an uninformed party brought in to guarantee the transactions in circumstances which could be unconscionable. He was not a person who in all the circumstances might require the assistance of a court of equity and to be separately advised. He was himself a solicitor. It was he who provided to the CBA cash flow forecasts from time to time, unreliable although they may have been. He produced, as requested by the CBA, reports of costings. He prepared and gave to officers of the CBA statements of assets and liabilities of the various companies in the Phontos Group and his family. He involved himself in the sale of units in the Wharf Road project through a company which he established and which had the right to use the name of a well known real estate agent. Indeed, his knowledge of the financial transactions into which the Phontos Group entered was far greater than that of the CBA. There is an enormous gulf between the elderly non-English speaking migrants successful in Amadio and Michael Phontos. 115 A submission that the requirement of the guarantee in some way put him in a conflict of interest in acting for the Phontos Group on the arbitration with the Housing Commission and that this operated to avoid the guarantee he gave, cannot be accepted. 116 It would seem that, in any event, on the facts as found by his Honour, Michael Phontos became, even without the giving of the specific guarantee in compliance with the Mason conditions, personally liable to the CBA for the debts of the Phontos Group. He had, in November 1988, given to the CBA a second mortgage over a property at 23 Ashburn Place, Gladesville to support the debts of Parras and monies which he owed to the CBA. This arose as a result of concern on the part of the CBA as to the security position which it had. Parras itself was a guarantor of the other companies in the Phontos Group and, as his Honour rightly held, a consequence of the conditions of the mortgage was that Michael Phontos effectively had already guaranteed personally the debts of the group. His evidence that, in a conversation he had with a Mr Marshall, the mortgage was agreed to be limited to Parras borrowings on the Wharf Road property was not accepted, even if it is true that the express provisions of the mortgage made it clear that it covered the indebtedness of Michael Phontos and Parras without specific reference to other members of the Phontos Group. 117 It is unnecessary to trace here the particular dealings between Michael Phontos and the CBA, the details of which are set out in the judgment appealed against. The finding of his Honour that it was not unconscionable or unreasonable for the CBA to accept a mortgage over 23 Ashburn Place, Gladesville securing the debts of Parras, as well as those of Michael Phontos, is clearly correct. His Honour found, and there is no reason to disturb the finding (it is challenged in submissions), that Michael Phontos offered the security. It is no doubt true that had the offer not been made, as his Honour found, the CBA would have given consideration to terminating the facility. Michael Phontos preferred to offer the second mortgage rather than face that prospect. 118 One further submission may be shortly noted. It was argued that the fact that the CBA had, without notice to the respondents, waived the initial requirement that the property was not valued at $6.4 million, obliged it to inform Michael Phontos. The failure to do so, it was submitted, invalidated any liability which Phontos had under the guarantee. 119 The conclusion which his Honour drew, that the condition was a condition in favour of the CBA which it was entitled to waive, is no doubt correct. We may leave aside the issue of whether Mr Phontos was told the fact that the CBA's valuation was not up to the stipulated amount, even if he was not told the figure at which the valuers arrived. This appears to have happened in a conversation on 7 or 8 November 1988 following which Michael Photos undertook to give the CBA the second mortgage over the Ashburn Place, Gladesville property. For present purposes it may be accepted that the valuation made by the cba was not an "on completion" valuation as required but an "in one line" valuation. (We should say that we agree with the learned primary judge that the valuation made was in the circumstances, not shown to have been made on an incorrect basis). Michael Phontos was not a guarantor who might avoid a guarantee on the basis that one of the original terms on which the contract guaranteed had been made had not to his knowledge been satisfied. He was in a position of knowledge far greater than the principals of the Phontos Group who were bound to repay the monies advanced. The obligation of the CBA to disclose to an intending surety relevant matters impinging upon the potential liability under the guarantee is limited to disclosing that which was not naturally to be expected. In the present case, that obligation did not extend in favour of Michael Phontos who was, to say the least, experienced in the field. I certify that the preceding one hundred and ninteen (119) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Solicitor for the Appellants: Phontos & Associates

Counsel for the Respondent: R G Forster SC; N L Manousaridis

Date of Hearing: 2 November to 5 November 1998