Pioneer Park Pty Limited (in liquidation), Clifford John Carpenter, Merlo Australia Pty Limited & Ors v Australia and New Zealand Banking Group Limited

Pioneer Park Pty Limited (in liquidation), Clifford John Carpenter, Merlo Australia Pty Limited & Ors v Australia and New Zealand Banking Group Limited - [2006] NSWSC 883 - NSWSC 2006 case summary — Zoe

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Adler v Australian Securities and Investments Commission [2003] NSWCA 131 Alcatel Australia Ltd v Scarcella & Ors (1998) 44 NSWLR 349 Allen v Carbone (1975) 132 CLR 528 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 Australia and New Zealand Banking Group Ltd and Ors v Pan Foods Company Importers and Distributors Pty Ltd and Ors - [1999] 1 VR 29 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Batson v de Carvalho (1948) 48 SR (NSW) 417 Braithwaite v Foreign Hardwood Co [1905] 2 KB 543 British and Beningtons Ltd v North Western Cachar Tea Co [1923] AC 48 Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 51 ALR 609 Bunge Corporation, New York v Tradax Export SA, Panama [1981] 1 WLR 711 Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Commonwealth Homes & Investment Co. Ltd v. MacKellar (1939) 63 CLR 351 Concut Pty Ltd v Worrell (2000) 75 ALJR 312; 176 ALR 693 Dobbs v the National Bank of Australasia Ltd (1935) 53 CLR 643 General Credits Ltd v Wenham (1989) 18 NSWLR 570 Inland Revenue Commissioners v Raphael [1935] AC 96 Jones v Dunkel (1959) 101 CLR 298 Landers v Schmidt [1983] 1 Qd R 188 CASES CITED : L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 Lustre Hosiery Limited v York (1935) 54 CLR 134 Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170 Massey v Sladen (1868) LR4Ex 13 Matthews v Brodie [unreported, Supreme Court of Victoria, McGarvie J, 2 April 1980, BC 8000008] McMahon v State Bank of New South Wales (1990) 8 ACLC 315 Mercer v Whall (1845) 5 QB 447 Minion v Graystone Pty Ltd [1990] 1 Qd R 157 Mobile Innovations Pty Ltd v Vodafone Pty Ltd [2003] NSWSC 166 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 Overlook v Foxtel [2002] NSWSC 17 Pan Foods Company Importers & Distributors Pty Ltd & Ors v Australia and New Zealand Banking Group Ltd & Ors (2000) 170 ALR 579 Pioneer Park Pty Ltd (in liq) v ANZ Banking Group Ltd and Ors: [2005] NSWSC 498 and [2005] NSWSC 832 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Ridgway v The Hungerford Market Company (1835) 3 Ad and El 171; 111 ER 378 Sandell v Porter (1966) 115 CLR 666 Schellenberg v Tunnel Holdings Pty Ltd (2000) 170 ALR 594 Shepherd v Felt & Textiles (1931) 45 CLR 359 Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 Tricontinental Corp v HDFI Ltd (1990) 21 NSWLR 689 Tymshare Inc v Covell 727 F2d 1145 (1984) Williams v Frayne (1937) 58 CLR 710

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50118/05 Australia and New Zealand Banking Group Limited v Clifford John Carpenter JUDGMENT The proceedings 1 The Pioneer Park group of companies and Mr Clifford Carpenter [who was at all material times a director of each of the group companies] bring these proceedings against the Australia and New Zealand Banking Group Ltd claiming that Pioneer Park Pty Ltd was wrongfully placed into administration and then liquidation in breach of the terms and conditions of the banking agreements which regulated their relationship. 2 ANZ had on 3 May 1999 purported to give 30 days notice terminating the facilities and had on 8 June 1999 demanded the immediate payment of an amount said to be due. 3 The proceedings whilst involving many issues, centrally include the allegation by the Pioneer Group that ANZ had mistakenly proceeded in terms to give the termination notices pursuant to clause 9 of the General Conditions [which regulated the loans] upon the basis that the facilities were by then provided at least until an annual review date, whereas in fact, certain of the facilities are said to have been for a fixed term which, by the General Conditions, could not be terminated until the end of that term. 4 Without being exhaustive it may be noted that ANZ amongst its several disparate defences, contends that even if it had mistakenly proceeded on the above basis, it is entitled to establish a contractual justification for the termination letters, inter alia relying upon Shepherd v Felt & Textiles (1931) 45 CLR 359 [for the proposition that it is entitled to go outside of the express basis for the termination given in the letters of termination and to rely upon other bases now also said to have been available]. General background 5 The general background to the proceedings was usefully recited in two interlocutory judgments: Pioneer Park Pty Ltd v ANZ Banking Group Ltd and others: [2005] NSWSC 498 and [2005] NSWSC 832, inter alia noting the September 2004 grant of leave under s237 of the Corporations Act to Mr Carpenter to bring the proceedings on behalf of Pioneer Park 6 Following the commencement of the several sets of proceedings described in those judgments, orders were made for all proceedings to be consolidated in this Court and the final hearing proceeded in terms of an amended consolidated summons. The plaintiffs 7 The five plaintiffs to that summons are:

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d) Failure to provide signed and audited accounts [The allegation is that: · At all material times the following terms were express written terms of the agreement between Pioneer Park and the Bank: (a) Pioneer Park would provide to the Bank its consolidated annual financial statements as soon as they became available, but not later than 120 days after the end of each financial year; (b) Pioneer Park would provide to the Bank its consolidated balance sheet and profit and loss accounts for each financial half year as soon as they became available, but not later than 90 days after the end of each financial half year. They must be certified by a director or secretary as giving a true and fair view of Pioneer Park's financial position as at the end of the half year; (c) Pioneer Park would provide to the Bank the annual financial statements of any related entity as soon as they became available, but no later than 120 days after the end of each financial year; and (d) Pioneer Park would provide to the Bank any financial or other information the Bank asked for by the time specified by the Bank. · No signed accounts were ever delivered for the income year ended 1998.] Reliability of witnesses 21 It is convenient to next deal with the reliability of the witnesses called. Mr Carpenter 22 Mr Carpenter had been an experienced chartered accountant and qualified auditor admitted to the "B" list of liquidators and had acted as a receiver or liquidator of many companies. He had held a number of directorships of private and public companies. 23 Mr Carpenter had made several affidavits. He was extensively cross-examined for many days. He clearly had an abiding interest in the result of the proceedings. 24 It is generally not possible to accept his evidence as reliable unless it is corroborated by contemporaneous documents or by evidence given by another witness whose evidence, in turn, is accepted as reliable. The fact is that his sense of grievance in terms of what he regards as disgraceful conduct by ANZ, colours much of the evidence which he gave: witness his evidence (at transcript [332][333]):

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[I]t wasn't justified. They were alleging all these defaults, one after the other. Each one was refuted and the bank would give us no answer and slide off, they'd come back with another default and this just went on through a process over many months and with the help of my solicitor each one was rebutted and it was crazy as far as I was concerned. They were doing everything they could to destroy me. … [I was} very angry but because of my nature and so on, and my training, actually I controlled it and so I was going to my solicitor to handle it, at this stage, and to the chairman and we were dealing with the punches as they came, one at a time. I wasn't on the broad brush approach because, well, it was terrible and you did mention or it has been mentioned many times why did I show Mr Soper the rumble in the jungle, which I mean, that's almost laughable now, but the message there, which I don't think Mr Soper picked up at all, was just sometimes the little guy gets up and fights and holds his ground, and that was Mohammed Ali against George Foreman, but I think Mr Soper went away thinking, this guy's a nut but there was a message that I was trying to convey to him, that he was the bully boy, he was standing over me and, well, I was going to hold my ground, for better or worse." 25 Notwithstanding the several occasions on which he was reminded of the need to give responsive answers, he often followed the answer with some form of commentary. 26 An example of the unreliability of his evidence concerned his alteration of position [examined in the reasons] in relation to his recollection as to whether he had or had not even received the crucial ANZ letter of 3 March 1997. 27 A further reflection on his credit involves the transactions engaged in during the second half of May 1999 examined in the reasons. 28 A reflection on his credit is to be found upon a close examination of the AMP shares transaction [examined in the judgment], the salient features of which involved:

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viii. sundry timing parameters the subject of the detailed cross-examination [transcript 215 et seq] reflecting adversely on the credit of Mr Carpenter who was fully aware of the general circumstances and yet proceeded with this transaction in the face of the clear fact that Domino Mining was to make an enormous loss and Retreat to gain an enormous windfall. 29 Other examples of the unreliability of particular parts of his evidence are dealt with in the reasons. Mr David Henderson 30 Evidence was given by Mr David Henderson who, together with his late brother Mr Robert Henderson, had known Mr Carpenter since they were at school together and continued to enjoy a close personal friendship and social acquaintance with Mr Carpenter. 31 Both he and his brother had been associated with Mr Carpenter by way of a professional association and common directorships. Until Mr Carpenter ceased practice as a chartered accountant in about 1991, Mr Carpenter's firm provided accounting and audit services to D & R Henderson and associated companies. After that time, Mr Carpenter joined the board of D & R Henderson as a director, and both the Henderson brothers joined the boards of Domino Mining Equipment, and subsequently the boards of Merlo Wholesale, Merlo Australia and Domino Hire, Mr Carpenter being a director and chairman of those companies. Both the Hendersons remained on the boards of Pioneer, the Merlo Companies, and Domino Hire until they resigned from those boards, in about mid 1999. 32 Although Mr Henderson gave evidence on a range of topics including his attendance at meetings of Pioneer companies, the central proposition of special significance in relation to these proceedings [sought to be put forward by the Pioneer Group through Mr Henderson as a witness] was that the group companies could not be said to have been insolvent at any particular point in time because the Hendersons [whether through their own companies or through their personal finances] were prepared to provide the necessary shortfall in working capital or indeed to refinance all of the ANZ facilities were this to be necessary. 33 The evidence is dealt with below in some detail. However at this early point in the judgment dealing with reliability of witnesses, it has to be said that Mr Henderson's evidence was coloured by his strong beliefs:

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which beliefs have caused him to lend money to Mr Carpenter to fund the proceedings [cf transcript 879] 34 Mr Henderson exhibited what can only be described as a very poor recollection of meetings which he attended and of his then knowledge and/or belief as to the circumstances of the Pioneer group. On many many occasions he answered to the effect that he could not recollect. 35 In my view his evidence requires to be extremely carefully monitored. The reliability of that evidence is very strongly affected by his closeness to Mr Carpenter. It must be tested by the contemporaneous written documents. They often do not support evidence which he gave in the witness box. This is not to suggest that he knowingly gave false evidence, but only that as one often finds in court cases, witnesses may come to believe that a particular state of affairs was the case some years ago when, in fact, the contemporaneous written documents which go into evidence [and the whole of the matrix of fact established inter alia by other witnesses] demonstrates that that state of affairs was in fact quite different. 36 His recollection in relation to the circumstances in which Pioneer Park came to purchase AMP shares was also very vague. Essentially that recollection was that he, his brother and Mr Carpenter had had discussions prior to the date of listing from which he had understood that Pioneer was to purchase the shares. However there was nothing which he did as a director of Pioneer prior to the date of listing to commit that company to the purchase of the shares, unless a motion to that effect had been passed at a board meeting: [the evidence included no such minute/motion of or passed at any board meeting]. 37 His evidence included: Q. Mr Henderson, one thing that that I am trying to follow is whether there was, as far as you can recall it, in terms of whatever involvement you can recall having with the AMP share issue, some form of documenting of an agreement and I wondered whether you could recall at any stage through the discussions, whenever they were, to do with the as it were AMP share sale, any form of agreement documenting just what it is that was the transaction? A. … I don't recall us having any formal document. All I recall at the time, at the time of the AMP share matter, in the media and in the community was that it was considered a windfall opportunity at the time and as such, it was regarded by us as such and by many in the community as such.

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"We have been instructed by D & R Henderson Pty Ltd... to offer $150,000 for all of the Bank's securities over the Companies." 42 Under cross-examination Mr Henderson gave evidence that he had not seen this letter at the time; he did not believe that Mr Carpenter had any discussion with him about whether he was going to instruct Mr Fordyce to make the offer; he had no knowledge that at about this time his company was offering $150,000 for all of the ANZ securities over the company; the letter had come as complete news to him in the witness box; he was unable to give any explanation as a director of the company as to how the offer could have been made on behalf of the company and could not offer any explanation as to why the company was offering the bank the amount in question for its securities. 43 It is plainly possible that Mr Carpenter was by no means candid with Mr Henderson in relation to other activities of the Group and perhaps with the benefit of the whole picture, Mr Henderson may have been dissuaded from his very strong belief in everything which Mr Carpenter had put to him back then. Mr Nielsen 44 The evidence given by Mr Nielsen is extensively examined through the judgment. That section of the judgment is self-explanatory and the respective findings concerning his reliability are to be found in that section. There is no suggestion but that he carried out his level best to adequately recall the events of the time in the course of his giving of evidence. Mr Soper 45 Mr Soper was the person with the carriage of the relevant accounts from early December 1998 until they were terminated and took the decision to enforce the Bank's securities and appoint Administrators. 46 The detailed reasons deal with the finding rejecting his evidence that in completing the 11 December 1998 diary note, he had intended the diary note to record both a 'take on review' and 'the annual review'. Likewise the reasons explain the finding that the occasion when Mr Soper formed the view that the materials which he had examined constituted an event of default within the meaning of clause 10 (1) (k) of the General Conditions, had nothing to do with and was not a part of any annual review but involved only the giving of an instruction to Ms Agsten that a clause 10 (1) (k) event of default had been identified [for the purpose of the ANZ being in a position to send the 4 February 1999 letter to the Group's solicitors]. 47 Mr Soper accepted and relied on Mr Carpenter's various assurances that refinancing was imminent in deferring termination of the remaining facilities. 48 As with a number of the other witnesses, his precise recollection of conversations had been materially aided by diary notes and memoranda. As appropriate the reasons given in the judgment travel into more detail where conflicts as between his evidence and the evidence particularly of Mr Carpenter, require resolution. In one specific instance certain of Mr Soper's evidence [in relation to the 11 December 1998 meeting with Mr Carpenter] is found to be reliable and Mr Carpenter's evidence shown to be inaccurate by reference to Mr Carpenter's own diary note of that meeting. 49 In the result and as the reasons make clear, in some areas his evidence is rejected and in some areas his evidence is accepted. The contemporaneous documents assist in this regard Ms Agsten 50 Ms Agsten's evidence is detailed in the reasons which follow. She did demonstrate some real uncertainty in terms of her recollection of the events at hand. However it is clear that in giving her evidence she was doing the best that she could to recall the events which occurred some considerable time ago. Mr Brennan 51 Mr Brennan was the senior Bank officer confirming the decision to transfer file to Group Credit Management at the end of November 1998, including instructions to High Risk to spill the bill maturing 1 December 1998 to overdraft. 52 Mr Brennan's evidence is regarded as generally reliable, he again, as with many of the other ANZ witnesses called, being heavily reliant upon contemporaneous documents. Mr Harvey 53 Mr Harvey was the responsible bank officer involved in communications relevant to the construction of the 7 October 1998 facility variation letter. He had the discussion with Mr Carpenter on 20 November when it was agreed that Pioneer could have 3 months to refinance at Pioneer's request. The evidence in that regard is examined carefully in the judgment. 54 His evidence is regarded as generally reliable. It is consistent with the contemporaneous documents. Mr Kilcran 55 Mr Kilcran gave evidence corroborating Mr Harvey as to the communications relevant to construing the 7 October 1998 facility variation letter. In a number of instances he had prepared diary notes which are discussed in the judgment. 56 His evidence is accepted as reliable. Mr Staples 57 In my view Mr Staples [who was the external accountant for Pioneer Park] appeared to be a careful and conscientious witness whose evidence was consistent with his past practices. However his evidence concerning parameters of concern in relation to the gearing ratio issue raises certain real doubts [most particular by reference to his belief that he had calculated an external debt ratio for June 1998 using a particular electronic file] examined in the reasons. Mr Donovan 58 Mr Donovan [a former Pioneer employee] gave evidence about the decline in the fortunes and prospects for the business over the period leading up to the insolvent administration. His evidence is accepted as reliable Mr Martin 59 Mr Martin [another former Pioneer employee as 'purchasing officer'] gave evidence of problems which had been encountered in obtaining parts from suppliers in the period leading up to the insolvent administration of Pioneer, and of the system of releasing cheques to pay critical suppliers when payment was necessary to procure more supplies. His evidence is accepted as reliable. Mr Hall 60 Mr Hall was the administrator and first liquidator. He reviewed Pioneer's position at the commencement of the administration and documented and gave evidence of various statements and claims made by Mr Carpenter in that context. His evidence is accepted as reliable. Mr Slater 61 Mr Slater worked for Mr Hall at the premises during the administration, and confirmed parameters of activity at that time. He also managed the process of collecting Pioneer's records and the recording of what was kept and what was discarded. His evidence is accepted as reliable. Other witnesses 62 It is strictly unnecessary to travel through all of the other witnesses who were called. As and when appropriate they receive mention in the judgment. They included:

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616 The nature and extent of the duty was recently considered by Barrett J in Overlook v Foxtel [2002] NSWSC 17 : "[63] But what are the content and effect of such an implied term? This question was the subject of discussion by the Court of Appeal in Burger King. Sheller, Beazley and Stein JJA referred to the observation of Sir Anthony Mason in his 1993 Cambridge Lecture (see now (2000) 116 LQR 66 at 69) that the concept "embraced no less than three related notions", being: "(1) an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself); (2) compliance with honest standards of conduct; and (3) compliance with standards of conduct which are reasonable having regard to the interests of the parties." [64] There is some overlap here with the terms implied by law as referred to in Peters (WA) Ltd. Sir Anthony's duty of "loyalty to the promise itself" may well include the duties not to hinder fulfilment of the promise's purpose and to do everything necessary to enable the other party to have the benefit of the promise. The more substantial and separate content of the duty of good faith itself would therefore seem to lie in the second and third limbs of Sir Anthony's formulation - that is, adherence to standards of conduct which are honest, as well as being reasonable having regard to the parties' interests. [65] If adherence to such standards of conduct is the predominant component of a separate obligation of good faith in performance of a contract, it becomes necessary to enquire about the extent to which selflessness is required. It must be accepted that the party subject to the obligation is not required to subordinate the party's own interests, so long as pursuit of those interests does not entail unreasonable interference with the enjoyment of a benefit conferred by the express contractual terms so that the enjoyment becomes (or could become), in words used by McHugh and Gummow JJ in Byrne v Australian Airlines Ltd (1995) 185 CLR 410, "nugatory, worthless or, perhaps, seriously undermined". This seems to me to be the principle emerging from para 172 to para 177 of the joint judgment in Burger King where the various authorities are collected and discussed. [66} Dr Elisabeth Peden of the University of Sydney has characterised the effect of the good faith requirement in contractual performance as follows ("Incorporation of Terms of Good Faith in Contract Law in Australia", (2001) 23 Syd L Rev 222): "Most basically, by using the obligation to perform in good faith as a principle of construction the courts are merely required to ensure that the parties have genuinely adhered to the bargain which they entered into. This will require an examination of the whole contract and the underlying intentions. Strict rights may not be adhered to, if in the context of the contract as a whole, this would subvert the character of the contract. Most cases that discuss the concept do so in terms of negatives, that is, what is not in breach of good faith. This makes sense, since it is the context of the contract read as a whole that will indicate what is appropriate and what is not." [67] Viewed in this way, the implied obligation of good faith underwrites the spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter. But no party is fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary: Burger King at para 187. The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and to have due regard to the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms.

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683 I would accept that there was an implied obligation to behave honestly and to do all such things as were necessary to enable the other party to have the benefit of the contract. [To my mind these are elements of good faith [cf Peden supra at 165]]. 79 Whilst the decision in Vodafone was of course confined to the particular terms of the contract there under consideration, it may at least be said that in the case presently before the Court, the reach of the implied obligations, [both of the group as well as of ANZ], to act in good faith and to act reasonably, can only be assessed having regard to the provisions of the contract which regulated the granting of the facilities. Neither party was required to subordinate its contractual rights. Compliance with the terms of the original letter of offer 80 The original letter of offer was accepted on 10 January 1996 and all conditions precedent satisfied by Pioneer and by Mr Carpenter as guarantor by 25 January 1996. About that date the funds of the Fully Drawn Advance Facility were drawn down. 81 Pursuant to the Security Schedule of the Letter of Offer, Pioneer granted a mortgage debenture by way of fixed and floating charge over its assets and undertaking to ANZ to secure moneys owing under the facilities granted by ANZ. 82 Further, again pursuant to the Security Schedule to the Letter of Offer Pioneer entered into a registered Real Property Act mortgage of the Tuggerah Property. That mortgage incorporated the ANZ's Memorandum of Common Provisions no. 0466274. The variation effected by the Bank's letter of 17 May 1996 83 As is clear from what follows, under the 17 May 1996 letter, the FRFDA was reduced from a $2.5 million limit to a $500,000 limit, with the termination date remaining 5 years from the date of drawdown. The limit was now interchangeable with the limit on the new $2 million commercial bill acceptance discount facility ("CBAD") which also had a termination date of 5 years form the date of drawdown. The arrangement remained for principal reductions of approximately $1 million over the 5 year term, now across both facilities. All other conditions, including the existing General Conditions, remained unchanged. The background to the 17 May 1996 variation 84 After security documents had been executed and provided. and a limited guarantee provided by Mrs Carpenter, and an unlimited guarantee provided by Mr Carpenter, discussions took place between ANZ and Pioneer, which related, [in respect of the major part of the fixed rate Fully Drawn Advance Facility (as to $2 million),] to substitution of a variable rate Commercial Bill Acceptance/Discount Facility enabling greater flexibility to obtain more favourable interest rates. 85 The results of those discussions were set out in the letter of 17 May 1996 from ANZ to Mr Carpenter and Pioneer and were accepted in writing by Mr Carpenter for Pioneer on 29 May 1996. The letter confirmed the agreed fixed term for the Fully Drawn Advance Facility and the Variable Rate Commercial Bill Acceptance/Discount Facility ("FDA/CBADF") reading as follows:

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[At the same time it should be noted that the same facilities schedule to the letter of 3 March 1997 gives a termination date for the variable rate commercial bill acceptance /discount facility as "not before the next review date". Mr Nielsen gave evidence that this was an error [transcript 591.27] and should have been recorded as 31 December 2001 [transcript 601.43]. Being of that opinion he was unable to agree with the proposition that this particular schedule had, for the first time, introduced a difference in the termination date as between the two facilities]. It is appropriate to infer from his evidence that in his view the correct termination date for the variable rate commercial bill acceptance/discount facility should have been recorded in the letter of offer of 3 March 1997 as '31 December 2001'. That view was based upon module G of the 24 July 1997 credit memorandum describing the CBAD-F/V as having a term of five years with interest only [transcript 601.50] Mr Nielsen did accept however that: a) one clear difference between facilities offered by the letter of 3 March 1997 and the offer made by the earlier letter of 17 May 1996, was that there was no longer any requirement to reduce the total amount of the facilities by $1,000,000 over five years, and that in lieu of that amortisation regime, i. the fixed rate fully drawn advance facility now appeared as a repayment arrangement of $50,000 per quarter; ii. the variable rate commercial bill facility now appeared as "interest only." [transcript 591.52] b) another difference between the facilities offered by the letter of 3 March 1997 and the offer made by the earlier letter of 7 May 1996 was that the facilities were no longer described as interchangeable x. Mr Nielsen did not agree that at the time when he sent the letter of 3 March 1997 he would necessarily have reviewed the terms of the annual review and variation letter of offer. This was because in practice these letters were prepared by the customer service unit [CSU] and would be checked by the manager of that unit and were then handed to the local manager for execution of signature. Generally speaking Mr Nielsen would not spend time re-evaluating details as he did not regard it as part of his task to check the terms by which facilities were being varied or renewed [transcript 602].

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Q. You are not prepared to contemplate that in preparing the letter of offer the CSU made a decision to vary the terms of the facilities so that they are set out as set out in the offer of 3 March '97? A. No. [Transcript 594-596] Examining the position before and after the letter of 3 March 1997 111 It is appropriate to return to examine the respects in which the letter of 3 March 1997 varied the anterior position, the negotiations in that regard and importantly to focus upon the manner in which the Group availed itself of the altered facilities thereafter. 112 The convenient way to approach this examination is to deal with each facility separately. Overdraft facility 113 The overdraft facility limit was increased from $500,000 by a temporary overdraft of $250,000, which was to be cleared in full by 20 April 1997. As previously observed, the termination date for the facility less the temporary overdraft was stated as "not before the next review date". 114 The increase in the overdraft limit arose out of a request by Mr Carpenter to the Bank to ease the temporary strain on working capital caused by slow paying debtors. His request was documented in Mr Jones' Diary Note dated 7 February 1997 [Tender Bundle Tab 66] and Mr Neilson's Diary Note dated 11 February 1997 [Tender Bundle Tab 68]. 115 The Bank required sighting of December financials prior to committing any formal approval for the additional facility and Mr Carpenter provided a report of financials as at December 1996 which confirmed weak cash flows in November, December and February but had strong forecasted cash flows for the remaining months of the financial year [Tender Bundle Tab 69]. 116 The Group's overdraft account remained above the $500,000 limit, which was illustrated in a spreadsheet the defendant prepared using the Group's ANZ Operating Account Bank Statements, Letters of Offer, Credit Memoranda [Tender Bundle Tab 10]. Fully Drawn Advance 117 The FDA limit was reduced from $500,000 to $350,000. The anterior interchangeability with the limit on the CBAD was removed. The termination date, which was previously "5 years from drawdown" [either February 2001 or May 2001], was extended to 31 December 2001. The repayment arrangement was varied from principal reductions of $1 million over 5 years to $50,000 per quarter until fully repaid by the end of 1998. 118 The proposed variations to the facility were part of the refinancing of the Group's St George facilities. The reduction of $150,000 in the limit of the FDA reflected payments already made by the Group. 119 The negotiations between Mr Carpenter and the Bank were documented in Mr Jones' Diary Note dated 5 May 1997 [Tender Bundle Tab 99] wherein the following was recorded "Cliff Carpenter called…the opportunity was taken to discuss rollover of FDA-F." Mr Carpenter subsequently signed an undated drawdown notice for the $350,000 facility [Tender Bundle Tab 3]. 120 The Group made quarterly payments of $50,000 which commenced on 3 July 1997, in accordance with the undated drawdown notice which stated the first instalment was payable on 2 July 1997. Commercial Bill Acceptance/Discount Facility (CBAD) 121 As previously observed the CBAD was no longer interchangeable with the FDA and the limit was fixed at $2 million. The termination date was now "not before next review date". The previous repayment requirement of $1 million principal reduction over 5 years [in respect of the two then interchangeable facilities] was no longer required. 122 Similar to the FDA, the changes to the CBAD were part of the refinancing of the Group's borrowings. 123 The Group continued to utilise the CBAD through to June 1999 subject to variations, which are in contention. The letter of variation of 7 October 1998 also noted the facility as subject to annual review. Encashment Facility 124 An encashment of cheque facility with a facility limit of $5,000 was provided with the determination date: "Not before the next review date". 125 Pioneer had the benefit of the encashment of cheque facility from the Wyong branch. Mr Neilson's diary note of 7 July 1997 recorded discussions with Mr Carpenter regarding the Bank's intention to close the Wyong branch 'sometime in the next few months' and Mr Carpenter's advice to Mr Neilson that he consequently needed to consider various options, including obtaining Petty Cash. DOC/OS No 1 126 The Overdraft was noted as being interchangeable with the DOC O/S. 127 The Doc Credit No 1 Facility was recorded as having a determination date "not before next review date". 128 Pioneer enjoyed the benefit of this interchangeable limit of $2.5 million (with the added advantages of increases in the temporary overdraft limit as provided from time to time). As illustrated from the excesses spreadsheet MFI D8, Pioneer's account exceeded the $500K limit in February 1997, and while the balance fluctuated, it was accommodated by the interchangeable limit. 129 Diary notes record conversations between the Bank and Ms Stewart and/or Mr Carpenter with a view to reducing the excess based on the interchangeable limit, being the limit interchangeable between these facilities. The interchangeable limit was ultimately cancelled in April 1998 following the completion of the army contract. Foreign Currency Dealing facility 130 A Facility of the same limit was extended until 'next review date'. Financial Guarantee 131 The facility was extended until an expected date of 31 March 1997 with lower limit of $422,256 and lower minimum fee of $2,111 per half year. 132 There are several diary notes which record the maturing of the term deposit and its roll over for a further 7 days. The facility was reduced following some repayments, and the interest that accrued on the term deposit was credited into the Army account. There is correspondence from the Army which supports the reduction of the Financial Guarantee facility, until its ultimate completion. Decision 133 The existence of the letter of 3 March 1997 and the subsequent availing by the Group of the altered facilities provide the only basis for any suggestion that the fixed term of the FDA/CBADF was ever varied by any agreement.

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"Analysing the letter and the conduct in terms of the law of contract, the following proposition is assumed to be uncontroversial. In situations where the customer seeks to have the bank extend or modify existing facilities, or grant additional facilities or indulgences, any such extension or modification or grant of additional facilities, is to be classified as a variation or renegotiation of the facilities and the bank is entitled to stipulate the terms and conditions on which it was prepared to grant (if at all) the changed facilities, without being restricted by the terms of the pre-existing facilities. Of course such a negotiation would not necessarily bind the customer as a matter of contract until the legal requirements for acceptance of the variation offer were fulfilled, but in the normal course, acceptance would be taken as established if the offeree used or took the benefit of the variation proposed, having knowledge of the terms on which it was being offered. That is what occurred in this case." 142 It is unnecessary to consider whether the position may have been different had the altered facilities been de minimus. 143 To the contrary, one finds that the 3 March 1997 letter provided some real changes to the anterior facilities and in a number of instances, granted facilities expressly utilising the terms "Termination: not before next review date": cf the $750,000 overdraft; the Encashment of Cheque facility; the $2,000,000 Documentary Credit/Documents surrender No 1 facility; the $685,000 Foreign Currency Dealing Facility. 144 The fact that the 3 March 1997 letter expressly gave the CBAD a termination date as "Not before the next review date", simply cannot be gainsaid. Mr Nielsen's evidence that this was an error and that the correct termination date should have been 31 December 2001 constitutes no more than an opinion. The opinion is no more than that for the reason that the document was prepared by CSU and that Mr Nielsen would not necessarily have reviewed it. Whilst it is true that there was evidence [in the form of an internal Credit Risk Review as at 30 June 1998 -Exhibit P 10] that the CSU had not been providing timely and adequate support, had not been fully staffed since inception, was not staffed it with fully trained personnel and that the set staff had been doing some of the CSU's duties, none of this speaks to the particular matter in hand as having necessarily constituted an error. 145 The proposition that the termination dates for the CBAD and the FDA should logically have mirrored one another because that was the position in the 17 May 1996 letter, whilst at first blush a seemingly attractive proposition, does not survive closer analysis for reasons including that:

[258]

ii. with the need for full cross collateralisation of group companies and the provision of consolidated audited financial statements as a requirement for ongoing Bank support in the medium to long term. 162 In this regard the analysis put forward by ANZ is accepted as correct and adopted in what follows. It focuses upon the CBAD. The analysis in part treats with the matter upon the assumption that the 3 March 1997 letter was not accepted and hence that the CBAD facility was not a revolving facility by dint of that letter. Notwithstanding that the finding is that the 3 March letter was accepted, the analysis which follows serves as a convenient examination of the position should the decision on the 3 March letter be incorrect. 163 The general rule is that where it is determined that the terms of the agreement are wholly contained in writing and are unambiguous or of a plain meaning, extrinsic evidence cannot be admitted to subtract from, add to, vary or contradict the language of the written agreement: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347. 164 Generally the contract is to be construed objectively and to give effect to the apparent intention of the parties as disclosed by their written document, and direct evidence of the parties' actual subjective intentions and expectations is inadmissible for purposes of construction: Codelfa Ibid at 348 and 352. 165 The language used in a contract is generally assigned its natural and ordinary meaning, read in the light of the contract as a whole but where it is ambiguous, surrounding circumstances may be taken into account in assigning the presumed meaning. Surrounding circumstances include the matrix of mutually known facts and the background, object, context and commercial purpose of the transaction viewed objectively on the basis of what reasonable persons in the position of the parties would have had in mind: Codelfa Ibid at 347-352. For this purpose the "contract as a whole" in the context of the Pioneer facilities extends back to the original facility letter of 8 January 1996 and all subsequent variations, in the absence of any occasion in the interim where the rights and obligations of the parties were completely restated afresh as distinct from varied. 166 Applying those general principles in the current context and assuming that the finding as to the 3 March 1997 letter was incorrect, the question which would arise is whether there is an ambiguity in the terms of the letter of offer dated 7 October 1998 which would render the discussions on 2 October and the intervening communications relevantly available as "surrounding circumstances" for the purpose of resolving such ambiguity. 167 There are two overlapping aspects of ambiguity to be resolved:

[260]

ii. Second, when the variation letter of offer dated 7 October 1998, is reviewed in the context of the previous documentation of the facilities described as "existing" in the October variation letter, it appears that the principal (if not the sole) "variations to some of the conditions on which the existing facilities are provided" (emphasis added) was the provision to confirm or make those facilities "subject to annual review". The other conditions introduced by the 7 October variation letter appear to be additional conditions applying regardless of what facilities there are rather than any variation of existing facilities. Thus the text of the variation offer also would introduce an ambiguity as to what variation is being made to the existing facilities. 168 The argument against this view is that there is no incompatibility between the proposition that "all facilities are subject to annual review" and the continuation of the CBAD facility as a fixed term facility, because fixed term facilities were subject to annual review: it is simply that the general conditions made different provisions about what ANZ was entitled to do upon an annual review of such facilities. Thus on this approach, no question arises about the intended reach of the term that "all facilities are subject to annual review". 169 However I accept as correct the submission that even if the CBAD had not become a revolving facility "subject to annual review" by dint of the 3 March 1997 letter, this argument would not be conclusive in this case. The history of the documentation of variation to the facilities (leaving aside for present purposes the March 1997 letter - although it is not an exception in this regard), shows that it was not ANZ's practice in respect of its variation offers to Pioneer Park, to use the term "subject to annual review" in relation to fixed term facilities. As a matter of historical record of the facility variation documents, fixed term facilities were consistently not described as "subject to annual review", in contrast to other facilities which were so described. 170 The prior observance of this convention in the documenting of the variation of facilities shows that the 7 October variation offer departs from the pattern previously observed. I accept that this introduces sufficient doubt about the intended scope of the term, to permit regard to be had to the surrounding circumstances, including in this case the communications noted above leading up to the issuing of the October 1998 variation letter, for the purpose of attempting to clarify the intended contractual effect. 171 Thus in the posited circumstance, the 7 October 1998 variation letter would be ambiguous on the question as to whether the CBAD facility was expressly varied so that, instead of being treated as a fixed term facility for the purposes of the general conditions, it became a facility which was "subject to annual review" (that is, like the others) and liable to be terminated following a review. Hence the evidence of communications between the parties on and subsequent to 2 October 1998 would be admissible for the purpose of resolving that ambiguity and would lead to the conclusion that in the light of such communications, two reasonable parties in the position of ANZ and Pioneer Park would be taken, by using the words "all facilities are subject to annual review", to have expressly varied the CBAD facility, so that it would be treated at the pending annual review, as a facility granted at least until the next review date, rather than for a fixed term expiring in 2001. Focussing upon the Overdraft Facility 172 The convenient approach is to initially focus on the position as it was from time to time with respect to the Overdraft Facility. 173 By dint of the letter of 8 January 1996 the overdraft became subject to the next annual review which was to take place on 31 January 97. 174 That position remained the same following the 17 May 1996 letter which did not expressly deal with the subject to save for providing that if the variations were agreed, the existing General Conditions and Specific Conditions would continue to apply to the facilities [plainly being a reference to the existing conditions]. 175 The 3 March 1997 letter constituted a contractual offer to vary the anterior position with respect to the overdraft as it now included a term that the facilities were subject to annual review and that the next review date would be on 30 November 1997. This was apt to apply to the overdraft facility, to the encashment of cheque facility, and to the Documentary Credit/documents surrender No 1 facility, but not to the FDA. 176 The 6 April 1998 letter, commencing with the statement "Following an annual review we are pleased to offer …", now confirmed that the facilities were subject to annual review and that the next review date would be on 30 November 1997. 177 This position followed through the sending of both the letters of 9 June 1998 and of 7 October 1998:

[268]

(c) Control remains with Business Banking High Risk Unit, subject to the following conditions:- * Full cross collateralisation of security * Immediate review and increase of all pricing * Immediate appointment of an IA to assess the ongoing viability of the business Mr Carpenter has requested the Bank to consider taking over a $700K loan currently provided by St George Bank. This loan is secured by residential property at Dural, valued at approximately $2.0M (Note: this is the property that we currently hold 2RM, refer above comments). Any consideration of this proposal would be on the basis that the Dural property is provided unconditionally as security, with independent legal and financial advice to be sought by Mrs Carpenter. Whilst, this would result in an increase in total limits, our security position would improve, however is not supported unless IA confirms ongoing serviceability." Focusing upon the Variable Rate Commercial Bill Acceptance/Discount facility 179 By dint of the 3 March 1997 letter, this facility lost its anterior five-year fixed term status and became subject to review on the next annual review date of 30 November 1997. Hence its termination date mirrored that nominated for the overdraft in the 3 March letter. 180 There was no review on that date but a review on 6 April 1998 took place, following which the letter of 6 April 1998 made clear that the next annual review would be on 30 November 1998. 181 There was no variation to this anterior position by the letter of 9 June 1998. In context and following the wording in the 3 March 1997 letter: "Termination not before the next review date", meant that the CBAD had a termination date as not before 30 November 1998. 182 The letter of 7 October 1998 made clear that the next annual review date would be on 30 November 1998. Focusing upon the fixed-rate fully drawn facility 183 By dint of the 3 May 97 letter, the termination date became 31 December 2001 [an extension from the anterior position of five years from the date of drawdown]. 184 This position continued unaffected by the letters of 6 April 98 and 9 June 1998 but was affected by the terms of the letter of 7 October 1998 which as previously indicated, plainly constituted a variation to the anterior position. This facility was clearly now subject to a next annual review on November 1998. It was ultimately paid out in late 1998 and no longer falls for examination in the present litigious context. Decision 185 To summarise, the findings are as follows:

[285]

v. The admission(s) cannot prevail in the face of the document in which the bank explicitly communicated to Pioneer the terms on which it was prepared to continue to provide the further and further restructured facilities in March 1997, in circumstances where the precise matter in issue was noticed by Mr Carpenter, was the subject of discussions between him and the Hendersons, and the subject of the conversation between him and Neilson and his subsequent silence as recounted in paragraphs 22-4 of his statement Ex P1. 192 Indeed and as ANZ also observes, it would be a strange outcome if the existence of some inconsistent summary descriptions in an internal confidential record not revealed before compulsory process in the course of litigation would change the legal effect of a chain of written communications between two contracting parties where the subject matter is dealt with explicitly. That result is precluded by the High Court's decision in Codelfa and subsequent authorities applying Codelfa. The Group's reliance upon the contents of Modules F and G as a business record 193 Certainly the contents of these modules were business records. However that fact does not assist in the quest to establish the contractual term of any facility because the content of the contractual terms are to be found in the chain of facility documents and facility variation documents and in the communications between the parties in that regard. The judgment generally deals with the proper legal analysis in terms of the all-important 3 March 1997 letter. 194 In so far as the Group seeks to rely on Modules F and G to suggest the letter of 3 March 1997 contained errors, the fact that the credit memoranda constitute business records cannot be gainsaid. The value of the documents is as ANZ has submitted, made considerably weaker by reason of the fact that the termination dates stated in Module F conflict with those referenced in Module G. Returning to the detail of AMP transaction 195 The nature of the AMP transaction is discernible by a "two leg" analysis. Essentially the transaction involved:

[291]

"Q. And secondly you say the full deal, as we have just been through it, was disclosed to officers of the ANZ Bank on 16 June 1998, is that right? A. Not disclosed. Events were happening. They were aware of it and we discussed what had happened because the shares had listed the previous data extraordinary price, but the deal itself had been foreshadowed and disclosed to the bank long before then. [Transcript 216.23]" 202 ANZ relies on the diary note of Mr Neilson dated 16 June 1998 as evidence of the disclosure made by Mr Carpenter to the Bank about the first leg of the transaction but contends that there was no disclosure at that date about the second leg of the transaction by which the shares were sold from Retreat to Domino Mining for the listing price. 203 On the balance of probabilities the contemporary diary notes warrant a finding that the second leg of the transaction was first disclosed to ANZ at the time it was recorded in the diary note dated 27 July 1998. This proposition was put to Mr Carpenter who disagreed and repeated his earlier evidence that "the bank had been informed about the coming transaction before then and that this was just a restatement of advice that they already knew" (transcript 226.35). 204 Mr Carpenter's evidence in fact directly contradicted what, if accurate, the earlier diary note, albeit dated 16 June, had recorded him as saying: the earlier diary note containing no detail about the sale of shares to Domino Mining on the 15 June day of listing. 205 Based upon the evidence the balance of possibilities favours a finding that at the date of listing the only deal that had been done was between Mr Carpenter's family and Retreat. Was there some form of agreement which would bind the parties to a second leg of the transaction and if so when was such agreement entered into? 206 Mr Carpenter was asked whether he considered Domino Mining to be bound to a legal obligation to buy the shares from Retreat at the listing price on 15 June 1998. His answer was "yes, I suppose so, yes". [transcript 218.1] 207 The finding is however that prior to the date of listing the second leg of the transaction was in no way the subject of any agreement binding Domino Mining. The share transfer 208 The only evidence of any agreement is the share transfer document [PX 9 Tab 178] which, on ANZ's contention, was brought into existence in August 1998. 209 The share transfer records the first leg of the transaction by which members of the Carpenter family transferred their shares to Retreat with a date of purchase of 20 May 1998. 210 The record of the second leg of the transaction is somewhat unclear as there are two versions of the document:

[315]

v. Similarly, at the Merlo board meeting it was agreed to pursue refinance from another Bank [38/3]. Formal board meetings are no longer held 238 As ANZ has submitted, between 27 November 1998 and the appointment of the administrator in June 1999, there is no evidence of any board minute of Domino Mining Equipment [Mr Carpenter confirmed he was unaware of any formal board meetings in this period: transcript 205. The evidence of Mr Henderson was similar: transcript 668.] 239 The finding, again as ANZ has submitted, is that even if during this period there were discussions from time to time on matters concerning Domino Mining Equipment, the fact that the board had for all intents and purposes ceased to meet and carry out the regular process of reviewing management accounts, receiving a report from Mr Carpenter and having an inspection of the factory [as Mr Henderson deposed had been the practice] is specially significant in terms of the company moving into a position of decline and eventual shutdown. 30 November 1998 240 On 30 November 1998, ANZ spilled a $500,000 mature commercial bill to the overdraft account of Domino Mining (13/401). This was made apparent to the company in its bank statements (18/9 and 10) and was not the subject of any complaint. [a more detailed analysis of the retiring of the Commercial Bills into the overdraft account, including the whole of the terms regulating the commercial bills facility, is set out later in the judgment] 11 December 1998 241 On 11 December 1998 there was a meeting between Mr Carpenter and Mr Soper. The finding is that the general content of the meeting is accurately recorded in Mr Carpenter's diary notes [13/409]. In this regard the balance of probabilities favours an acceptance of Mr Soper's affidavit and oral evidence of the conversation (transcript 756-7, 782-787) as opposed to an acceptance of Mr Carpenter's evidence (transcript 304-317). 242 It is not unimportant to note that Mr Carpenter's own hand writing on the type version of his notes includes an arrow:

[341]

Q. You've accepted this much, that the statement you made at the time was a false statement. I'm now asking you the next question, you knew at the time when you made it that you were making a false statement. Do you agree with that? A. Yes. [Transcript 326-327] Early February 1999 256 The finding is that on about 4 February 1999 Mr Soper, in consultation with Ms Agsten, specifically turned his mind to whether there was material adverse change within Clause 10(1)(k) of the general conditions and formed the view there was, based on trading losses: Soper statement at [74]. 257 This was communicated to the company in ANZ's letter of 4 February 1999 [13/437]. Mr Carpenter brought it to the attention of Mr David Henderson [Henderson transcript 882]. 19 February 1999 258 On 19 February 1999 Mr Carpenter's lawyer wrote to ANZ requesting an extension to refinance by 28 March 1999. The letter stated "As you would also appreciate the discussions about our client transferring its business to a new bank was planned to take place within 3 months. This took no account of the fact that Christmas, New Year and the holidays were in the middle of that period. This has made the process a little slower… The Bank has not taken into account the fact that the period which was discussed for ending arrangements failed to take into account the disruption with the Christmas/ New Year break. The date should be changed to 28 March" (Tab 32). 24 February 1999 259 By letter dated 24 February the Group's solicitor wrote to ANZ and advising that the bank's threat to unilaterally terminate the banking facilities or appoint an investigative accountant or receiver was looming on 28 February and asking for an acknowledgment that ANZ would not act precipitously to cause irreparable damage to the business in all of the circumstances. 25 February 1999 260 By letter dated 25 February ANZ responded by stating that in an attempt to organise an amicable parting of the ways, ANZ accepted an extension of time to 26 February for the refinancing of the facilities to take place. The Bank added that it pointed out that the facilities have expired and that this extension to allow time for refinance does not constitute an extension of the facilities and all rights under the Transaction Documents are reserved (Tab 33). 26 February 1999 - Mis-statements as to progression of alternative finance arrangements 261 On 26 February 1999 Mr Carpenter instructed his solicitor to send a letter to the Bank stating that alternative finance was progressing well but would take another 3 to 4 weeks, at which time he would bring the arrangements with the Bank to an end - which were also false statements to his knowledge [transcript 331]. These statements had a material influence on Mr Soper's state of mind [transcript 817]. 262 By late February 1999, the attempts by Mr Carpenter to refinance the Domino Mining Equipment account with Westpac had failed and the preliminary enquiry to St George had also terminated. Mr Henderson learnt this: [transcript 873]. 263 As is apparent from the matters already outlined, this is an area in respect of which much of the evidence given by Mr Carpenter is shown to have been no more than a construct which was simply false. 264 The finding is that Mr Carpenter made a series of misleading and on occasion calculated false statements to ANZ about his refinance attempts: probably on 18 January 1999, and certainly 9 February, 26 February and 25 March 1999. 265 As ANZ has submitted, the matter which falsified the statements as to refinance was that Mr Carpenter admitted that his contact with Westpac was in late January where a manager came out to the property and a few days afterwards indicated Westpac were not interested in going ahead with any application. On the balance of probabilities, Westpac were probably given the December management accounts (transcript 297 - 299). Mr Carpenter described their position as not surprising in view of the losses that were there (transcript 299). 266 Mr Carpenter's only other contact was with Mr Neilson, who was now at St George, who was only mildly responsive. He had left St George by the end of February and the matter was taken no further with St George (transcript 300 - 301). Thereafter Mr Carpenter did not identify any other bank for Domino Mining Equipment (transcript 301). 267 At the same time as Mr Carpenter was misleading ANZ officers dealing with his matter, he was attempting to exploit a connection with the Chairman of ANZ to have the decisions of those officers reversed. He was not frank with the Chairman because he failed to reveal the fact that he had been misleading the Bank officers in question: transcript 328. 268 Mr Carpenter attempted to retract his admissions of telling deliberate falsehoods on the next morning of his continued cross examination: transcript 348. However on examination it becomes plain that the matter which he said he had overlooked in making the earlier admissions was completely irrelevant to those admissions. Even if he was making enquiries of AMP Bank at the relevant time to refinance his home loan, that fact in no way justified statements being made to ANZ that he was actively refinancing his Domino Mining loans. [See transcript 350] Focusing upon the position with the D & R Henderson Pty Ltd loans Position by February 1999 269 The position with the D & R Henderson Pty Ltd loans by February 1999 was as follows:

[345]

iv. in addition, there were apparently some loans which the Henderson Superannuation Fund had made to Domino Hire under the security of a charge over it. 270 In February 1999 Mr Staples provided advice to the Hendersons that there were potential problems under the SIS legislation with the Henderson Superannuation Fund lending monies to Domino Hire. The problem lay in these monies being on-lent to Domino Mining or Retreat: if those companies went down Domino Hire could not be repaid and thus the Superannuation Fund could not be repaid. 271 The risk of the investment being considered imprudent created a risk of losing tax status for the Superannuation Fund which needed to be avoided [13/440]. Mr Carpenter agreed: transcript 367. Mr Henderson confirmed: transcript 678. 272 In addition, Mr Staples' memorandum provides evidence (confirmed by David Henderson: transcript 677) that, at this time, Mr Robert Henderson had expressed a desire to move more of the loan funds under the charge and away from the unsecured exposure to Domino Mining. Mr Carpenter agreed: transcript 365. Correspondence during March 2 March 1999 273 By letter from ANZ of 2 March the Group was advised that the three forward exchange contracts which had been rolled over on 26 February 1999 had been rolled over on numerous occasions. ANZ advised that it was not prepared to roll those contracts over again, that the contracts expired on 5 March 1999 and sought that the Group ensure that appropriate arrangements were made 5 March 1999 - Further time is sought 274 By letter dated 5 March 1999 the Group's solicitor dealt with a number of issues but in particular noted that it had requested ANZ to allow its client further time to finalise its refinancing, thanking ANZ for the extension and advising that it would keep ANZ advised. 11 March 1999 275 By letter dated 11 March 1999 ANZ indicated that if a short extension was necessary it required confirmation by citing a letter of approval that finance was pending with a firm date for settlement advised. It also advised that all the facilities had expired and had not been renewed. 12 March 1999 - Mr Carpenter writes to the ANZ chairman 276 By letter dated 12 March 1999 Mr Carpenter wrote to Mr Goode, the chairman of ANZ Banking Group making a series of complaints 16 March 1999 277 By letter dated 16 March 1999 Mr Carpenter forwarded to Mr Goode a document purporting to set out the history of the relationship. 19 March 1999 278 By facsimile dated 19 March 1999, Mr Carpenter's lawyer advised ANZ "that the discharge of our client's mortgage will take 2 - 3 weeks …… a Discharge of Mortgage is about the simplest document that can be prepared… The period of 2 - 3 weeks required by the Bank to discharge a mortgage obviously becomes a much longer time to transfer all of a group of companies' accounts to another bank …. We further note in all of this that you have simply ignored the release of the guarantee given by Mrs Carpenter. Please advise what progress is taking place in relation to that issue" (Tab 37). 25 March 1999 279 By letter dated 25 March 1999, ANZ advised the Group's solicitors that albeit having been informed that it would be informed of developments, ANZ had not received either correspondence or communication from the Group or its solicitor in relation to the refinance. It's sought full details of how the refinancing was progressing, advising that if a short extension was required, it would need to sight a letter of approval that refinancing was pending with the firm date for settlement advised. It also advised that the commercial bills of $500,000 and $1,000,000 would fall due on the following day and that given that ANZ had heard nothing from the Group regarding the progress of the refinance, the Commercial Bills would be retired into the overdraft. 280 By letter also dated 25 March 1999 ANZ [Mr Soper] responded to the letter which had been addressed to Mr Goode in detail, ending the letter with the following:

[348]

Otherwise position during March 1999 284 During March, all loans from the D & R Henderson Pty Ltd to Domino Mining were repaid, by way of Domino Hire taking over the obligation on those loans. 285 Thereafter, no further monies were ever advanced directly from any Henderson entity to Domino Mining. Carpenter: transcript 361, 363. 286 Mr David Henderson was unable to shed any light on the purpose of the above described repayment [transcript 676]. The balance of probabilities favours the inference [particularly drawn from Mr Staples' February memorandum, and the fact that Domino Mining had no contracts on foot which would produce monies which would repay the loans], that the Hendersons made a decision that they wanted the unsecured loan by D & R Henderson Pty Ltd to be repaid because the purpose for them had now passed; the time for repayment had expired; and they had decided that they did not wish to have any further unsecured exposure to Domino Mining Equipment. 287 The balance of probabilities further favours the inference that from this withdrawal of funds from Domino Mining Equipment, that thereafter D & R Henderson Pty Ltd would not have advanced any further funds unsecured to Domino Mining Equipment unless there was clear evidence of a particular contract being entered which would generate the funds for repayment. There was no such evidence of any such contract. 288 During the giving of evidence by Mr David Henderson there was a strong focus upon the question of whether or not the Henderson's, through their companies or personally, would have lent any monies unsecured to Domino Mining for the purpose of enabling it to pay out part or all of the banks facilities. The Court proceeds to reach findings on the balance of probabilities read in the light of the evidence before the Court. 289 The simple but very powerful fact is that notwithstanding that Mr Henderson had been told by Mr Carpenter shortly after 3 May 1999 that the bank had issued the letter stating that it would terminate all facilities within 30 days in the absence of repayment, no steps were taken by either Mr Henderson or his brother to draw on facilities which were apparently able to be drawn upon to pay out ANZ the $2.5 million amount or any part thereof. 290 The evidence given by Mr Henderson was that Mr Carpenter had declined to request assistance in the form of the necessary funding. This proposition does not per se justify a finding on the balance of probabilities that Mr Henderson or his brother or their corporate resources were prepared to pay out ANZ, had a request been forthcoming from Mr Carpenter. Indeed what actually happened as disclosed on the evidence, makes it very difficult to hold that there was any such preparedness at all.

[351]

ii. there was no evidence that Mr Carpenter ever took any steps to seek to raise the smaller amount of $500,000: transcript 353. 293 It should be recalled that Mr Carpenter agreed that had he considered inviting the Hendersons to advance $500,000 unsecured, leaving the Bank secured for a $2 million debt, that would have been a commercially imprudent transaction for the Hendersons to engage in and one he would have been very reluctant to ask them to engage in: transcript 370. ANZ spills the balance of the bills to the overdraft 294 At the end of March, one month after the agreed 3 month period for refinance, the Bank chose to spill the balance of the bills to the overdraft [14/473]. 295 The Bank extended the 3 month period for refinance for a further 2 months. Mr Henderson acknowledged this was fair and reasonable: transcript 880 - 881. 296 Neither Mr Carpenter nor Mr Henderson could give evidence of any specific conversation between the end of refinance attempts in February and receipt of the May demand from the Bank concerning a possible refinance by the Hendersons of the Bank facilities. See Mr Carpenter at transcript 303 and Mr Henderson at transcript 882-4. Mr Henderson confirmed that there was no request made by Mr Carpenter of this nature [transcript 884]. February through to May 1999 - deferral of creditors 297 The evidence discloses that during the period February through to May, the company was deferring its creditors until the last possible moment, and was the subject of a statutory demand and several statements of claim. It was unable to pay its tax bills on time. As ANZ submits, none of this can be put down to mere oversight or disputes with the creditors. 298 Mr Henderson gave evidence that he was not aware of this practise of deferring creditors (transcript 745-8). If he had been it would have been a matter of great concern to him. He attempted to qualify or retract this evidence later by saying that what he would have needed was an explanation and that he would have taken steps to see the debts paid (transcript 841). However, as ANZ has submitted, the simple fact is that he was a director of the company for a lengthy period and, according to him, completely oblivious to the way in which the company was actually behaving with its creditors. 299 It is common ground that the Hendersons advanced no monies to Domino Mining Equipment after March 1999. 8 April 1999 - ANZ agrees to a further extension of time 300 By letter dated 8 April 1999 ANZ [Mr Soper] wrote to Mr Carpenter and advising inter alia as follows:

[381]

iii. his offer was to allow the Bank to take the property, release its claims, with the fund to be put up to meet some of the company's obligations. 315 An offer was then made in early June 1999 [D5]. Mr Henderson claimed to have no knowledge of the offer: transcript 871. There was no obvious source from which the $470,000 would come, in instalments, if not the Hendersons. 316 At no time did the Hendersons, through any entity of theirs, actually advance, or according to their evidence, offer to advance, any sum of money to the Bank to take out its facilities. 317 Late in his evidence, Mr Henderson sought to change paragraph 3 of his second statement and now claimed that the monies might have come from some entity other than D & R Henderson Pty Ltd. ANZ submitted that this change was necessitated because he appreciated that his evidence that D & R Henderson Pty Ltd would and could have written an immediate cheque for $2.5 million was heavily destroyed once commercial prudence was considered. 318 Mr Henderson did confirm that even with the other entities he identified [transcript 859], they would not be simply giving money away or lending on totally uncommercial terms. They would have required a reasonable prospect of recovering their principal and interest on the transaction (transcript 855 and 866), that the company already had substantial exposures to Domino Hire [16/569] which, although secured, might be partly at risk given the weak position of that company: [see Mr Henderson at transcript 856 - 8]. Based on any objective analysis of the position of Domino Mining Equipment at the relevant time, there was a very high prospect that money would be lost. Analysis of the ultimate ANZ demand for immediate payment 319 As earlier observed the convenient course is to carry out this analysis positing that there were a number of events of default by 8 June 1999 and thereafter, to identify and give reasons for the findings in relation to those disparate events of default. 320 As will appear from what follows, the Group [albeit raising many matters of contention] placed enormous stress upon the following matters:

[400]

"As to the existence of a sufficient cause, the jury have found it; and they were right in so doing. The act of entering the protest on the minute book was inconsistent with his service; a servant of this kind, if allowed to do such acts, would be useless. But then it is said that it should have been put to the jury, whether this cause was the operating motive for the dismissal. I own that I was impressed for a considerable time with the weight of this argument. But I think that when a master, sued for wages, defends himself upon the ground that he had dismissed the servant, and that there was in fact something which justified the dismissal, that presents an intelligible issue to a jury: whereas, if the inquiry were to be, whether this justifying cause operated in the master's mind, a jury, in the great majority of cases, could not pronounce a satisfactory verdict. I think it is enough to shew a justification existing in point of fact ." [emphasis added] 336 The law's focus on the question of legal entitlement, determined ex post facto, rather than on the actual justification motivating the dismissal, thus appears to be derived largely from historical scepticism as to a jury's capacity to make a finding of fact vis-à-vis a man's motives. One peculiar comparison that might be drawn in relation to this continuing reluctance is that juries regularly make just such findings in criminal cases: only there they are asked to make such a finding to the obviously higher standard of 'beyond reasonable doubt', and not merely on the balance of probabilities. 337 The rule has been recently treated with by the High Court of Australia. In Concut Pty Ltd v Worrell (2000) 75 ALJR 312; 176 ALR 693, the High Court (per Gleeson CJ, Gaudron and Gummow JJ) put the matter as follows: [27] The trial judge had held that Mr Wells' activities in relation to the building operations at Beaudesert had amounted to significant misconduct which was sufficient to terminate his employment. His Honour also held, with reference to Shepherd v Felt and Textiles of Australia Ltd that it did not matter that at the time of the dismissal Concut had not been aware of that misconduct. That misconduct nevertheless was available to Concut to resist the action for damages for wrongful dismissal instituted by Mr Wells.

[406]

These later statements of the principle rest on a much broader basis, and are susceptible of more extensive application than is suggested by the limited terms used in Shepherd's case , which was evidently regarded by Sir Owen Dixon as simply an illustration of the wider doctrine that he later expounded. Shortly stated, it is that the action taken must be capable of being justified at law, but that the grounds of justification, although they must have existed, need not have been known or relied upon at the time the action was taken." [emphasis added] 340 The Group strongly urged upon the Court the proposition that the principle expressed in Shepherd cannot and should not be presently engaged. 341 Close consideration has been given to the question of whether properly construed, the General Conditions provide for a statement of the precise reasons for ANZ invoking clause 11 (2). Plainly there is no express provision to this effect. In my view that clause cannot be construed as requiring a statement of the reasons for the invocation of the clause. 342 This is not however to suggest that where clause 9(2) (a) or (b) are engaged, the notice must not identify which of those sub-clauses is being engaged. Nor is it to suggest that in the event of a remediable breach, clause 10 (1) (n) (ii) must not be complied with to the letter. In short where the General Conditions expressly provide for the giving of particular forms of notice, the giving of those forms of notice become essential pre-conditions to the validity of any such notice. 343 However as soon as one turns one's focus away from the notice provisions of clause 9 of the General Conditions and proceeds to a careful examination of clause 11 (3) and(4) [dealing with the giving of notice], it becomes clear that in none of the circumstances regulated by subclause (2), is there an express [nor it seems to me, an implicit] requirement to notify the precise grounds of the default. Nor does the context of the banking relationship or the circumstances in which this default clause may be engaged, permit the Court by a construction route, to find any such requirement to notify the grounds of default. 344 The present inquiry is concerned with contractual powers which of course, turn on the proper construction of the material provisions of the contract. The proper construction of clause 11 of the General Conditions simply does not involve a requirement that grounds of default be notified. Hence ANZ was entitled to make the demand in the 8 June letter and to rely upon any grounds of default which were available as justifying the making of that demand. Reasonable opportunity to comply with demand 345 Consideration was given in Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 51 ALR 609 to a number of issues concerning the validity of a bank's demand for immediate payment of a debt payable on demand [in terms of the term regulating the contract]. The appellants had relied upon the statement of Cleasby B in Massey v Sladen (1868) LR 4 Ex 13 in the following terms:

[420]

iii. ANZ was contractually entitled to demand the moneys sought in these proceedings from Pioneer Park as at June 1999. 351 Before leaving the topic it is appropriate to note the evidence given by Mr Soper that, if for any reason, he had been told that there was an issue whether the earlier notice of termination of facilities was invalid, he would have relied upon any available event of default, subject to legal advice, including Clause 10(1)(k): [statement at [100]]. 352 On the balance of probabilities this evidence may be accepted as reliable. The finding is that if, for any reason, the June demand cannot be sustained as valid in terms of the reasons already given, ANZ could and would have continued to form, or separately form, an opinion of material adverse change so as to trigger the clause. It was entitled to rely on all of its rights pursuant to the terms and conditions of the subject letters of offer. Was there an annual review? 353 ANZ claimed in its letter of 11 May 1999 that an annual review had taken place on 11 December 1998. 354 The Group has strongly contended that no such annual review took place on that date or on any other date. Its contention is that instead of an annual review for the purposes of clause 9 of the General Conditions, after which ANZ could give notice to terminate facilities, ANZ decided upon an "exit strategy" and transferred the Pioneer and Merlo accounts to Group Credit Management under Mr Brennan, with Mr Soper as the manager. 355 There can be no doubt but that ANZ did determine in late November 1998 that the circumstances warranted immediate transfer to Group Credit Management to enforce an exit strategy. The matter is carefully documented in the diary note of 20 November 1998 [PX 12/388] and the ancillary handwritten and file notes. 356 The question of whether, and if so when, an annual review also took place and whether or not, and if so when, an opinion was formed by the appropriate officer/officers of ANZ determining, following a credit reassessment, that there had been a change in credit within the meaning of and for the purpose of Clause 9 (2), is one of fact. 357 Importantly it seems to me that it is necessary to show that an appropriate officer of ANZ in fact turned his or her mind to the task in hand being properly characterised as an 'annual review'. This is because the process of carrying out an annual review was important, as Mr Soper conceded [transcript 792.15]. He also conceded that one of the reasons why an annual review was important was because ANZ might have to reconsider credit and give notice as a result of the annual review to terminate facilities and to call up moneys [transcript 792.19]. It is pertinent to note that the definition of "credit re-assessment" in the General Conditions was as follows:

[433]

ii. The following extracts clarify the position in concerning how to approach the principles laid down in Jones v Dunkel : "The unexplained failure by a party to give evidence, to call witnesses, or tender documents, may - not must - in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case. The appropriate circumstances exist where it was within the power of the party to tender the evidence which was not tendered." (JD Heydon, Cross on Evidence, 6th ed, Butterworths, Sydney, 2000 at [1215]) "This instance of a Jones v Dunkel inference…, also available where there is unexplained failure by the party to call a witness or tender documentary evidence, can entitle the judge or jury more readily to accept the evidence of the opposite party which might have been contradicted, or more readily to draw any inference fairly available from the evidence called by the other party. A Jones v Dunkel inference cannot fill gaps in the evidence, or convert conjecture and suspicion into inference, but unless it is to be empty of content the inference if drawn may weigh the scales, however slightly, in favour of the opposing party." [ Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [649] per Giles JA, Mason P and Beazley JA agreeing] "[T]he rule [in Jones v Dunkel ] only applies where a party is "required to explain or contradict" something. What a party is required to explain or contradict depends on the issues as thrown up in the pleadings and by the course of evidence in the case. No inference can be drawn unless evidence is given of facts "requiring an answer". [ Cross on Evidence , Butterworths, [6th Ed] D Byrne, JD Heydon vol 1 at [1215]] [Passage quoted with approval in the joint judgment of Gleeson CJ and McHugh J in Schellenberg v Tunnel Holdings Pty Ltd (2000) 170 ALR 594 at 608 - 609]. 364 It does seem to me that the questions [which remained even after the evidence given by Mr Soper], were in a number of instances sufficiently opaque to have required that Ms Casanova be called to clarify areas of uncertainty, and this notwithstanding ANZ's contention that she had a clearly limited and merely clerical role in the bank's management of the plaintiff's accounts. Mr Soper had given evidence that he had asked her to prepare what she could from the file in terms of a 'take on' diary note. ANZ submitted [transcript 1703] that Ms Casanova was the author of the first draft of the diary note. And in circumstances in which an important question arose as to why the diary note and its antecedent did not state its purpose as being to conduct an annual review, it is appropriate to infer that the evidence of Ms Casanova would not have assisted ANZ's case. 365 In the light of all of the evidence called including the contemporary documents:

[444]

Q. What did she say to you? A. I can't recall the exact words but I mean the matter was discussed in detail with her, as far as the lawyer on the case. The losses were talked to and she said that this would constitute a default under 10 (k) of the general conditions and on review of that I firmly agreed with her . [Transcript 808-809] 370 Neither Mr Soper nor Ms Agsten gave evidence that they had discussed the topic of an annual review being or having been carried out. 371 The evidence given by Ms Agsten satisfied me that her recollection was particularly poor in relation to the events at hand. Having said that, it is clear that in giving her evidence she was doing the best that she could do recall those events. 372 Her evidence [at transcript 829] included that Mr Soper had said to her that there had been an adverse change in the financials and that there was a breach in the overdrafts and that in those respects, she had prepared the draft settlement deed. She was then asked whether when preparing the first deed, she had a discussion with Mr Soper about what might or might not be an adverse material change and her evidence was that she had not. Then [at transcript 830 and 831] her evidence was that she could not recall Mr Soper using the words "material adverse change" in talking with her. She simply could not recall the precise words which were used in his discussion with her. Finding 373 The finding is that the first time when Mr Soper considered clause 10 (1) (k) of the General Conditions was when Ms Agsten drew his attention to the clause in relation to material adverse effect. He conceded this. It was then that he certainly in his mind, formed the view that the materials which he had examined did constitute an event of default within the meaning of clause 10 (1) (k) of the General Conditions. 374 The finding is that Mr Soper then satisfied himself that there had been a change in circumstances: in short circumstances had arisen that in his opinion may have a material adverse effect on Pioneer's business, assets and financial condition as well as on its ability to perform its obligations under transaction documents. 375 The problem for ANZ's case simply has to do with the environment in which Mr Soper was acting from time to time. The finding is that he did not in fact at any material time, turn his mind to the task in hand being, or being properly characterised, as an 'annual review'. The documentary evidence confirms the finding. 376 Mr Soper's handwritten note appearing on a copy of the letter of 25 January 1999 received from the solicitors for the Group reading "Final Review 30 November 1998. Told would not extend for another period" fortifies the finding that no annual review was carried out up to that point in time [or indeed at any material point in time] but rather, that ANZ either simply believed it was entitled to refuse to extend the facilities when the review date had been reached, or failed to consider its strict contractual position at the time, [preferring to try to achieve an accommodation whereunder the Group would refinance, and to hold its hand on its legal rights pending the outcome of efforts to refinance]. 377 The occasion when Mr Soper formed the view that the materials which he had examined constituted an event of default within the meaning of clause 10 (1) (k) of the General Conditions, had nothing to do with and was not a part of any annual review. He formed the view in giving an instruction to Ms Agsten that a clause 10 (1) (k) event of default had been identified for the purpose of the ANZ being in a position to send the 4 February 1999 letter to the Group's solicitors. 378 The fact that Mr Soper did, as a matter of turning his mind to the precise issue, determine that an event of default in terms of clause 10 (1) (k) had occurred [in terms of a relevant change in circumstances having a material adverse effect as described in this sub clause], is very clearly demonstrated by the fact that in an earlier draft by Ms Agsten [of the letter from ANZ to the solicitors for the Group], wording appeared which was amended in the final draft. It was so amended following Mr Soper's instruction. This earlier draft [PX 13/436] in fact includes his handwriting making the amendment. I record hereunder the original terms of the draft:

[505]

we may roll the bills as if you have given an irrevocable instruction requesting us to accept and discount new bills (on rollover of the maturing bills) and had accepted as a yield rate the bank bill buying rate calculated by us by reference to the face value of the bills, for a tenor of 7 days (extended, if necessary, to end on a business day). 400 At the same time it is necessary to keep in mind the terms of the Commercial Bills-Authority documents enclosed with ANZ's letter to Mr Carpenter of 29 April 1996 [PX 6/50]. 401 Then as a matter of convenience it is necessary to keep closely at hand the spreadsheet prepared by ANZ to illustrate each event of significance in the respective rollovers and the maturing of the commercial bills [MFI D 24]. [A copy of that document with the respective colouring and annotations is conveniently annexed to this judgment as Annexure B. Whilst the Court discourages annexure's to judgments this is one of those rare occasions where such an annexure may assist the reader, and if the proceedings travel to the Court of Appeal, that Court]. The issue 402 The whole of the exercise is concerned with ascertaining whether ANZ acted in breach of contract in its treatment of the bills. Travelling through the spreadsheet 403 As the spreadsheet indicates under the CBAD there were 3 bills in 1996, respectively for $1,000,000, $500,000 and a further $500,000. The spreadsheet records the manner in which the initial bills rolled over, there being relevant instructions to do so. 404 These rollovers were unexceptional, taking place where specific instruction was given by the customer at the beginning of the arrangement to roll over periods. [PX 7/51 gave instructions to ANZ, the detail of which is unnecessary to record]. That is the occasion when the term loan was rolled into the bills and that instruction operated on a continuing basis through until July 1997 [being the entries marked in blue on the spreadsheet]. 405 The spreadsheet then records in green that which occurred from July 1997 through until November 1998, that is for the following 14 months. As the spreadsheet records, the bank rolled the bills on the periods that had been established by the original letter carrying it forward. The evidence as to this is to be found in bank statements. In other words, the evidence establishes that up until November 1998 the parties continued the periods of the rollover which had been established by the initial letter. 406 In November 1998 the bank temporarily matured a bill a month early and then immediately recreated it and it rolled over for 30 days. 407 Hence when one gets to November 1998:

[511]

iii. from the transfer of the limits in March 1999 it included the additional $1.5 million from the remaining bills. 417 The Group was informed of the material events and voiced no dissension. The evidence established that Mr Carpenter never asked nor gave ANZ an instruction to do anything different than it actually did in respect of the bills. 418 The Group never in fact gave any instruction to roll over the November or March Bills. ANZ's obligation as a matter of the written contract was, if in receipt of a valid instruction to roll a bill over, to comply with that construction. Its contractual entitlement if there was no valid instruction, was represented by its option to roll that bill over for 7 day periods. That was an option but was not elevated into a duty. Decision 419 In the result the Group's contentions that ANZ was in breach of contract in maturing the $500,000 bill to the overdraft account on 1 December 1998 is of no substance. Likewise the Group's contentions that ANZ was in breach of contract in retiring the remaining commercial bills of $1.5 million to the overdraft in late 1999 is of no substance. The Group's good faith and misleading and deceptive conduct cases 420 The Group's cases contending that ANZ breached its obligations of good faith and its case in terms of misleading and deceptive conduct pursued under both the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW) have no substance in the face of the findings of fact set out in these reasons. The rights of both parties were contractual rights. The analysis of those contractual rights is carefully treated with in these reasons. 421 Whilst certainly the findings reject ANZ's contention that an annual review was held at a material time after 30 November 1998 and, in consequence, reject the letter of 3 May 1999 as giving any form of valid contractual notice, ANZ has succeeded on the ultimate question of upholding the validity of the subsequent letter of 8 June 1999. That letter has been shown to be justified by reason of the events of default which had, by then, taken place hence permitting ANZ to make all of the moneys owing under the facilities immediately due and payable by giving written notice [becoming effective immediately when given]. 422 On the factual findings, whilst it would clearly have been preferable for ANZ to have specifically highlighted the fact that the 3 March 1997 letter, if accepted, would have the effect of depriving the Group of the previously agreed CBAD fixed term, Mr Carpenter was sufficiently alerted to raise a concern at what appeared to be changes in the terms of the advances with Mr Nielsen. 423 The finding is that ANZ did not mislead the Group by the terms of the 3 March 1997 letter. Nor is it shown to have failed to exercise in good faith its rights and powers, nor to have failed to cooperate and to do all things reasonably necessary on its part to enable performance of the contractual agreement as varied, nor to have conducted itself so as to frustrate or prevent the performance by the Group of the agreement. 424 An important parameter in the case pursued by the Group concerns the extent of the information given to the Group at material times concerning ANZ having acted in particular ways. To the contrary of that case, many of the allegations of lack of notice have to be dismissed on the evidence covering bank statements, communications between the parties and lack of complaint in relation to the manner in which the Commercial Bills were dealt with by ANZ:

[534]

ii. the alleged pressure placed on Mr Carpenter to come to an agreement to exit ANZ irrespective of the terms of the letters of offer and the General Conditions , and the continuation of fixed term or revolving facilities (the FDA/CBADF and the overdraft). 426 It is to be recalled that in late November 1998 Mr Harvey had said that ANZ wished to engage an investigative accountant and that Mr Carpenter had dissuaded him from this course, the accommodation reached involving the 3 month timetable. 427 The reasons deal with the failure to conduct the all important annual review after 30 November 1998 and with the invalidity of the 3 May 1999 notice purporting to be given in accordance with clause 9 (4) of the General Conditions. However in the context of the whole of the circumstances proven to have occurred in the period from late November 1998 until the giving of the final 8 June 1999 notice, these matters do not give rise in these proceedings to any entitlement to relief. The Group has simply not been in a position to prove that in reliance upon any proven misleading and deceptive conduct, it altered its position to its detriment as by failing to take some other course available to it. Detrimental reliance or change in position are essential elements in claims to relief for alleged misleading and deceptive conduct. There is no evidence that Mr Carpenter for example, abandoned attempts to obtain refinance which he would otherwise have been able to procure. 428 In fact to the contrary, the Group did in fact achieve a window of opportunity in which to endeavour to refinance, although that refinancing was never procured. The only arguable misleading and deceptive conduct was constituted by the sending of the invalid 3 May 1999 notice. There is no evidence of any reliance by the Group on any assumption that the notice was valid. 429 Standing back from the heat generated in the litigation it is important not to lose sight of the fact that the Group at material times was suffering from severe haemorrhaging and that at every moment, ANZ's rights under clauses other than clause 9, were expressly reserved in clause 9 (5). Gearing ratio 430 It is next convenient to deal with the respective cases concerning the gearing ratio. The 8 January 1996 facility letter 431 The gearing ratio had been spelled out in the 8 January 1996 facility letter. That letter sets out the contractual formula for calculating the gearing ratio as follows:

[563]

ii. the failure to achieve the gearing ratio required by the letter of 8 January 1996 [by 30 June 1997] was not the subject of any complaint or protest by ANZ and was not recorded as a default until Mr Soper's diary note of 11 December 1998, after the determination of the exit strategy. 453 These submissions are not of substance. There was no written notice under the General Conditions clause 16 waiving the obligation to comply with the gearing ratio condition at all, whether in relation to the external liabilities or liabilities which were arguably external liabilities or any other matter. The proposition that the gearing ratio issue was not recorded as a default until the diary note of 11 December 1998 appears in some fashion to be connected by the Groups submission, with the determination of the exit strategy. The matter of the decision to seek to exit the relationship is elsewhere dealt with in these reasons. 454 In any event it is well established that waiver of a contractual right requires knowledge. The failure to provide any signed accounts at any time after 20 November 1998 is the subject of findings below. 455 The proposition that ANZ waived the Group's obligation to comply with the gearing ratio condition must fail in the face of the Group's failure to provide any signed accounts at any time after 20 November 1998. Indeed none of the conduct of ANZ in relation to the periods of time during which it extended time to the Group to refinance is consistent with any such waiver. To the contrary, ANZ had made very plain that it was complying with the requests so as to permit refinancing to be completed, in the absence of which the facilities would be called up. 456 The finding is that the whole of the communications between the parties during the period following 20 November 1998 was one in which it was absolutely clear to the Group that to the contrary of ANZ waiving any of its contractual rights, it was doing no more and no less than permitting the Group to carry out its best endeavours to achieve a refinancing, but that the whole of ANZ's contractual rights would be availed of in the event that the refinancing was unsuccessful. The evidence is consistent with this finding. To the extent that the finding involves the drawing of an inference from the evidence, that inference is inescapable. 457 In any event, the type of default meant that it could not be 'spent'. 458 In the result the breach of the gearing ratio has been established. 459 The breach was irremediable. This constituted an event of default. The default continued up to 9 June 1999. ANZ at no time conducted itself so as to waive its entitlement to rely upon the event of default. As the judgment has already made clear, it was not necessary for ANZ to notify the precise grounds of the default. The alleged failure to provide signed and audited accounts 460 Mr Carpenter exhibited a degree of confusion as to the date when, on his evidence, he delivered a signed copy of the audited accounts in a sealed envelope addressed to Mr Harvey leaving the same the ANZ bank: (a) [at transcript 177.45] his evidence was that by about 5 or 6 September a signed copy of the accounts was provided to the bank;

[573]

(c) the position that a provision be made of $744,859 in diminution in value of the AMP shares [which provision accords with that to be found in the actual accounts] 466 Mr Carpenter was also challenged with the document to be found in PX volume 12 at tab 365 recording that on 28 October 1998 he had told Mr Harvey that he hoped to have audited consolidated financials to hand early the following week and with a document at tab 371 recording that on 2 November he had said to Mr Harvey that he did not yet have the audited consolidated financials but hoped to have them to discuss at a meeting on 10 November. He denied the proposition put to him. 467 He was also shown tab 378, a contemporaneous document, suggesting that on 9 November he had said to Mr Harvey that he still did not have the audited consolidated financials because the auditors were waiting for a particular professional valuation. He denied this proposition. Evidence given by Mr Staples 468 Mr Staples was the external accountant for Pioneer Park from the time Retreat purchased the Company in or about June 1990 until the company had voluntary administrators appointed in May 1999. 469 Part of the function that he discharged for the Company was to liaise with ANZ in relation to a gearing ratio which the Company had to comply with as part of its conditions of its facilities with the ANZ. He also liaised with ANZ from time to time on matters relating to the Company's facilities and banking arrangements. 470 Mr Staples gave evidence [which is accepted as reliable] that he recalled Mr Carpenter pressurising him to get the Domino accounts finished early [transcript 541.27]. 471 A deal of the problem arose because he had not been able to produce a copy of the 1998 accounts of Domino Mining signed by himself or the directors, the difficulties having apparently arisen when a different mode of storing old files had been adopted. 472 His evidence was that Mr Carpenter had asked for the accounts to be prepared early and that he had made an effort to prepare them earlier than the work plan review [of 30 June 1998] had planned [transcript 541.36]. However what he had provided were described by him as 'preliminary drafts' based on preliminary information which he had had and some limited fieldwork. His evidence was that there would have been other fieldwork carried out to complete the accounts and to issue the opinion subsequent to having provided those draft accounts to Mr Carpenter [transcript 551.7]. 473 His evidence was that that he believed that the remaining fieldwork had extended into October 1998. He accepted that it followed from his evidence that if he provided Mr Carpenter with a second set of accounts, including all the necessary fieldwork for the purpose of the audit process, that would have occurred sometime in October or November [transcript 551]. 474 At transcript 552 and following he was closely cross-examined on a number of specific instances of the further fieldwork, by reference to working papers kept by his firm in relation to the 1998 audit. It is unnecessary to chronicle all of the specifics but they included changes to the AMP share write-down which accounted for $800,000 of a particular adjustment. His evidence for example included:

[595]

20 I understood from Mr Carpenter's response that he understood what I had said about the Bank's unwillingness to continue the facilities unless the viability of the group and its ongoing capacity to service them and repay them over an acceptable time was established to the Bank's satisfaction, supported by audited consolidated financial statements . [emphasis added] 483 It was put to Mr Harvey that his evidence in paragraph 19 [to having stated that ongoing ANZ support for Domino would be dependant on the provision of consolidated audited financial statements for the group showing a capacity to both service interest and repay the facilities over a term acceptable to the Bank] was in fact said on a later occasion. He denied the suggestion although accepting that it may well have been repeated on a later occasion. That evidence is accepted as reliable. Finding 484 Ultimately the position which emerges from all of the ANZ diary notes is simply that there is no evidence of signed accounts being delivered at any time after 20 November 1998. No such accounts have been produced by ANZ. Nor has the Group been able to produce a signed version of the account from its own records, the company records retained by Mr Thomas or the records of Mr Staples. 485 The only evidence of a board minute of a directors meeting to approve the accounts is of a supposed meeting of no identified date, place or time (Exhibit D1). However Mr Carpenter agreed there were no formal board minutes after 27 November 1998 [transcript 205]. As ANZ has contended, it not established that any such meeting occurred or that the accounts were ever signed by the directors or the auditor. 486 It will be recalled that the covenant required accounts to be signed and delivered by 31 October 1998. Neither occurred. Thereafter, if accounts had been signed this would have been after 27 November 1998. Yet there was no evidence led from the Group that accounts would have been signed then had ANZ given notice. That evidence could have been called. In the context of this litigation the failure of the Group took all that evidence seems surprising indeed. 487 Notwithstanding this state of affairs I am not persuaded that the breach was incapable of remedy. In this regard it should be recalled that the current state of the authorities as reflected in the decision of the Court of Appeal in Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 identifies the operative principles as follows:

[633]

iv. unavailability/absence of other cash resources [vide inability to refinance outside of the Hendersons; inability to refinance through the Hendersons] [treated with under the cashflow test]. 496 It is strictly unnecessary to go further and to rely upon the so-called 'suspicious transactions'. Having said that, it is certainly true that Mr Donnelly took these matters into account in his report and that the reasons include findings on these matters. 497 The state of the industry at the time also serves to provide a context of relevance. Turning to the detail 498 The manner in which the insolvency issue was litigated concerned an extraordinarily close analysis of almost every integer of arguable relevance. 499 There were many areas in respect of which the central experts called by the parties, had been given disparate assumptions to rely upon and where the actual facts were in issue. Hence each cross examiner both put a number of assumptions to the witnesses being cross-examined and also sought to disassemble the report provided by the witnesses by a close testing of the foundational material relied upon in reaching the opinions expressed in the reports. Accounts reconstructed by Mr Carpenter 500 One only example of the difficulties involved, concerned management accounts [annexure F to Mr Hunter's report of 13 July 2006] relied upon by him as accurate in forming his opinion that the company was solvent as at 31 May 1999. He assumed that these were the accounts in existence at the end of May 1999 and no one had informed him that the accounts were a reconstruction produced by Mr Carpenter for the purpose of the proceedings in recent times. It will be recalled that Mr Carpenter had been an experienced chartered accountant and qualified auditor admitted to the 'B' list of liquidators and had acted as receiver or liquidator of approximately 30 companies. Accounts reconstructed by Mr Donnelly 501 Mr Donnelly, [called as the ANZ's insolvency expert], approached the matter by reconstructing the profit and loss account for the company for July 1998 - May 1999 from its general ledger (Tab 61 of Mr Donnelly). Generally his evidence is accepted as soundly based and as having disclosed a clear transparency of reasoning processes.

[635]

The balance sheet for the company at 31 May 1999 records the deterioration of shareholders funds of $670,000 since 31 December 1998. Mr Donnelly's conclusion 502 Mr Donnelly had in fact concluded that Pioneer Park was insolvent from at least 9 February 1999. Integers examined 503 Outside of the close analysis of accounting issues [including matters such as the true value of the stock at material times, the time which it would take to realise that stock, the true value of the land which was owned at material times and weighing into the equation whether or not and if so when and in what amounts, ANZ was entitled to pursue its debts], it was necessary for the experts to treat with the difficult topic of whether or not they were obliged take into account the assumption [pressed by the Group, but denied by ANZ], that one or other of the Hendersons or their companies would always have been prepared to provide sufficient funds to pay out all creditors who were pressing and to do so immediately upon request. Whether or not that assumption would prove correct was always a matter for the Court's decision. 504 It is unnecessary to set out all of the evidence before the Court. Evidence given by Mr Donovan 505 The evidence not only included the evidence of experts called in relation to the coal mining industry [Mr Domsalla called for the Group and Mr Barnett called for ANZ], but also included evidence given by Mr Peter Donovan who had prior to August 1999 been employed by Domino Mining. 506 By the late 1970s Mr Donovan had begun to gain experience in the repair, sale and field promotion of mining equipment and was able to give evidence of having had approximately 35 years experience in the mining industry. 507 His role at Pioneer as at June 1999 was that of Sales and Service Manager and he had occupied that position since approximately 1995. He had principal responsibility for the sale of Pioneer's machinery and technical service capabilities, assisting with the commissioning of machinery and training purchasers' staff. He reported to Mr Carpenter and Mr David James [the Operations Manager] on Pioneer's sales. He also took part in Pioneer's management team meetings. 508 As part of his role he would often travel interstate and overseas to attract new work for Pioneer and to build on existing client relationships. Between 1995 and 1999 he made approximately 15 trips to China where his role was to market and progress tenders and to assist with the installation of machinery and the conduct of training. He had very recently returned from a business trip to China when the appointment of administrators to Pioneer occurred. 509 In his statement of 15 June 2006 [noting that a number of the documents referred to in the statement, went into evidence as business records or as records of minutes which he had attended or as recollections of his subjective state of mind as to particular matters at the time] he gave evidence that:

[640]

In his own long personal experience as an employee of Pioneer and its predecessors since 1972 and as its Sales and Service Manager throughout the late 1990's it was never a certainty that Pioneer would obtain non-warranty repair or overhaul work on its own machines. To the contrary, in his personal experience, particularly throughout the 1990's, the market for overhauls was very competitive and price sensitive and Pioneer had to fight to get any overhaul work on its machines. Pioneer did conduct field service work for customers but it also faced significant competition from mine workshops (who did their own repairs) and also from a number of small, independent diesel and mechanical workshops. For example, he knew from personal experience that during the 1990's at least the following organisations were direct competitors for Pioneer's overhaul and repair work and did this work on Pioneer's machines: · a company called Gateway Engineering Pty Limited; · a company called Narellan Diesel Service Pty Ltd; · a business called Hymec Mining and Engineering; · a business called Fitzsimmons Diesel; and · a business called Fleetbilt Driveshaft Services at Port Kembla did transmission overhauls and axle repairs. This competition and the decline in service work undertaken by Pioneer was one of the significant issues addressed by Turnaround Consulting. Its June 1997 report (Tab 7) at 7.3.5 'Service Work' recorded: "Our understanding of the history of Domino is that at one stage it operated a successful service operation out of Sydney to service the numerous Domino machines operating in NSW mines. Further, there were service fitters travelling to collieries gaining further service work. Since the shutdown of the Sydney service operation the extent of service activity has decreased dramatically to the extent where today other companies are servicing Domino machines." Back in the period 1997 - 1999, from regularly speaking with Pioneer's customers, he knew that Pioneer's competitors were charging lower hourly rates for repair and overhaul work than Pioneer. He believed that Pioneer's competitors could do this because, unlike Pioneer, they did not have engineering and sales costs which had to be supported. Many parts on Pioneer's machines were generic and could be easily obtained (Pioneer's parts suppliers also supplied its competitors). Even where parts were Pioneer-designed and made, Pioneer would often sell the parts separately to its competitors in any event. Also in his experience, competitors often re-engineered and manufactured Pioneer-made parts to get service and overhaul work. It was not difficult for competitors to do this cost-effectively where their hourly rates were much cheaper than Pioneer's rates.

[659]

107 From the end of 2004 export prices have soared to very high levels, especially for hard coking coal. Steam coal has been achieving prices of A$65 per tonne and over while other coking coal has been selling for around A$100 and more. The price of Hard coking coal has reached A$160 per tonne. Cash costs have risen due to supply shortages and increased cost of petroleum that affects diesel prices, but also the cost of explosives. Tyres for the very large off road trucks have been in very limited supply. Coal royalties have risen steeply as in both Queensland and NSW they are directly related to the sales price of the coal. However, the coal industries of NSW and Queensland have never before enjoyed such high profits." The evidence is determinative 513 Mr Garnsey, leading counsel for the Group, many times during the addresses and during the hearing, stressed the importance of the Court taking into account the extensive history of Pioneer and its general goodwill and good name, submitting that the Court should strain against making any precipitous finding to the effect that Pioneer had no future, simply because it was experiencing a downturn due to cyclical market forces. Those submissions have been carefully taken into account in the findings which are made in this judgment. However it has to be said that at the end of the day, the evidence clearly established that applying conventional principles, Pioneer's deteriorating financial position justifies the finding that at the least by the commencement of June 1999, the company was insolvent and that it likely was insolvent for some time prior to that point in time. 514 As previously observed the question is simply one of fact and the protestations of blue sky in terms of Pioneer's continued prospects as at that date have to be dismissed on the evidence. Findings 515 The Court's findings on a number of parameters of significance [conveniently called "the MFI D19 findings"] are as follows and are in each case taken from MFI D 19 [and supported by the footnotes to that document]:

[715]

vii. From early 1999 to June 1999 there is evidence of non-payment or late payment of other unsecured creditors some of whom took legal action to recover their debts. 519 The evidence before the Court establishes the ground for each of these conclusions [conveniently referred to as "the 7 Donnelly conclusions]. 520 Mr Donnelly's report sets out a chronology which although not in every detail squaring with the evidence before the Court, was certainly sufficiently in conformity with that evidence to mean that the reasoning given in his report is not shown to have been misconceived by any significant departure from the materials in evidence. 521 The form of the report travels into and out of chronology references and often descends into detail [as for example in terms of setting out schedules detailing matters such as overdraft movements, comparisons of particular trading results contained in ANZ diary notes, his review of general ledger trial balances for particular periods, his review of cash books during particular periods revealing the holding of cheques drawn but not released, his review of creditor correspondence and his analyses of particular balance sheets, monthly management accounts, working capital detail , trading profits and the like]. 522 Here again it cannot be said that the approach taken in his report is misconceived by reason of any significant departure from the proper approach to be taken to the materials in evidence. It is only to be expected that some discrepancies will be thrown up where the complex accounting treatment requires to deal with so many integers and where the appropriate assumptions are often somewhat debatable. It is for that reason that the overview summary findings were earlier set out. 523 Certainly his analysis, at least based upon the materials referred to in his report and in his oral evidence, is not in principle shown to have been misconceived by any significant departure from the vast bulk of the materials in evidence: [the Group's submission in respect of a suggested mis-classification of a receipt of $600,000 is dealt with in the reasons below]. What that analysis does is to provide an entirely transparent approach by way of exposing the treatment to be given to the many factors earlier outlined in these reasons under the heading "Proper approach to consideration of insolvency". Whilst the critical question is always one of commercial reality, the ordered approach given by Mr Donnelly to each of the relevant integers is accepted as a fair and balanced approach. 524 The short position is that Mr Donnelly's evidence given in his report [supplemented by his evidence in chief and closely tested in his cross examination] is clearly confirmatory of the Court's ultimate decision of fact ascertained from a consideration of Pioneer Park's financial position taken as a whole and importantly taking into account the commercial realities relevant to that financial position. Save for any possible occasional discrepancy between Mr Donnelly's assumptions [and figures] and the Court's findings set out above, Mr Donnelly's reasons are adopted as correct and balanced in terms of the ultimate decision of insolvency as at the commencement of June 1999. It is unnecessary to decide at which date prior to June the company was likely insolvent. The material chronology 525 The chronology travels through many of the ANZ diary notes and extracts from directors meetings and serves to provide a reasonably succinct and collapsed thumbnail sketch overview of many of the material events. Notwithstanding that many of the matters summarised in the chronology have one way or another been referred to in the early reasons, it is very important to stand back from all of that detail and to simply focus upon the basic raw materials which were not able to be gainsaid and which are captured by Mr Donnelly in this chronology. For that reason it is convenient to set out without being repetitive, a deal of significant entries [which have been somewhat edited on occasion to achieve efficiency]. 526 The chronology was as follows:

[839]

Estimated Realisable Value ($) Current Assets Debtors 99,150 Cash 108 Stock 491,330 WIP 105,067 Total Current Assets 695,655 Current Liabilities Taxes 10,872 Wages 18,267 Unsecured Creditors 140,369 ANZ 2,500,000 Total Current Liabilities 2,669,508 Working Capital (1,973,853) Readily Available Working Capital if the $2M commercial bill facility was not repayable on demand but the bank overdraft was repayable on demand (Note 1) (570,250)

[897]

f) The significant factor to note is that if Mr Donnelly had made any adjustment, the company's position would have been worse . His oral evidence in cross-examination was consistent with this [transcript 1491]: "The note 1 that's there was put there because I suspicious that the transaction was an identical amount to the funds advanced by D & R Henderson. We saw the money go into the bank account. If D & R Henderson had advanced the money and it wasn't treated as a sale, then the normal entry would be to debit the bank and you would credit the loan account. We couldn't find a loan account for D & R Henderson, so given - we couldn't find a loan account for D & R Henderson in the company's records, we saw 600,000 go in, it was treated as a sale, so I've tread - sorry, I maintain the records as prepared by the company's general ledger, but I noted that this could well be a mistake and if it's a mistake or a mis-classification, the position will be 600,000 worse. Now, I didn't change the company's records but I noted that it could be wrong." 541 Further the submission of the Group that ANZ's case supported by the evidence given by Mr Donnelly, comes down to a contention that, for solvency, an enterprise must have confirmed forward orders to cover expenses, is incorrect. Mr Donnelly in particular covered an enormous amount of ground in terms of the integers taken into account. These reasons are grounded upon the company's financial position taken as a whole in terms of each of the integers which have been examined. Examining the evidence given by Mr Hunter 542 Mr Hunter has had extensive experience having been a partner in a number of firms and having been the division head of insolvency for the Sydney office and for Australia of Arthur Anderson, Chartered Accountants. He was also a member of the worldwide insolvency group of that firm. In 1986 he established his own consulting practice specialising in investigations, forensic accounting and insolvency related matters. During his period in being an official liquidator, on his estimate he was appointed as liquidator, receiver or some other form of administrator to over 2000 entities. He had acted as an expert on behalf of several firms of solicitors preparing reports concerning solvency, trading whilst insolvent, other insolvency related matters, investigation/forensic accounting matters, valuation of entities/businesses/assets, claims relating to damages and/or economic loss. 543 In the executive summary of his report he expressed the view that Pioneer was solvent on each of the dates 1 December 1998; 5 May 1999; 9 June 1999; and 10 June 1999. 544 His summary view which requires to be read in conjunction with his full report, relied upon the following matters as foundational to his opinions:

[982]

vi. Here again the notice was invalid for the reason that no annual review had been undertaken. 574 The central differences with the position which obtained in relation to Pioneer Park was that on any view, there were no fixed term facilities, and that the facilities were clearly always subject to annual review. Further all that happened after the giving of the above described notice was that Merlo Wholesale paid out the demand by paying the amount of $270,000. 575 Albeit that there are a few diary notes which overlap with materials already treated within the judgment, the short chronology provided by ANZ in its final submissions [which is generally taken from contemporaneous documents in evidence] is convenient to be borne in mind in terms of the history of these facilities: 13 August 1998 576 ANZ diary note of this date [12/310] records receipt of management figures for the year ending 30 June 1998 of entities within the client group. The Merlo Companies' position is reviewed commencing at page 12 of this document. It records that Merlo Wholesale has a debit balance on its operating account of $138,391.00 without any approved overdraft facility. It extracts figures from the accounts of Merlo Wholesale as at 30 June 1998 and compares them with budget projections for the same date. That comparison shows that sales achieved of $1.205 million dollars compared with budgeted sales of $6.037 million dollars. Gross profit of $143,000.00 compared with budget $797,000.00, EBIT of $86,000.00 compared with budget of $653,000.00 and net profit before tax of $86,000.00 compared with budgeted net profit of $437,000.00. In comments under cash flow, it notes that surplus funds of $475,000.00 were utilised toward repayment of loans from Domino Mining. Financial structure indicates that although effective equity increased from $340,000.00 at the beginning of the year to $408,000.00 at the end of the year, working capital over the same period declined from a surplus of $116,000.00 to a deficit of $19,000.00. This reduction is attributed to an increase in the loan to Merlo Australia from profits generated, to fund the loss in Merlo Australia. 577 Analysis of Merlo Australia figures commences at page 16 of the diary note. Figures for 30 June 1998 are compared to budget and show sales of $1.374 million dollars compared to budgeted sales of $7 million dollars, gross profit of $201,000.00 compared to budget of $963,000.00 EBIT shows a loss of $53,000.00 compared to a budget EBIT of $437,000.00 and a net loss before tax of $53,000.00 compared to budgeted profit of $293,000.00. The diary note records:

[983]

"If losses continue to feature in this entity, it will place additional strain on MW [Merlo Wholesale] as less of the sale proceeds will be repatriated back to MW to meet maturing L/C's as it will be required to be absorbed to cover the losses in MA". 578 The diary note also records projections which the customer sets out in a budget for the year ended 30 June 1999 on account of Merlo Australia Pty Limited, indicating budgeted sales of $2.221 million dollars EBIT of $133,000.00 and net profit before tax of $89,000.00. It appears that Mr Jones and Mr Neilson have then adjusted these figures for the purpose of projecting a "most likely" scenario for 30 June 1999 and 30 June 2000. Sales have been reduced by 9% and the gross profit is adjusted from budget of $263,000.00 to $303,000.00 for 1999 more closely reflecting gross profit ratios evident in the historical data provided. Total expenses are increased to 18.21% of projected sales, which more closely matches the ratio of expenses to sales indicated in the actual figures for 1997 and 1998 and compares to an unrealistic budget projection of expenses totalling only 5.85% of sales for 1999. As a result of these adjustments, Mr Jones and Mr Neilson derive a most likely scenario where EBIT would be minus $65,000.00 compared to the budget projection of positive $133,000.00 and a net loss of $65,000.00 compared to a budgeted profit of $89,000.00. 579 The diary note records at page 18 that Merlo Australia's financial structure indicates a deterioration in effective equity from $140,000.00 to $87,000.00 and a deterioration in working capital from a deficit of $25,000.00 at 30 June 1997 to a deficit of $78,000.00 at 30 June 1998. 580 The security indicator for Merlo Wholesale is ranked "F". The CART rating is assessed at 6. 22 October 1998 581 A diary note by Mr Harvey of this date [12/360] records telephone call from Julie Stewart to advise that Merlo Wholesale account will overdraw $160K-$170K on payment of a Letter of credit for $170K due 21 October, to reduce to $50K by 26/10/98 and clear in full by end of month. Mr Harvey advised Ms Stewart that there were no arrangements in place for this and it was expected that the account would remain in credit. After some more discussion, Ms Stewart explained that with 4 machines currently "on the water" Merlo did not intend any further purchases until say two of those machines were sold. Ms Stewart then requested a formal interchangeable Doc O/S/OD facility of $1M which was declined. 582 Mr Harvey told Ms Stewart he would support payment of LC $170K in the absence of any alternative subject to:

[985]

(b) No further LC's to be established without specific approval which would not be likely whilst any overdraft excess remained outstanding. 583 It appears that this proposed arrangement was approved, and approval of Mr Brennan and relieving SMC is endorsed on the diary note with Mr Brennan adding some comments. The note also records the arrangement being implemented. International advised that following payment of LC of $170K on 21st October the total Doc S/O liability would be approximately $440K. International were not to establish and further credits without reference. 584 The diary note also records that "Cliff Carpenter has previously been advised that the Merlo balance sheet strength alone does not support continuation of the $1M Doc S/O line." Mrs Stewart had no relevant recollection of the conversation(s) but confirmed that such an arrangement if made would have been after consultation with Mr Carpenter: transcript 724-6. 585 A diary note of Mr Kilcran of this date [12/ 362] notes Merlo Wholesale account excess of $162,190.95 against nil limit. "Excess permitted in terms of Diary Note dated 20.01.1998." 586 It seems that there was agreement between Mr Harvey and Ms Stewart to permit the excess on the terms stated in the 20 October diary note. 28 October 1998 587 A diary note of Mr Harvey [12/365] records excess on Merlo Wholesale account is at $50,580. Records (in last paragraph) discussion with Ms Stewart in which she confirmed that they expected the excess to clear by the end of the month as arranged. 2 November 1998 588 A diary note of Mr Harvey [12/371] records excess on Merlo Wholesale account is at $50,915. Mr Harvey chasing up non-clearance of the excess. Records discussion of the terms under which the facility was set up. Mr Harvey confirms no overdraft facilities in place for Merlo. 5 November 1998 589 Diary note of Huelin [12/374] records excess on Merlo Wholesale account is at $51,014. Records follow-up conversations with Carpenter and Stewart about clearance of the excess. 9 November 1998 590 Diary note prepared by Mr Harvey [12/378] indicates that Merlo Wholesale has debit excess of $51,440. Mr Harvey noted that Mr Carpenter asserted that the documentary credit arrangements were put in place on the basis that they would endeavour to sell the imported machines within the 180 day doc S facility. However, there would be occasions when this would not be possible. On these occasions the Doc/ S liability would revert to overdraft until the machines were sold. Mr Harvey confirmed to Mr Carpenter that there were no interchangeable facilities in place. The doc S/O is set up as a trade finance facility and not ongoing bailment finance. Mr Harvey requested transfer of funds from other companies to clear excess. Mr Carpenter said all available working capital in Domino is being used to purchase spare parts to supply the China Contract. The diary note records request to authorise an extended overdraft limit of $52,000.00 until 30 November 1998 transferred from the unutilised doc S/0 facility. Notes from Mr Brennan and Mr Peacock indicate approval for this proposal, stating that the situation is unsatisfactory and must be put in order ASAP. The note indicates that unless all issues can be resolved on 17 November, may need to consider transfer to GCM. 20 November 1998 591 Diary note of Ms Kerri Huelin [12/388] records financial monitoring of Domino Mining following receipt of audited consolidated accounts together with management accounts for three (3) months period to September 1998. In respect of Merlo Australia and its controlled entities, it was noted that the trading performance of the Merlo group improved slightly over the last twelve (12) months to record a small profit. Merlo Wholesale sales for the period ended 30 June 1998 are recorded as $1.205 million dollars with a net profit before tax of $84,000.00. Profit for the September quarter was noted to be significantly below budgeted levels with sales being 53% below budget. And it is noted that operating expenses are $3,000 over budget, despite the fall in turnover. In view of the above trading results and the company's history of poor budgeting, the ability to achieve projected profitability levels for 30 June 1999 must be questioned. In relation to Merlo Australia, the diary note refers to the loss in Merlo Australia for the period ended 30 June 1998 of $75,000 compared to a loss of $53,000.00 tabled in management accounts previously furnished and analysed in the diary note of 13 August 1998. Results for the September 1998 quarter were described as disappointing, with a profit of $2,000.00 compared to a budgeted profit of $29,000.00. The diary note states "the fall in sales is attributed to the general down turn being experienced in the industry". "The company has budgeted for a NPBT of $134K for the twelve (12) months to 30/6/99. In view of the above, trading results to the three (3) months to 30/6/98, the history of poor budgeting the company's ability to meet to forecast for 30/6/99 must be further investigated and critically assessed. The appointment of an independent investigative accountant to assess budgets and ongoing group viability is considered appropriate, if we are to continue to maintain a banking relationship with this group". 592 In respect of the Merlo Australia security position, this was assessed as disclosing a shortfall of $788,000.00 compared to the total limits of the facilities, and a security indicator of "F" was considered appropriate. A CART assessment indicated a rating of 8 in respect of Merlo Australia and controlled entities. Mr Brennan's handwritten note at the end of this diary note, recommends immediate transfer to GCM to enforce an exit strategy and as to appointment of an IA, would be left to GCM. Mr Pidcock agreed to the transfer and recommended various steps be taken immediately. So far as the Merlo facilities were concerned, the note "OD temp $52.5K has cleared and can now be cancelled. Meantime CCR 8F confirmed O/A Merlo Australia P/L and Merlo Wholesale P/L…" Mr Pidcock also stated "docy….O/S limit to reduce to $450K (run off of residual to take until May 1999). No further L/C establishments". 11 December 1998 593 The diary note prepared mainly by Mr Soper as his record of conducting the annual review which had been due 30 November 1998 [13/407]. This document also covers the Merlo facilities and notes that the documentary credit/O/S facility has been placed on a reduction basis only with runoff of L/C's throughout the first half of 1999. [This is consistent with the diary notes of 20-28 October noted above.] Mr Soper calculated the Bank's security over Merlo Wholesale was worth $233,000.00 less than the amount of the outstanding facilities. The diary note records Mr Carpenter's intention to refinance Merlo Wholesale through the Commonwealth Bank. Soper decided not to raise a provision in respect of Merlo Wholesale at that point, noting to review that position in May if necessary. 20 January 1999 594 Diary note of Mr Soper of this date [13/432] records a request from Mr Carpenter for a new letter of credit to be opened for Merlo Wholesale. Mr Soper advised Mr Carpenter that the limit for the Merlo Wholesale facility had been pegged at $422,000.00 on the basis that the facilities had expired on 30 November 1998 and the Bank was not going to extend facilities to the Domino Mining group on the basis that the refinance was to take place by 28 February 1999. Mr Carpenter apparently said that the establishment of the letter of credit was extremely important. Mr Soper indicated that the Bank would look at the situation in some detail and get back to him. 21 January 1999 595 Diary note of Mr Soper [13/433] records him telephoning Mr Carpenter to propose a way the Bank could extend letters of credit within existing facilities if outstanding letters of credit were prepaid. 596 In respect of one particular matter concerning the Merlo facilities it is to be noted that:

[996]

Q. I see, and if the conversation happened as recounted in this file note, doing a deal such as that, is that something you would consult with Mr Carpenter about? A. Yes. He would have asked me to make the call. [Transcript 725-726] Dealing with the cases 597 In essence the claim for breach of contract appears to be for breach by ANZ of implied terms to exercise rights and powers in good faith, to co-operate in the performance of the contract and not to conduct itself to frustrate the performance by Merlo Australia, Merlo Wholesale or Mr Carpenter of the agreements between them and ANZ. 598 Merlo Wholesale and Merlo Australia appear to be advancing claims for breach of contract based on a facility which Merlo Wholesale had with the Bank allegedly "for its benefit and for the benefit of Merlo Australia". 599 As ANZ has submitted, this assertion is not supported by any evidence directed to that issue. Hence it does not seem to be shown that Merlo Wholesale held the facility on trust for Merlo Australia. 600 Merlo Australia's case in contract is simply answered by a lack of privity. The short position is that save for the encashment facility, Merlo Australia was not a party to any relevant contract. In these circumstances it is impossible for Merlo Australia to establish a claim for breach of contract. 601 ANZ has additional defences in relation to the claims pursued by the Merlo companies. Claims statute barred 602 Importantly these include the contention that the claim is statute barred. The breach of contract occurred more than six years prior to the Merlo Companies being added to the proceedings. 603 As pleaded, the cause of action for breach of contract accrued on or shortly after 11 December 1998, with the consequence that it became statute barred on or shortly after 11 December 2004. The Merlo proceedings were commenced after that date, on 22 June 2005 by summons in proceedings number 5009 of 2006. Hence these claims are defeated by the statutory extinguishment of the cause of action effected under the Limitations Act 1969 (NSW). 604 The Merlo companies have sought to outflank this defence by contending that ANZ confirmed the causes of action by its letter of the 11 May 1999 and by its subsequent conduct in commencing and prosecuting the proceedings as well as by instituting in prosecuting proceedings against Mr Carpenter on the Guarantee. 605 There is no substance in this attempt to outflank the limitations defence. The simple fact is that the breach contended for occurred prior to the six year period. 606 The Group's submissions misconceive the proper analysis of what is constituted by confirmation of a course of action: see General Credits v Wenham (1989) 18 NSWLR 570 at 574. Confirmation means ANZ taking some step to acknowledge that the company had a cause of action for breach of contract. ANZ took no such step but acted to the contrary. Causation 607 Another answer to the claim by the Merlo companies is to be found in the causation issue. The Merlo companies' contend that the Italian licensor effectively took away the licence. 608 Such evidence as is before the court, suggests that the Italian licensor was concerned by reason of Merlo being part of a group which was in financial difficulties. On 21 June 1999 Merlo SPA informed both the Australian Merlo companies that because of the appointment of the administrators to Pioneer, the continuation of the licence of Merlo Australia to import and distribute and sell Merlo product for Australia was in doubt and on 26 October 1999, Merlo SPA gave notice of termination of the licence on 4 February 2000. Another concern was that Merlo SPA had the view that Mr Carpenter's company was too small to service the Australian territory. 609 In truth once Pioneers respective cases fail, it is extraordinarily difficult, where there were no fixed facilities, to see any particular loss having been suffered by Merlo Wholesale by reason of receiving a notice giving 30 days notice terminating the facilities and then paying out the $270,000 called for. This may be discerned from the following excerpt of the Group's final submissions in reply:

[1009]

(c) a Bank diary note dated 8 December 1999 (page 389) [ANZ.014.037] confirming the debt for the purpose of the demand at $399,769.61 based on the account balance of $308,303.67. 619 Mr Kerr's affidavit [paragraph 6(b)] made clear that the Civil Procedure Act 2005 interest that was claimed by the Bank had been calculated by the Bank's solicitors and the calculation was attached to his affidavit (Annexure 'C'). That does not alter the conclusiveness of Mr Kerr's certificate. 620 No attack was made on Mr Kerr's determination and certification that the debt due to the Bank on 8 December 1999 was $399,769.60 (verified by primary Bank documents put to him in cross-examination and unchallenged) or his evidence that no payments had been made to reduce the debt owed to the Bank. The calculation of the statutory interest merely followed by way of application of the statutory formula and rates - neither of which were challenged. 621 In the result there is no substance in the contention that ANZ is unable to rely on the certificate to establish moneys owing by Mr Carpenter under his guarantee. Claim for damages by Mr Carpenter 622 Mr Carpenter claims damages for distress, embarrassment, hurt feelings and physical inconvenience said to have been caused by the consequences of the Bank appointing administrators to Pioneer. These damages are claimed on an aggravated basis. 623 The only contracts to which Mr Carpenter was a party were his contracts of guarantee for the Pioneer and Merlo Wholesale facilities respectively. These contracts exclude any entitlement to claim damages based on ANZ's dealings with the customers (as distinct from any equitable rights as surety which are not excluded by the terms of the guarantees for this purpose). 624 As ANZ has submitted, on no view did any contract between Mr Carpenter and ANZ carry with it any assurance or promise that Mr Carpenter would be able to continue earning remuneration from Pioneer. 625 Nor did such contracts carry any assurance or promise that Mr Carpenter would not need to deal with the stress, vexation and worry that might arise on an insolvent administration of Pioneer in which the employees of Pioneer were unable to receive payment of their entitlements. 626 In any event the general rule is that damages of this nature do not flow from a breach of contract. To the extent that Mr Carpenter claims to have suffered any 'physical inconvenience, such inconvenience is not of a nature which is immediately connected with any assumed breach of contract by the Bank so as to fall within the limited exception to the general rule (cf Hobbs v The London and South Western Railway Co (1875) LR 10 QB 111). 627 Whilst it is unnecessary to go further, ANZ is correct in its submission that insofar as the Group has led evidence from Mr Bridger of Pitcher Partners, this does nothing more than to carry out some calculations of the remuneration that Mr Carpenter might have received on a projected basis had Pioneer continued in business and prospered. 628 In light of the findings there is no substance to these claims.

At a glance

Court

Decision date

Before

Source

Judgment (1011 paragraphs)

Parties

Legislation Cited (11)

Cases Cited (28)

Cited By (3)