Plaintiff v Defendants

ESTOPPEL - Representation that liability under a mortgage would be limited in time.

TERMS OF SETTLEMENT - Payment accepted in full and final settlement of liabilities of primary debtor and co-guarantors - Whether had the effect of discharging the liability of a guarantor who was not a party to the settlement.

LEGAL PRACTITIONERS - Whether negligent in drafting terms of settlement.

1 Associated Retailers Ltd ('ARL') has sued Paul Moore under a mortgage dated 29 July 2006 ('Mortgage') over his property at 63 Michaelangelo Drive, Redlynch in Cairns ('Property') that was given to secure the liabilities of Toys Unlimited Pty Ltd ('Toys Unlimited') to ARL. ARL claims the amount of $123,508.44 together with interest of $204,607.74.

2 On 7 June 2006, Toys Unlimited purchased the Cairns Toyworld business ('Business'). Pursuant to the terms and conditions of trade that Toys Unlimited entered into with ARL ('Terms of Trade'), Toys Unlimited agreed to pay to ARL on a monthly basis amounts due for the supply of goods to the Business, service charges and interest on overdue amounts.

3 The liabilities of Toys Unlimited to ARL were guaranteed by the directors of Toys Unlimited, Matthew Grosse and Jason Pickard, by their spouses, Karen Grosse and Suzy Walker, and by Matthew Grosse Pty Ltd. Mr and Mrs Grosse and Ms Walker executed mortgages to secure their liabilities under their guarantees. Paul Moore, who is the brother of Mrs Grosse, provided the Mortgage to meet a shortfall in the securities required by ARL at the time that Toys Unlimited purchased the Business.

4 On 4 July 2008, ARL suspended its trading account with Toys Unlimited and, on 2 October 2008, it appointed receivers and managers over Toys Unlimited. The receivers and managers sold the Business on 5 December 2008.

5 On 6 May 2009, ARL commenced this proceeding against Toys Unlimited, Mr and Mrs Grosse, Mr Pickard, Ms Walker, Paul Moore and Matthew Grosse Pty Ltd. Mr Pickard and Ms Walker became bankrupt on 21 July 2009. It was common ground that, due to liabilities owing to mortgagees ranking ahead of ARL, no money was recoverable by ARL under any of its mortgages other than the Mortgage.

6 At a mediation that was conducted in Cairns on 23 February 2010, ARL entered into a settlement agreement with Mr and Mrs Grosse and Matthew Grosse Pty Ltd pursuant to which Mr and Mrs Grosse and Matthew Grosse Pty Ltd jointly and severally agreed to pay to ARL the amount of $25,000 'in full and final settlement' of ARL's claim ('Settlement Agreement'). The Settlement Agreement was drafted by ARL's former barrister, Jonathan Evans, who represented ARL at the mediation.

7 In his defence, Paul Moore has alleged that, prior to the execution of the Mortgage, ARL represented to him that his liability under the Mortgage would be limited to $150,000 and would subsist for only 12 months. Following the execution of the Settlement Agreement, Paul Moore amended his defence to add an allegation that the Settlement Agreement had the effect of discharging any liability he may otherwise have had to ARL.

8 As a result of this amendment to Paul Moore's defence, ARL added Mr Evans as a defendant. In its amended statement of claim, ARL has alleged that, if the Settlement Agreement had the effect of discharging Paul Moore's liability to ARL, then Mr Evans was liable to ARL in negligence.

9 The issues that require resolution in this proceeding are:

(b) Did ARL represent to Paul Moore that his liability under the Mortgage would be limited to $150,000 and subsist for only 12 months?

(ii) Did the representation give rise to an estoppel?

(iv) Did the Representation form part of the terms of the Mortgage?

(d) Did the Settlement Agreement have the effect of discharging any liability that Paul Moore would otherwise have to ARL under the Mortgage?

(e) What amount is payable by Paul Moore to ARL under the Mortgage?

(f) Was Mr Evans negligent and, if so, did his negligence cause any loss to ARL?

(g) Are any other defences available to Paul Moore?

10 For the reasons that follow, I have concluded that, through Mr Grosse, ARL represented to Paul Moore that the Mortgage would secure Toys Unlimited's liabilities to ARL for only 12 months. That representation was misleading and gives rise to a promissory estoppel. ARL's conduct was also unconscionable. As no amounts that fell due under the Terms of Trade prior to 29 July 2007 remain unpaid, ARL cannot recover any amount under the Mortgage. The Settlement Agreement had the effect of discharging any liability that Paul Moore would otherwise have to ARL under the Mortgage. Although Mr Evans was negligent in drafting the Settlement Agreement, his negligence has not caused any loss to ARL.

11 Much of the evidence in this proceeding was documentary and not in dispute. Large parts of the oral evidence were also not contested. Set out below are relevant events that are not in dispute.

12 ARL operates a Toyworld division. It enters into terms of trade with the owners of Toyworld stores throughout Australia and separate terms of trade with various suppliers of toys. ARL conducts its business as follows:

(a) Each Toyworld store orders toys from approved suppliers either directly or through ARL.

(b) The suppliers invoice ARL for goods supplied to each Toyworld store. Payment for goods is usually due in the month in which the goods are supplied. From time to time, suppliers sell goods on a 'deferred payment' basis, whereby payment for the goods falls due in a month that is subsequent to the month in which the goods are supplied. Amounts invoiced on a deferred payment basis for goods that are already delivered are known as 'forward charges' or 'future charges'.

(c) ARL pays the suppliers' invoices when they fall due.

(d) In the first two days of a month, ARL sends a statement to each Toyworld store setting out the following information for the previous month:

(i) amounts currently due for payment for goods supplied to the Toyworld store in respect of which payment has not been deferred;

(iii) interest on any overdue amounts, that is, amounts that fell due for payment and were not paid by the due date; and

(e) When a future charge falls due for payment, it is removed from the forward charges account and is included in the amounts currently due for payment.

(f) ARL charges interest on any amount that remains unpaid after the 25th day of the month following the month in which the amount was due.

(g) Any claim by a Toyworld store about any toys must be made by the 25th day of the month following the month in which the toys were supplied. Claims may arise for various reasons, including non-delivery of toys, defects in toys and errors in invoices for toys. Where a claim is made in respect of a toy, the invoiced amount for the toy is not treated as due until the claim is resolved.

13 The owner of a Toyworld store must successfully apply to become a shareholder of ARL in order to trade with ARL.

14 Prior to June 2006, the Business was conducted by Walando Pty Ltd. The directors of Walando Pty Ltd were Dale Wallis and Debra Oudyn. On 7 June 2006, Toys Unlimited purchased the Business from Walando Pty Ltd for the amount of $480,000. Pursuant to that agreement, Toys Unlimited assumed liability to ARL for various outstanding orders and future charges.

15 On 14 June 2006, Toys Unlimited executed the Terms of Trade and applied to become a shareholder of ARL. Relevantly, the Terms of Trade provided as follows:

(a) ARL retained title to goods delivered to Toys Unlimited but not yet sold until ARL received payment for all amounts it was owed by Toys Unlimited (cl 11.1(a)); and

(b) Toys Unlimited must 'pay to ARL on demand ... interest on all outstanding amounts due from time to time ... at the then current default interest rate as determined from time to time by ARL' (cl 5.6(a)(ii)).

16 As part of its application for membership of ARL, Toys Unlimited submitted details of proposed securities to secure the liabilities that Toys Unlimited would incur to ARL. Those securities comprised a debenture charge from Toys Unlimited and second mortgages over properties owned by Mr and Mrs Grosse and by Ms Walker. It was common ground that all the equity in those properties was encumbered to existing mortgagees.

17 Toys Unlimited's application for membership of ARL was assessed by its credit risk and securities manager, Robert Williams. At some time prior to 22 June 2006, Mr Williams completed a 'New Membership Assessment Form' in which he set out the following comment under the heading 'Recommendations':

Extremely highly geared. No previous Retail experience evident. [Gross profit] 36% [Net profit] - %. Securities to ARL - [Retention of title] over stock only. Insurable - ??? ARL are being asked to provide credit lines of approx $500K with no tangible securities other than [retention of title] on stock. I feel as presently structured application has to be declined.

18 In response to Mr Williams' recommendation, on 22 June 2006, ARL's CEO, Chris Morgan, decided that ARL should seek additional security from Toys Unlimited. Mr Williams gave evidence that, having reviewed the expected trading of the Business, he estimated that Toys Unlimited's indebtedness to ARL would peak at $480,000 within the trading period of 12 months and decided that additional tangible security of a minimum of $150,000 and a minimum of 12 months' operation was required.

19 On 23 June 2006, Mr Williams spoke by telephone to Mr Grosse about the provision of additional security. There is a conflict in the evidence about what was said during the telephone conversation. Mr Williams gave evidence that he told Mr Grosse that ARL required additional tangible securities of at least $150,000 for at least a period of 12 months. Mr Grosse gave evidence that Mr Williams told him that ARL required additional securities for $150,000 for 12 months. I will discuss the disputed evidence separately below.

20 It is not in dispute that, during the telephone conversation between Mr Williams and Mr Grosse on 23 June 2006, Mr Williams suggested to Mr Grosse that he approach Dale Wallis and Debra Oudyn and ask them whether they were prepared to place $150,000 in ARL's money management account by way of security for Toys Unlimited's liabilities to ARL.

21 Mr Grosse approached Dale Wallis and Debra Oudyn and was informed by them that they were not prepared to provide financial assistance to Toys Unlimited. Mrs Grosse asked her father, Thomas Moore, whether he was able to provide security of $150,000 for 12 months. Thomas Moore was not able to assist.

Discussions with Paul Moore about provision of the Mortgage

22 In June 2006, Paul Moore was 40 years old and was employed as a clinical nurse at the mental health unit of the Cairns Base Hospital. He was the registered proprietor of the Property, which was his family home. Prior to purchasing the Property, he had not owned any real estate. An amount of approximately $162,200 was owed to the first mortgagee, National Australia Bank ('NAB'). He had a son from a previous relationship who was approximately 15 years of age. His current partner, Kathryn Coventry, was eight and a half months' pregnant with their first child and was not earning any income. He had never conducted any business and the mortgage to NAB was the first mortgage he had executed.

23 Following Mr Grosse's unsuccessful discussions with Dale Wallis and Debra Oudyn, Mrs Grosse telephoned Paul Moore and told him that the Toys Unlimited store needed a guarantee from someone for $150,000 for its forwarding account for a period of 12 months. She then told him that if he agreed to use the Property as a guarantee, he would be paid 10 per cent of $150,000. Paul Moore told Mrs Grosse that he would need to discuss the proposal with Ms Coventry and that he would let her know their decision.

24 Paul Moore then spoke to Ms Coventry who said that she did not like the idea of mortgaging the Property. Paul Moore called Mrs Grosse and told her that he would not provide a guarantee.

25 Ten to 15 minutes after the conversation with Mrs Grosse, Thomas Moore telephoned Paul Moore and told him that Mr and Mrs Grosse needed $150,000 for 12 months and asked him to consider using his house as a guarantee. Paul Moore told Thomas Moore that he would think about it. Paul Moore spoke to Ms Coventry again and she said, 'No'.

26 The next day, Thomas Moore called Paul Moore and asked him whether he had thought about the proposal of using his house for a guarantee. Thomas Moore told him that it was for 12 months and that he could not see any business failing within 12 months. In that conversation, Thomas Moore reminded Paul Moore that he had helped raise the deposit for the purchase of the Property and said that if any difficulties arose he would sell his house to refund the $150,000. Thomas Moore asked Paul Moore to reconsider. Paul Moore responded, 'I suppose so.'

27 Shortly after Paul Moore's conversation with Thomas Moore, Matthew Grosse telephoned Paul Moore and said that he was pleased that Paul Moore had agreed to 'go guarantor'. Paul Moore told Mr Grosse that he still had some reservations about the idea.

28 On 28 June 2006, Paul Moore and Ms Coventry attended the home of Mr and Mrs Grosse. Thomas Moore was also present. Mr Grosse gave evidence that Paul Moore told him that he was willing to put up the Property as security 'so long as it was [for] a limited duration'. Mr Grosse then used his mobile telephone to speak to Mr Williams. There is a conflict in the evidence about what was said during this conversation. Mr Grosse, Paul Moore and Thomas Moore gave evidence that during the conversation Mr Grosse activated the speaker on the mobile phone and that they all heard Mr Williams confirm that the mortgage to be given by Paul Moore would be for 12 months. Mr Williams gave evidence that, when Mr Grosse told him that his brother-in-law had a property with equity of $150,000, he replied that the equity had to be at least $150,000 and for at least 12 months.

29 On 28 June 2006, Mr Williams updated his 'Comment' in the New Membership Assessment Form by adding the following:

Applicant has advised that his brother in law will put up a 3rd party [mortgage] in a property that has equity of $150k. In addition, I feel that it is prudent to take a [debenture] over Matthew's building company Matthew Grosse Pty Ltd.

30 Mr Williams also updated the table of securities in the New Membership Assessment Form by adding to the table a second mortgage over the Property and assigning a value of $150,000 to it. ARL did not obtain a valuation of the Property.

31 Mr Morgan accepted Mr Williams' recommendation. Mr Williams arranged for ARL's lawyers to prepare security documentation. A Cairns law firm, Macrossans, prepared mortgages in respect of four Queensland properties, namely, the Property, a property owned by Ms Walker, a property owned by Mr and Mrs Grosse and a property owned by Mr Grosse.

32 On 20 July 2006, Matthew Grosse Pty Ltd executed a debenture charge in favour of ARL.

33 Macrossans prepared the mortgage documents and posted them by express post to the home of Mr and Mrs Grosse on 21 July 2006. Lisa Lipsky, who was then a solicitor employed by Macrossans, gave evidence that her secretary prepared the mortgage documents and that she checked them.

34 Ms Lipsky said that each of the four mortgages comprised a total of five pages; that the first page - which was headed 'Form 2' - described the mortgagor (item 3), the mortgagee (item 4), the mortgaged property (item 2), the interest being mortgaged (item 1), the liability secured by the mortgage (item 5) and the mortgagor's covenants (item 6), and set out the execution clauses for the mortgagor and the mortgagee; that pages 2 to 5 - which were headed 'Form 20' - contained amendments and additions to the standard terms document number 701994211 that applied to each mortgage and an execution clause for execution by Toys Unlimited; and that accompanying the four mortgages were four copies of the standard terms document number 701994211.

35 The provisions of the Mortgage will be discussed later in this judgment. At this stage, it suffices for me to note that no provision of the Mortgage limited Paul Moore's liability either to $150,000 or for a period of 12 months.

36 On 29 July 2006, Mr Grosse met Paul Moore at the Stocklands Shopping Centre where Paul Moore signed the Mortgage before a Justice of the Peace. Mr Grosse and Paul Moore gave evidence that the Mortgage comprised a single page. Their evidence was disputed by ARL. I will discuss the disputed evidence later in this judgment.

37 According to ARL's records, as at 31 July 2007 - two days after the first anniversary of Paul Moore's execution of the Mortgage - Toys Unlimited's outstanding liability to ARL was $444,512.73. It was common ground that all the amounts that comprised the outstanding liability were paid by Toys Unlimited prior to 31 December 2007.

38 In late 2006, ARL requested NAB to sign a priority agreement regarding their respective mortgages over the Property and to endorse an order to register on the Mortgage to enable it to be registered. Pending registration of the Mortgage, ARL lodged a caveat over the Property.

39 In early September 2007, an employee of NAB contacted Paul Moore and asked him to attend NAB's offices to discuss the second mortgage over the Property. Paul Moore gave evidence that he told the NAB employee:

I don't understand why I'd be coming in to see you about a second mortgage. I agreed to provide a guarantee to my brother-in-law with his business for 12 months and, as far as I was concerned, the 12 months had expired.

40 Five minutes after this discussion, Paul Moore telephoned Mr Grosse and asked him to explain why NAB wanted to discuss a second mortgage when it was for a period of 12 months and that period had expired. Mr Grosse agreed that the 12-month period had expired and said that he would contact ARL. Mr Grosse called Paul Moore around two hours later and said that ARL had informed him that the security was not used.

41 At Paul Moore's direction, Toys Unlimited paid to Ms Coventry the amount of $15,000 for the provision of the Mortgage. That amount was paid in two instalments: $5,000 was paid on 4 October 2007 and $10,000 was paid on 4 February 2008.

42 On 27 November 2007, Mr Williams prepared a file note in which he recorded that NAB had advised ARL that Paul Moore had refused to sign a consent to enable NAB to endorse the Mortgage with an order to register. The file note also recorded the following in relation to a conversation between Mr Williams and Mr Pickard:

Since spoken with [Mr Pickard]. ... He has advised that Proprietor has declined to sign consent because it was his understanding that the [Mortgage] was only to be in place for 12 months and as such 12 months has [passed]. There is no evidence of this '12 months only thing' in the file as an approval condition. [Mr Pickard] will have [Mr Grosse] give me a call.

43 Mr Williams gave evidence that he informed Mr Pickard that ARL required replacement security in order to release the Mortgage.

44 In mid January 2008, Paul Moore unsuccessfully applied for finance to purchase a laundromat business for Ms Coventry. The application failed due to the presence of the Mortgage on the Property. Paul Moore then spoke to Mr Williams by telephone. It is not in dispute that Paul Moore asserted that ARL had promised that the Mortgage would be released after 12 months and that he requested that the Mortgage be released. The evidence about Mr Williams' response is in dispute. Paul Moore gave evidence that Mr Williams said, 'That is not the deal now.' Mr Williams gave evidence that he said, 'That was not the deal.' I will discuss the disputed evidence further below. Both Paul Moore and Mr Williams gave evidence that, following Mr Williams' initial, disputed statement, Mr Williams said that ARL would release the Mortgage if Toys Unlimited provided replacement security of equal value.

45 Following his discussion with Mr Williams, Paul Moore telephoned Mr Grosse and demanded that the Mortgage be released.

46 On 30 January 2008, Mr Grosse spoke to Mr Williams by telephone and requested that ARL release the Mortgage. There is a conflict in the evidence about what was said during this conversation. The evidence will be discussed later in this judgment.

47 On 1 February 2008, Mr Williams sent an email to Mr Grosse and Mr Pickard in which he noted that ARL had 'been approached by Paul Moore seeking the Discharge of [ARL's] Mortgage over his property' and requested them to complete a matrix setting out the value of security properties in order to enable ARL 'to give favourable consideration to Paul's request'. By fax dated 5 February 2008, Mr Pickard provided financial information to Mr Williams.

48 In March 2008, Paul Moore and Ms Coventry obtained legal advice from Tricia Townsend of The Law Office in relation to the Mortgage.

49 On 12 March 2008, Paul Moore sent a letter by fax to Mr Williams. The letter relevantly stated:

RE: Release of Security for TOYWORLD CAIRNS

As the security signed by myself for Toyworld Cairns (and subsequently the caveat over my property) has not been released as advised by yourself, and my numerous attempts at contact with yourselves has not been returned, I request that you forward a copy of the above signed document from 2006 as a matter of urgency.

If the security is not released or I don't receive the requested copy by email or post within 7 days from today, I will be referring the matter to my solicitor.

50 Mr Williams did not respond to Paul Moore's letter of 12 March 2008.

51 On 1 April 2008, Ms Townsend sent a letter by fax to Mr Williams in which she stated that it was her understanding that the security over the Property 'was due to expire in the middle of 2007 at which time the caveat over [the Property] was to be released'. She requested urgent advice as to when the caveat would be removed. On 2 April 2008, Mr Williams spoke to Ms Townsend by telephone and told her that the Mortgage 'is ongoing until alternative security can be provided for the [Business]'.

52 Between 18 February 2008 and 13 June 2008, Mr Grosse paid to Paul Moore amounts totalling $15,000 and Toys Unlimited paid to Paul Moore amounts totalling $12,000. Mr Grosse and Paul Moore gave evidence that these amounts were not in respect of the use of the Property as security for Toys Unlimited. They said that the payments were loans to alleviate Paul Moore's financial difficulties.

Defaults by Toys Unlimited and enforcement of ARL's securities

53 On 4 July 2008, ARL suspended trade with Toys Unlimited and requested all Toys Unlimited's suppliers to provide invoices within 90 days.

54 On 8 July 2008, ARL served notices of demand under all its securities, other than the Mortgage, seeking payment of the amount of $1,306,034.93 that was then allegedly owed by Toys Unlimited to ARL.

55 On 2 October 2008, ARL appointed receivers and managers over Toys Unlimited. The receivers and managers sold the Business on 5 December 2008 and paid to ARL a net amount totalling $987,563.34.

56 On 26 March 2009, ARL served on Paul Moore a notice of demand under the Mortgage requiring payment within seven days of the amount of $460,073.11 that was said to be owing by Toys Unlimited to ARL under their 'trading relationship'.

57 On 16 April 2009, ARL served on Paul Moore a notice of exercise of power of sale under the Mortgage pursuant to s 84 of the Property Law Act 1974 (Qld). The notice stated that, unless the amount of $460,073.11 was paid within 30 days, ARL 'may proceed to sell the [Property]'. It is common ground that ARL has not taken any steps to sell the Property.

Correspondence between Paul Moore's and Toys Unlimited's lawyers

58 On 1 May 2008, Ms Townsend wrote to Mr Grosse and Mr Pickard in their capacity as directors of Toys Unlimited. Ms Townsend's letter relevantly stated:

I act for Paul Evan Moore who provided a mortgage to [ARL] in 2006 as security for your company's ongoing credit facilities with ARL.

I am instructed that at the time the mortgage was executed, it had been agreed that my client would provide the security on your behalf for a maximum period of 12 months. That period has well and truly expired.

It would be appreciated if you could advise what procedures you have now put in place to provide alternative suitable security to ARL to enable ARL's mortgage over my client's property to be released without further delay.

...

As you would appreciate, my client acted in good faith in providing a mortgage on your behalf which has enabled you to operate your business and receive credit from ARL. You would be expected to show the same degree of good faith in now arranging for the immediate release of his security.

If a satisfactory response is not received within 7 days, I will have no option but to recommend to my client that he advise ARL that he is no longer prepared to provide the security on your behalf and request that ARL cease providing any further form of credit to your company until such time as an alternative form of security can be arranged.

59 On 8 May 2008, Lynsey Murrell of O'Reilly Stevens Bovey replied to Ms Townsend's letter on behalf of Toys Unlimited. Ms Murrell's letter relevantly stated:

We act for Toys Unlimited Pty Ltd trading as Toyworld Cairns and have to hand a copy of your letter to our client dated 1st May 2008.

While it is and always was the intention of our client to refinance the current debt and to release your client from any obligations, we understand that the mortgage that was executed by your client was for an unlimited period. We assume your client would have made enquiries in this regard prior to executing the documents. We should appreciate if you would provide us with a copy of the documents executed by your client.

We can advise that our client is presently in negotiations with both ARL and ANZ Bank to refinance the existing debt. ...

Our client hopes to be in a position to finalise the refinance as soon as possible. ...

In the meantime, we request that you do not take any action against our client. Should your client withdraw his security without giving our client ample opportunity to resolve this matter, our client will hold yours responsible for any damage caused.

60 Ms Townsend wrote to Ms Murrell on 3 June 2008. Her letter relevantly stated:

My client signed the document as presented to him as he trusted his brother-in-law, Matt Grosse, to keep his word regarding releasing the security after 12 months. Your client has had ample time to address the issue of releasing the property as my client has been contacting Matt Grosse about this issue since the first week in February.

Please provide me with your urgent response as my client's financial situation is critical.

61 Ms Murrell replied to Ms Townsend's letter on 11 June 2008. Ms Murrell's letter relevantly stated:

We note your comments about your client's financial position. Our client has instructed that he is fully aware of your client's situation and is endeavouring to finalise the refinance arrangements as quickly as possible to alleviate the stress and pressure being placed on your client and his family.

...

We are instructed to assure you that our client is doing everything possible to rectify the situation at the earliest possible time. Unfortunately, there is no instant solution.

62 Ms Townsend wrote to Ms Murrell on 3 July 2008. Ms Townsend's letter relevantly stated:

My client is now facing the imminent loss of their own new business because of the inaction of your client. My client will hold your client liable for any losses that they [incur] if they are forced into this situation.

Please provide me with an urgent update as to when the refinancing will be finalised and my client's property will be released.

63 On 21 July 2008, Ms Murrell advised Ms Townsend that O'Reilly Stevens Bovey 'no longer hold instructions' and that '[a]ny further communications should be forwarded to Mr Grosse direct'.

Commencement of this proceeding and settlement with some parties at mediation

64 As I have already stated, on 6 May 2009, ARL commenced this proceeding against Toys Unlimited, Mr and Mrs Grosse, Mr Pickard, Ms Walker and Matthew Grosse Pty Ltd.

65 Toys Unlimited filed a defence and counterclaim in which it disputed its liability to ARL and asserted that ARL was liable to it. Evidence was not given about the basis of the counterclaim or its prospects of success.

66 As I have already stated at [6] above, at the mediation on 23 February 2010, ARL settled its claim against Toys Unlimited, Mr and Mrs Grosse and Matthew Grosse Pty Ltd on the terms set out in the Settlement Agreement.

67 Mr Williams gave the following evidence about the mediation. During the mediation, in response to the receipt of a settlement proposal from Mr and Mrs Grosse and Matthew Grosse Pty Ltd, he gave instructions to Mr Evans to draft a settlement agreement in such a way that ARL's settlement with those parties would not result in a loss of ARL's rights to claim under the Mortgage. Mr Evans replied that he would draft the agreement accordingly and that ARL would be able to use the remaining security to recover the residual debt after the payment of $25,000. As between ARL and the other parties to the settlement, 'the proceeding was to cease, it was forgiveness on both sides'. If Mr Evans had told him that the execution of the Settlement Agreement would result in Paul Moore being released from liability, he would not have entered into the Settlement Agreement.

68 Mr Evans did not give evidence and his counsel, Dr Hanak, did not cross-examine Mr Williams on this issue. Accordingly, I accept the uncontested evidence of Mr Williams.

69 The terms of the Settlement Agreement, and their legal consequences for the Mortgage and the alternative claim that ARL has made against Mr Evans, will be discussed separately below.

70 Mr Pickard and Ms Walker were not parties to the Settlement Agreement because they became bankrupt on 21 July 2009.

71 Paul Moore attended the mediation. ARL's claim against him was not resolved and he left the mediation prior to the execution of the Settlement Agreement.

Calculation of Toys Unlimited's liability to ARL

72 Mr Williams gave evidence that, leaving aside interest, as at 30 April 2011, Toys Unlimited owed to ARL the net amount of $123,508.44. As Mr Williams' evidence was not challenged, I find that, had it not been for the execution of the Settlement Agreement, as at 30 April 2011, Toys Unlimited would have been indebted to ARL in the net amount of $123,508.44 exclusive of interest.

73 Mr Williams also gave evidence that, as at 30 April 2011, Toys Unlimited was indebted to ARL in the amount of $204,607.74 in respect of interest. Although Paul Moore's counsel, Mr Stirling, and Dr Hanak cross-examined Mr Williams at length in relation to his calculations of interest, in final addresses they conceded that they were not in a position to challenge the accuracy of the calculations. Mr Stirling did contend, however, that Toys Unlimited was not liable to pay any interest to ARL because the provisions of the Terms of Trade that dealt with interest were void for uncertainty.[1]

74 At this stage, I will simply note that, putting aside the Settlement Agreement, if Toys Unlimited is liable to pay interest to ARL under the Terms of Trade, that liability was in the amount of $204,607.74 as at 30 April 2011.

75 It was common ground that the current value of the Property is $330,000 and that, as at 1 April 2011, the amount of $148,368 was owing under the first mortgage to NAB. It follows that, as at that date, Paul Moore's equity in the Property was $181,632.

76 ARL called two witnesses: Ms Lipsky and Mr Williams. Paul Moore called three witnesses: himself, Mr Grosse and Thomas Moore. Mr Evans did not call any witnesses.

77 As the evidence on some of the critical issues in the proceeding was in dispute, the credit of the main witnesses assumed obvious significance. In this part of the judgment, I will make some general comments on the credit of the witnesses who gave oral evidence and set out my broad conclusions about the veracity of their evidence. More specific findings about their evidence are set out below in my discussion of particular issues in dispute.

78 Mr Williams was an unsatisfactory witness. He sought to answer questions in a manner that assisted ARL's case and his own position rather than on the basis of genuine recollection. He became argumentative when he considered that cross-examining counsel was seeking to 'put words into [his] mouth', and he delayed answering some questions. The delay appeared to be for the purpose of enabling him to consider the implications of the questions before answering them.

79 In examination in chief, Mr Williams gave evidence in a confident and precise manner. It soon became apparent, however, that, in answering some questions, Mr Williams was referring to three pages of handwritten notes that he had prepared to assist him in giving evidence. Mr Stirling called for the notes and subsequently tendered them. After Mr Williams was instructed not to refer to his notes, his evidence became more tentative. In these circumstances, I infer that Mr Williams' recollection of events - particularly the details of the crucial telephone discussions with Mr Grosse - was not as precise as he had previously indicated.

80 Although Mr Williams' notes largely comprised dates, amounts and dot-point references to some of the key events, they also included - quite inappropriately - scripted answers to anticipated questions. I will refer to Mr Williams' notes later in this judgment.

81 Some of Mr Williams' evidence on the crucial conversations was contradictory and untenable. He refused to concede the obvious in a feeble and unconvincing attempt to bolster ARL's case and his own position.

82 Overall, I found Mr Williams to be an unreliable witness.

83 Paul Moore was an honest witness who gave evidence to the best of his recollection. He made concessions where appropriate and volunteered information even though it did not assist his case. He frankly conceded that he did not remember the precise words that were used in some crucial conversations. Although he made a number of prior statements that differed from his oral evidence, the general thrust of those statements was broadly similar to his oral evidence. The prior statements did not undermine his credibility as a witness.

84 It was obvious that Paul Moore was an unsophisticated and naïve individual that lacked experience in legal and business matters. This explains some of the errors that he made in giving evidence. I will refer to those errors later in this judgment.

85 Overall, Paul Moore was a truthful and reliable witness.

86 Although Mr Grosse gave evidence with an air of defiance, he was a reliable witness. There was some aspects of Mr Grosse's evidence, however, that I do not accept.

87 Ms Lipsky and Thomas Moore were truthful witnesses.

88 At [34] above, I described briefly the contents of the first page of the Mortgage. Item 5 on page 1 of the Mortgage, under the heading 'Description of debt or liability secured' stated, 'See the definition of "Secured Moneys" in document number 701994211'. Item 6 on page 1, under the heading 'Covenant/Execution' stated:

The Mortgagor covenants with the Mortgagee in terms of the: ... attached schedule and standard terms document no: 701994211 ... and charges the estate or interest described in item 1 with the repayment/payment to the Mortgagee of all sums of money referred to in item 5.

89 Standard terms document 701994211 defined 'Secured Moneys' to mean 'the Principal Sum and all other moneys and damages, if any, which now are or at any time in the future may be or become due and owing (actually or contingently), by the Mortgagor or the Debtor to the Mortgagee for any reason'. The definition went on to set out a list of non-exhaustive moneys and damages payable under the Mortgage, including any 'moneys and damages payable ... by the Mortgagor or the Debtor under this Mortgage'. The expression 'Principal Sum' was defined to mean 'the amount set out in Item 1 of the Particulars'. The expression 'Particulars' was defined to mean 'the Particulars set out in the Form 20 Schedule to this Mortgage'. The expression 'Debtor' was not defined.

90 The Form 20 schedule to the Mortgage comprised pages 2 to 5 of the Mortgage. Part A of the schedule amended various provisions of standard terms document number 701994211, including the deletion of the definitions of 'Principal Sum' and 'Particulars'. The schedule also amended the definition of 'Secured Moneys' by substituting the word 'Advance' for the words 'Principal Sum'. The word 'Advance' was defined as follows:

'Advance' means all debts and liabilities of the Mortgagor or the Covenantor to the Mortgagee howsoever arising whether present or future, actual or contingent whether pursuant to the terms and conditions of trade entered into between the Covenantor and the Mortgagee or this Mortgage or any other instrument, agreement or security of any kind whatsoever between the Mortgagor or the Covenantor and the Mortgagee.

91 The Form 20 schedule to the Mortgage also amended standard terms document number 701994211 by:

(a) inserting a definition of 'Covenantor', namely, 'Toys Unlimited Pty Ltd';

(b) substituting a new 'Repayment Date' clause, which required the Mortgagor to pay the Secured Moneys to the Mortgagee on the 'Repayment Date' or, if no Repayment Date was specified, on demand;

(c) amending the definition of 'Repayment Date' to read 'the repayment date, if any, set out in the Transaction Document';

(d) amending the definition of 'Transaction Document' to include 'any terms and conditions of trade entered into between the Mortgagor or the Covenantor and the Mortgagee'; and

(e) adding an overriding clause that provided that, if the Mortgagor or the Covenantor fails to meet an obligation under the Terms of Trade, or the Mortgage or any other instrument, 'the Mortgagor shall pay to the Mortgagee immediately upon demand the moneys hereby secured'.

92 The standard terms document number 701994211 contains provisions that are relevant to some of the defences upon which Paul Moore relies in this proceeding and will be discussed in the context of those defences.

93 As I have already stated, the Mortgage documentation does not contain any provision limiting Paul Moore's liability to $150,000 or for a period of 12 months.

94 Ms Lipsky gave the following evidence. The mortgage documentation was generated by her secretary. It was Ms Lipsky's practice to check mortgage documents before they were sent to the mortgagor. That practice included ensuring that pages 2 to 5 of a mortgage were stapled to page 1 of the mortgage. While she had no recollection of pages 2 to 5 of the Mortgage being stapled to page 1 of the Mortgage, she 'always made sure that the Titles Office documents were stapled together as one whole document, cover page and schedules.'

95 Ms Lipsky was shown a covering letter dated 21 July 2006 from Macrossans that was addressed to Mr Grosse and Mr Pickard at Mr Grosse's residential address. Ms Lipsky said that, having regard to the contents of the letter, she was able to confirm that the following documents were sent by express post to that address: a mortgage over a property owned by Ms Walker; a mortgage over a property owned by Mr and Mrs Grosse; a mortgage over a property owned by Mr Grosse; the Mortgage; and four copies of standard terms document number 701994211.

96 Mr Grosse gave the following evidence. The documentation relating to the mortgages was provided to him by Mr Pickard. The mortgages that were given by him, Mrs Grosse and Ms Walker were signed at the offices of the solicitors for Toys Unlimited, O'Reilly Stevens Bovey. The documentation relating to the Mortgage was received in a separate, thin envelope. The Mortgage comprised a single page. He took that page to the Stocklands Shopping Centre where Paul Moore signed it before a Justice of the Peace.

97 Paul Moore gave the following evidence. On 29 July 2006, he met Mr Grosse at the Stocklands Shopping Centre for the purpose of signing the Mortgage. The mortgage that Mr Grosse gave to him comprised a single page with a cross written in pencil to indicate where he had to sign. He signed the 'piece of paper' before a Justice of the Peace. There were no additional pages. He did not receive standard terms document 701994211. Apart from the heading and the execution clause where he signed, he did not read the single page Mortgage document. The Mortgage was the second mortgage that he had ever signed.

98 I accept the evidence of Ms Lipsky that it was her practice to ensure that all pages of any mortgage that was prepared in her office were stapled together before they were sent to the mortgagor. I have no hesitation in concluding that the Mortgage, as sent by Ms Lipsky to Mr Grosse's residential address, comprised all five pages that were stapled together. I also find that all the documents listed in Macrossans' covering letter of 21 July 2006 were received at Mr Grosse's residential address in the one envelope.

99 The most likely explanation of what happened after the envelope was received is that the documentation relating to the mortgage to be executed by Ms Walker was provided to Mr Pickard or Ms Walker for Ms Walker's review, and that arrangements were then made for Mr and Mrs Grosse and Ms Walker to attend the offices of O'Reilly Stevens Bovey to execute their respective mortgages. The documentation relating to the Mortgage was retained by Mr Grosse so that it could be executed separately by Paul Moore.

100 As Mr Grosse gave evidence that he did not unstaple any part of the Mortgage documentation, I find that, at the time that Paul Moore executed the Mortgage, it comprised all five pages stapled together. In the light of this finding, I do not need to discuss the inconclusive evidence concerning how many times the five pages were unstapled after 29 July 2006 or the purposes for which that might have been done.

101 I am satisfied that Mr Grosse and Paul Moore genuinely believe that the Mortgage comprised a single page; however, their belief is mistaken. The mistake has probably arisen because, having focused on the sole page that required Paul Moore's signature, they now recollect only that page.

102 I also find that the standard terms document number 701994211 was included in the Mortgage documentation at the time that Paul Moore signed the Mortgage. Once again, Mr Grosse and Paul Moore do not recall this document because, as it did not require execution by Paul Moore, they did not pay any attention to it.

103 I accept Paul Moore's evidence that he signed the Mortgage without reading it. He presented as a naïve and trusting individual who was likely to sign a legal document without paying much attention to it.

Did ARL represent that liability would be limited to $150,000 for 12 months?

104 The evidence of the disputed conversations that took place between Mr Williams and Mr Grosse on 23 and 28 June 2006 needs to be considered in the context of Mr Williams' assessment of Toys Unlimited's credit position.

105 It will be recalled from [18] above that Mr Williams gave evidence that, having reviewed the expected trading of the Business, he estimated that the Business' indebtedness to ARL would peak at $480,000 within the trading period of 12 months and decided that additional security of a minimum of $150,000 and a minimum of 12 months' operation was required.

106 In his evidence in chief, Mr Williams said that, in June 2006, he 'wanted to push [Toys Unlimited's] application through.' During cross-examination, he denied that he was 'keen to push the account through'. I find that Mr Williams was keen for Toys Unlimited's application for membership of ARL to succeed provided that ARL's minimum requirements for additional security were met.

Mr Williams' conversation with Mr Grosse on 23 June 2006

107 In his evidence, Mr Williams was adamant that, during his telephone discussion with Mr Grosse on 23 June 2006, he informed Mr Grosse that additional tangible securities of at least $150,000 were required for at least a period of 12 months. Mr Williams' file note of his conversation with Mr Grosse states the following:

Spoke to [Mr Grosse] and informed him that we would need tangible securities of at least $150k in addition to [terms of trade, debenture and guarantee]. I suggested that he may approach Vendors to place $150k in our [money management account] to secure their account for at least a period of 12 months or until insurable.

108 Mr Grosse gave evidence that Mr Williams' request for additional security came as a shock to him because Toys Unlimited had already signed the ARL membership pack, which said, 'Congratulations, you're now a member of Toyworld'. He said that the request for additional security placed Toys Unlimited in a very difficult position because it had already committed to buy the Business from Walando Pty Ltd.

109 Mr Grosse said that, during his discussion with Mr Williams, Mr Williams informed him that ARL required additional tangible security of $150,000 for 12 months to cover Toys Unlimited's forward charges account and advised him to talk to Dale Wallis and Debra Oudyn. He was adamant that Mr Williams did not use the words 'at least' or 'until insurable'.

110 I am satisfied that Mr Williams' file note accurately records that, in the course of his conversation with Mr Grosse, he stated that ARL required additional tangible security of at least $150,000 for at least a period of 12 months. However, the file note is incomplete. In the light of the fact that Mr Williams was requiring Mr Grosse to provide additional security that Toys Unlimited and the owners of that company had not been able to provide, I infer that Mr Grosse requested Mr Williams to clarify ARL's requirements so that he was in a position to communicate them precisely to prospective security providers. In response, Mr Williams said that additional security of $150,000 for a period of 12 months would be acceptable to ARL and gave an example of how such security could be provided, namely, a deposit of $150,000 by Walando Pty Ltd in ARL's money management account. Mr Williams did not use the words 'or until insurable' when he spoke to Mr Grosse.

111 During cross-examination, Mr Williams steadfastly refused to concede the obvious, namely, that the statement 'at least $150,000 for a period of at least 12 months' meant 'a minimum of $150,000 for a minimum period of 12 months' and that an offer of additional securities of $150,000 for a period of 12 months would satisfy that requirement. Mr Williams' evidence in this respect was entirely implausible, particularly in the light of the fact that he himself had suggested security by way of a money management account deposit of $150,000.

112 When Mr Williams informed Mr Grosse that additional security of $150,000 for a period of 12 months would be acceptable to ARL, he knew that Mr Grosse would seek to maximise the prospects of finding the additional security by seeking to meet only ARL's minimum requirements. Accordingly, Mr Williams knew that Mr Grosse would approach prospective security providers and would inform them that ARL required additional security of $150,000 for a period of 12 months. Mr Williams intended that Mr Grosse make that statement to prospective security providers. That is precisely what Mr Grosse did in his discussions with Paul Moore.

Mr Williams' discussion with Mr Grosse on 28 June 2006

113 In his evidence in chief, Mr Williams acknowledged that he spoke to Mr Grosse on or about 28 June 2006 and that Mr Grosse told him that 'his brother-in-law would actually provide the property that was going to act as security.' In cross-examination, he denied that Mr Grosse asked him to confirm that the security would be for $150,000 and for 12 months or that he gave any such indication. He then said that, when Mr Grosse told him that his brother-in-law had a property with equity of $150,000, he 'retaliated ... with [his] comment that the equity in the property had to be at least $150,000 and for at least 12 months.' Subsequently, when he was asked whether Mr Grosse told him that his brother-in-law would put up security of $150,000 for 12 months, Mr Williams responded, 'I cannot recall'. When he was further pressed, he stated, 'I cannot recall the words that Mr Grosse may have said to me.'

114 In a bizarre twist, after protesting that he did not understand the meaning of the expression 'words to the effect' when used in questions about what Mr Grosse had said to him on 28 June 2006, Mr Williams answered a question about the 'substance' of the words that Mr Grosse had used as follows: 'He ... said something to the effect that, "My brother-in-law is prepared to put up a property that's got an equity of $150,000 and he's prepared to have it there for at least 12 months."' He also said that his response to Mr Grosse's statement was that he 'would have accepted [the security]', before appearing to retract part of that evidence.

115 Mr Williams said that an impasse did not arise in his discussion with Mr Grosse on 28 June 2006. He said that, at the end of the discussion, he asked Mr Grosse whether he should get the security documents drawn up and Mr Grosse said, 'Yes'.

116 Mr Grosse gave the following evidence in chief. On 28 June 2006, Thomas Moore, Paul Moore and Ms Coventry visited his house. He told Paul Moore that his house would be security for a forward charge account and would cover $150,000 for 12 months. At 3.40pm, while he was on the back patio with the others, he used his mobile telephone to call Mr Williams and they had the following conversation:

I said to Rob, I said I want to confirm with you the terms of it. Paul's agreed to put his house up to the tune of 150,000 for 12 months and that's correct, is it, and he said, yes, that's correct. I said can you just repeat that for everyone's benefit and I put the phone onto speaker and he repeated that. He said it's for $150,000 for 12 months.

...

Well, after Rob Williams confirmed it ... I said to him ... that he'll send the paperwork which he confirmed. I said thanks and hung up and that was it.

117 Mr Grosse's outline of evidence dated 20 May 2011, which he swore was correct, contained the following statement:

In about early June 2006, I called Rob Williams on his office number from my mobile from 41 Daphne Drive, Redlynch, to discuss the security arrangements for the forward charge account. I stated: 'Alright, Paul is prepared to put his house up, on the basis that it is $150,000 and only for 12 months. Can you please confirm that?' Rob Williams said words to the effect: 'That's right, it is limited to $150,000 for 12 months.' He said he would send me the paperwork and that it needed to be done straight away and sent back.

118 Mr Grosse said that, at the time that the mobile telephone was on speaker, his conversation with Mr Williams was audible.

119 Paul Moore gave the following evidence. He and Ms Coventry were at Mr and Mrs Grosse's house in late June 2006 having coffee in the back patio. While Mr Grosse was on the telephone, Mr Grosse motioned for him to come closer. He stood up and may have taken a step towards Mr Grosse. When he was within two to three feet of Mr Grosse, he heard the following conversation:

Matthew said to the - I don't know who it was on the phone - he said on the phone that, um, confirming that my brother-in-law has agreed to utilise his house for the guarantee for the 150,000 for 12 months. And I heard a voice at the other end of the telephone - the phone was obviously on speaker phone - he said, 'Yes, that is correct for 150,000 for 12 months.'

120 Paul Moore said that he could hear both ends of the conversation clearly. He said that, after Mr Grosse finished talking on the telephone, he said, 'That was the credit manager from ARL'.

121 On 17 June 2009, Paul Moore swore an affidavit in support of an application to transfer the proceeding to the Supreme Court of Queensland. Exhibited to the affidavit was a draft statement of claim in proposed proceedings in the Supreme Court of Queensland seeking redemption of the Mortgage. Paul Moore deposed that all the matters of fact in the draft statement of claim were true. The draft statement of claim made the following assertion:

Grosse said words to the effect 'Alright, Paul is going to put his house up. I just want to confirm that it is for twelve months to cover the last $150,000 of our forward charge and at the end of the 12 months that lapses'.

Williams responded by words to the effect: 'Yes. I'll send the paperwork through for Paul to sign. I'll send it straight to you. It needs to be done straight away and sent back'.

122 In answers to interrogatories sworn on 3 September 2010, Paul Moore provided the following answer to a question about the conversation between Mr Grosse and Mr Williams:

I was at Matthew and Karen Grosse's home when the telephone rang. Matthew spoke to the caller in words to the effect alleged in Paragraph 9 of the defence. Matthew put the phone in speaker mode for part of the call and I heard a male voice saying at the other end, 'That's right, 12 months'. I did not hear the caller say his own name, so I cannot be certain that it was Mr Williams himself calling. Matthew had a further discussion with the caller with the speaker turned off. After the conversation finished Matthew said 'That was ARL about the guarantee.'

123 Paul Moore's outline of evidence dated 20 May 2011, which he swore was correct, included the following statement:

I went to Matt and Karen's for lunch on the following day. Matt was on his phone on the outside area, and I was there also having a cigarette. I cannot recall who else was there or listening in. Matt beckoned me over to him; the phone was on speaker and Matt said words to the effect that Paul is going to put his house up. I just want to confirm that it is for twelve months to cover the last $150,000 of our forward charge and at the end of 12 months that lapses. The male voice at the other end said words to the effect yes, that is correct, its $150,000 for 12 months and I will arrange to send the paper work straight through to be signed as soon as possible.

124 Paul Moore conceded that he did not have a clear recollection of the exact words that were used in the conversation between Mr Grosse and Mr Williams. He did say, however, that he had a clear recollection of the 'context' of the conversation, namely, that 'it was confirming that it was for the 12 month period and the 150,000'.

125 Thomas Moore gave the following evidence in chief. In late June 2006, he and Paul Moore were at Mr and Mrs Grosse's house having afternoon tea on the back patio. Mr Grosse called a person whom he subsequently described as 'the bloke from ARL'. During the conversation, Mr Grosse placed the telephone on speaker and he heard the following conversation:

[Matt] asked the person who he was talking to, ... 'Are you sure that, um, the money that you're looking for security is for 12 months?' And this person said yes. And after Matt rang up - he went off speaker phone and he continued to talk to this person ...

126 Thomas Moore gave the following further oral evidence:

And after [Matt] got off the phone he said, 'Well, that was the bloke from ARL and he has give[n] us assurance that it's for 150,000 and 12 months.' And after Paul heard that Paul said, 'OK, I'll go ahead with the deal.'

127 Thomas Moore's outline of evidence dated 20 May 2011, which he swore was correct, contained the following statement:

On the outside patio, Matthew made a phone call to Rob Williams from Australian Retailers Limited who stated on the speaker phone that security was for $150,000 and only for 12 months.

128 In cross-examination, Thomas Moore conceded that he could not recall the precise words that were used during the conversation between Mr Grosse and Mr Williams. He was adamant, however, that Mr Grosse said to Mr Williams that the security would be for $150,000 for 12 months and that Mr Williams said, 'Yes'.

129 Mr Juebner, who appeared for ARL, sought to impugn the reliability of the evidence of Mr Grosse, Paul Moore and Thomas Moore by pointing out that the oral evidence of each witness was not only internally inconsistent about the precise words that were used during the conversation but was also inconsistent with prior statements that each of them had made.

130 In my opinion, it is not surprising that there are differences in the recollection of Mr Grosse, Paul Moore and Thomas Moore about a conversation that took place five years ago and in respect of which they took no notes. The inconsistencies in the evidence do not undermine the credit of these witnesses. Rather, they demonstrate that the witnesses' recollection is imperfect and that they have neither colluded nor rehearsed their evidence.

131 On the other hand, Mr Williams had prepared scripted notes to assist him in giving evidence.[2] Even with the assistance of his notes, his evidence appeared to be improvised and was entirely unconvincing. I have no hesitation in preferring the evidence of Mr Grosse, Paul Moore and Thomas Moore to the evidence of Mr Williams.

132 There is sufficient commonality in the oral evidence of Mr Grosse, Paul Moore and Thomas Moore to enable me to conclude that, after Mr Grosse informed Mr Williams that his brother-in-law would put up his house as security, Mr Grosse said to Mr Williams, 'I want to confirm with you that the security will be for 12 months' and Mr Williams said, 'Yes, that is correct'. Mr Williams' statement constituted a representation by him, on behalf of ARL, that the mortgage to be given by Paul Moore would secure Toys Unlimited's liabilities to ARL for only 12 months ('Representation').

133 This conclusion is consistent with my conclusion at [110] above that, on 23 June 2006, Mr Williams informed Mr Grosse that additional security of $150,000 for a period of 12 months would be acceptable to ARL. Having provided this information to Mr Grosse on 23 June 2006, and desiring to push through Toys Unlimited's application for membership of ARL, it is unlikely that, on 28 June 2006, Mr Williams would have refused to confirm that the additional security would be for a period of 12 months.

134 My conclusion at [132] above is supported by the contents of an email that Mr Williams wrote to ARL's CEO, Mr Morgan, on 19 March 2008 in response to Paul Moore's requests that the Mortgage be discharged. That email reviewed the financial position of Toys Unlimited and recommended that ARL agree to release the Mortgage on the condition that Toys Unlimited provide replacement securities of an equal value. The email contained the following statement:

There are a number of other issues that have arisen as a result of this review and they centre around 'Risk' to ARL and conversion of debtors equity in business to creditors equity via directors drawings. ARL have been asked to reduce their tangible securities by $218k to $82k and at the same time be expected to fund a repayment plan going forward with its inherent risks. Account does not qualify for Credit Insurance. Even without the diluting of tangible securities the agreement to the repayment plan is risky. ARL is almost locked into release of securities as it was verbally conveyed to debtor at time of application that securities would only be required for 12 months. Clearly, this was an error made by an inexperienced ARL staff member.

135 Mr Williams gave evidence that the statement, 'it was verbally conveyed to debtor at time of application that securities would only be required for 12 months', merely recorded what had been asserted by Mr Grosse, Paul Moore and Mr Pickard and did not represent ARL's position on the matter. This evidence flies in the face of the natural meaning of the words used by Mr Williams and must be rejected. Given that the statement was adverse to ARL's interests and was included in a written communication to ARL's CEO, if it was intended merely to record allegations that had been made by Mr Grosse, Paul Moore and Mr Pickard, Mr Williams would have said so expressly. The evidence is also inconsistent with Mr Williams' attribution of responsibility for the 'error' to 'an inexperienced ARL staff member'.

136 Mr Williams conceded that he was not aware of anyone at ARL other than himself having discussions with Toys Unlimited about ARL's security requirements. He also conceded that it was his role and not that of the membership co-ordinator to make recommendations about which securities were acceptable. Despite these concessions, Mr Williams insisted that ARL's then membership coordinator, Karen Montrose, could have verbally conveyed to Toys Unlimited that the Mortgage would be required for only 12 months.

137 In my opinion, at the time that Mr Williams wrote his email to Mr Morgan, he was aware that he had verbally conveyed to Mr Grosse that the Mortgage would be for a period of 12 months and that neither Ms Montrose nor any other person at ARL had done so. Without naming Ms Montrose, Mr Williams falsely attributed the statement about the limited scope of the Mortgage to her in order to deflect attention away from himself in the event that ARL was precluded from recovering any of Toys Unlimited's debts under the Mortgage as a result of the statement. It was convenient for Mr Williams that Ms Montrose was no longer employed by ARL when he prepared his email.

138 Mr Williams conceded that Mr Grosse and Mr Pickard did not say to him that the Mortgage should be released because of something Ms Montrose had said. Further, Mr Juebner did not ask Mr Grosse whether Ms Montrose had, at any time, informed him that the Mortgage would only be required for 12 months. No reason was suggested as to why Ms Montrose would make such a statement to Mr Grosse or, if she did, why she would not disclose that fact to Mr Williams, who was the manager responsible for securities.

139 Mr Williams included the following incomplete statement in the handwritten notes that he used to assist him when giving evidence:[3]

Early 2008 commenced preparation of internal report re Toys Unlimited. Within report I had made a comment based on Pickard's initial conversation and other conversations without reflection to actual fact data contained in the membership file and made the inaccurate assumption that an inexperienced ARL staff member

140 In evidence, Mr Williams said that he wrote the above statement because he knew that Mr Stirling 'would hone in' on his email to Mr Morgan. He explained that, when he prepared the email and attributed an error to an inexperienced ARL staff member, he did so without first looking at the Toys Unlimited membership file to ascertain whether any staff member had verbally conveyed to Toys Unlimited that the Mortgage would be required for only 12 months. I reject Mr Williams' evidence. At the time he prepared the email, Mr Williams was well aware that no staff member of ARL other than himself had communicated with Toys Unlimited about the limited scope of the Mortgage. The contents of the email and the handwritten notes reflect poorly on Mr Williams' veracity.

141 The same is true of Mr Williams' statement in his file note of his discussion with Mr Pickard on 27 November 2007 that 'there is no evidence of this "12 months only thing" in the file as an approval condition'. This statement was self-serving and deliberately misleading.[4] Mr Williams feigned ignorance about a matter of which he was not only well aware but also personally responsible. I reject his oral evidence that, prior to 27 November 2007, he had no knowledge that it was being alleged that the Mortgage was to be for a period of 12 months.

142 In making the adverse findings against Mr Williams at [137] to [141] above, I have had regard to the gravity of those findings, as required by s 140(2)(c) of the Evidence Act 2008.

143 I accept the evidence of Mr Grosse, Paul Moore and Thomas Moore that Mr Grosse placed his mobile phone on speaker at the time the statements referred to at [132] above were made. In particular, I accept Mr Moore's evidence that he heard those statements.

144 My conclusion at [132] above is not affected by the correspondence that passed between the solicitor for Paul Moore (Ms Townsend) and the solicitor for Toys Unlimited (Ms Murrell) in the period from 1 May 2008 until 21 July 2008. That correspondence is summarised at [58] to [62] above.

145 Mr Juebner submitted that the correspondence undermines the credit of Mr Moore and Mr Grosse because it indicates that neither of them attributed to ARL a representation that the Mortgage was to be for 12 months only. I reject this submission for the following reasons:

(a) Prior to the commencement of the correspondence, Mr Moore, Mr Pickard and Mr Grosse separately telephoned Mr Williams and asserted that ARL had said that the Mortgage would be for 12 months and requested that the Mortgage be discharged. Mr Williams refused to discharge the Mortgage unless Toys Unlimited provided alternative security of equal value.[5]

(b) Prior to writing to Ms Murrell, Ms Townsend wrote a letter dated 1 April 2008 to Mr Williams in which she asserted that it was her understanding that ARL's security over the Property was due to expire in the middle of 2007 and enquired as to when the security would be removed. Once again, Mr Williams refused to release the Mortgage unless alternative security was provided.[6] Ms Townsend's 'understanding' was obviously based on Paul Moore's instructions.

(c) In the face of Mr Williams' intransigence, Paul Moore had a choice: to engage in a costly legal dispute with ARL or to place moral and legal pressure on Toys Unlimited's directors and, in particular, Mr Grosse, to comply with Mr Williams' requirement for replacement security to enable the Mortgage to be released. Not surprisingly, Paul Moore pursued the second option.

(d) The assertion in Ms Townsend's correspondence with Ms Murrell that Toys Unlimited had represented that the Mortgage would be released after 12 months is not inconsistent with Paul Moore's evidence that he heard Mr Williams make the Representation on 28 June 2006. Far from being mutually exclusive, the two representations are compatible and reflect the sequence of discussions in June 2006.

(e) Ms Murrell acted for Toys Unlimited rather than for Mr Grosse personally. It is readily apparent that Mr Grosse was in a difficult position. While he was keen to assist Paul Moore, he had to take into account that Paul Moore might sue him, that the Business was struggling, that ARL was placing pressure on Toys Unlimited and that there was tension in his relationship with Mr Pickard. To the extent that Ms Murrell's correspondence to Ms Townsend reflected Mr Grosse's instructions,[7] it shows that he adopted a defensive position in dealing with Paul Moore.

146 Mr Juebner contended that the statement, 'we understand that the mortgage that was executed by [Paul Moore] was for an unlimited period' in Ms Murrell's letter dated 8 May 2008 to Ms Townsend negated the existence of the Representation. I reject this contention. The statement 'we understand' refers to the understanding of O'Reilly Stevens Bovey that the Mortgage documentation does not contain a 12-month limitation. That understanding is obviously correct.

147 Mr Grosse gave the following evidence about the letter dated 8 May 2008. The letter did not reflect his instructions and had been approved by Mr Pickard. Paul Moore telephoned him and told him that he was upset about the letter. He then found the letter and, after reading it, he telephoned Ms Murrell and told her that it was factually wrong and rude. I accept Mr Grosse's evidence.

148 I reject Mr Juebner's contention that I should draw an adverse inference from Paul Moore's failure to call Ms Townsend and Ms Murrell as witnesses.

149 As Paul Moore acknowledged that Ms Townsend's letters reflected instructions that he or Ms Coventry had provided to Ms Townsend, it was not necessary for Ms Townsend to travel to Melbourne to give evidence about those instructions. It was certainly not necessary for her to give evidence about the correspondence, as it speaks for itself.

150 I am unable to discern any sensible reason as to why Paul Moore would be expected to call Ms Murrell as a witness. If, as ARL submitted, her evidence could have assisted the Court, it was equally open to ARL to call her.

Mr Williams' conversation with Paul Moore in January 2008

151 Paul Moore gave evidence that he spoke to Mr Williams in mid to late January 2008 in an endeavour to persuade him to agree to release the Mortgage. He said that he told Mr Williams that ARL had promised that the Mortgage would be released after 12 months and that Mr Williams replied, 'That is not the deal now.'

152 Mr Williams gave evidence that, in response to Paul Moore's statement that ARL had promised that the Mortgage would be released after 12 months, he replied, 'That was not the deal.' Mr Williams did not prepare a file note of his discussion with Paul Moore. However, the handwritten notes that he prepared to assist him in giving evidence contained the statement, 'That was not the deal.'

153 I have already found that, on 23 June 2006, Mr Williams told Mr Grosse that additional security of $150,000 for a period of 12 months would be acceptable to ARL and that, on 28 June 2006, Mr Williams made the Representation. I have also found that, at the time that Mr Williams wrote his email dated 19 March 2008 to Mr Morgan, he was well aware that he had made the previous statements to Mr Grosse and that those statements potentially prejudiced ARL's security position in relation to the Mortgage. In these circumstances, it is more likely that Mr Williams said, 'That is not the deal now', rather than, 'That was not the deal.'

154 As I stated at [44] above, it is not in dispute that, during his discussion with Paul Moore, Mr Williams said that ARL would release the Mortgage if Toys Unlimited provided replacement security of equal value.

Mr Williams' conversation with Mr Grosse on 30 January 2008

155 Mr Grosse gave evidence that, in December 2007, Mr Williams telephoned him and said that there was some further paperwork that Paul Moore needed to sign. He said the following about the conversation:

[I said that] Paul was supposed to be out by now, he's not supposed to be included in this. That was our agreement, and that's when Mr Williams said no that's not. And I said well that's not the case. You said 12 months. It's over 12 months. He should be released. So I said well you need to contact Paul and discuss it with him.

156 Mr Grosse said that he telephoned Mr Williams a week later and, on that occasion, Mr Williams told him that the Property 'isn't actually included in [the] securities'. He said that he informed Paul Moore of what Mr Williams had said. As the allegation that Mr Williams had told Mr Grosse that the Property was not included in ARL's securities was not put to Mr Williams, I make no finding in relation to it. I accept, however, that Mr Grosse told Paul Moore that Mr Williams had informed him that the security was not used.[8]

157 In evidence in chief, Mr Williams said that, following his conversation with Mr Pickard, Mr Grosse telephoned him and 'expressed the same in relation to the ... 12 months saying that we should release our securities'. Mr Williams was then taken to a file note that he had prepared on 30 January 2008, which he said recorded his conversation with Mr Grosse. The file note relevantly stated:

Matt rang. Paul Moore ... his brother in law and provider of part of the securities held on this account via a 2nd [mortgage] has purchased a laundromat business and wishes ARL to release the security over his home so as he can raise finance to meet settlement.

158 After reading from the file note, Mr Williams retracted his earlier evidence that Mr Grosse had mentioned the period of 12 months. He said that he was able to say from recollection that he did not discuss a 12-month limitation with Mr Grosse.

159 The handwritten notes that Mr Williams prepared to assist him in giving evidence contained the following statement:

30 Jan 2008 Phone call from Grosse. Moore has purchased Laundromat and he wants ARL to release [mortgage] - so as he could raise finance to purchase business. No discussion about 12 months or $150k.

160 I reject Mr Williams' evidence. I prefer the evidence of Mr Grosse that, on 30 January 2008, he informed Mr Williams that the Mortgage should be released because ARL had agreed that it would be in place for only 12 months.

161 On 28 June 2006, prior to the execution of the Mortgage, Mr Williams made the Representation. Although Mr Williams was not aware that Paul Moore overheard his discussion with Mr Grosse on 28 June 2006, he knew that Mr Grosse would communicate the Representation to Paul Moore and intended that Mr Grosse do so.

162 Paul Moore gave evidence - which I accept - that if he had been aware that ARL was intending to enforce the Mortgage for amounts greater than $150,000 or for a period of more than 12 months, he would not have executed the Mortgage. Although Paul Moore conceded that, prior to overhearing Mr Grosse's conversation with Mr Williams on 28 June 2006, he had agreed to provide the Mortgage based on what Mr and Mrs Grosse had told him of statements made by ARL about the scope of the Mortgage, he said that he relied on the confirmation that Mr Williams provided during that conversation.

163 Paul Moore has alleged that, in making the Representation, ARL engaged in misleading and deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth) ('TPA') and made a false or misleading representation concerning the effect of a guarantee in breach of s 53(g) of the TPA. He relied on s 51A(1) of the TPA, which provides that, where a corporation makes a representation with respect to any future matter without having any reasonable grounds for doing so, the representation shall be taken to be misleading. Section 51A(2) provides that such a corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.

164 In the present case, the Representation was with respect to a future matter because ARL represented that the Mortgage would cease to secure any liabilities of Toys Unlimited to ARL that were incurred after 29 July 2007. Accordingly, by virtue of s 51A of the TPA, the Representation will be deemed to be misleading unless I find that ARL adduced evidence that it had reasonable grounds for making the Representation.

165 ARL has not adduced any evidence that it had reasonable grounds for making the Representation. Shortly after his conversation with Mr Grosse on 28 June 2006, Mr Williams arranged for ARL's lawyers to prepare the Mortgage. He did not instruct ARL's lawyers to include any provision in the Mortgage by which the liability secured by the Mortgage would be limited to a period of 12 months. I therefore infer that Mr Williams did not, at any time, intend that the terms of the Representation be incorporated in the Mortgage. It follows that Mr Williams and, through him, ARL did not have any reasonable grounds for representing that the liability to be secured by the Mortgage would be limited to a period of 12 months.

166 I therefore conclude that, in making the Representation, ARL engaged in misleading and deceptive conduct in contravention of ss 52 and 53(g) of the TPA. I have already found that Paul Moore relied on the Representation in deciding to execute the Mortgage.[9]

Did the Representation give rise to an estoppel?

167 In order to establish a promissory estoppel, it is necessary for Paul Moore to prove that:

(a) he expected that a particular legal relationship would exist between him and ARL, and that ARL would not be free to withdraw from the expected legal relationship;

(d) ARL knew or intended that he would rely on the expectation;

(e) his action would occasion detriment if the expectation were not fulfilled; and

(f) ARL failed to act to avoid that detriment by fulfilling the expectation or otherwise.[10]

168 It is also necessary for Paul Moore to prove that the terms of the Representation are clear and unambiguous.[11]

169 In my opinion, all of the requirements for a promissory estoppel are satisfied.

170 The terms of the Representation are clear and unambiguous.

171 At [161] above, I found that Mr Williams made the Representation knowing that Mr Grosse would communicate the Representation to Paul Moore and intending that Mr Grosse do so. Mr Williams also intended that Paul Moore would rely on the Representation and that he would execute the Mortgage in order to provide the additional security that ARL required.

172 At [162] above, I concluded that Paul Moore relied on the Representation in deciding to execute the Mortgage. Paul Moore was initially reluctant to mortgage his home as security for Toys Unlimited's liabilities to ARL. I accept his evidence that the confirmation that Mr Williams provided to Mr Grosse on 28 June 2006 that the Mortgage would be limited to 12 months was an important factor in his decision to execute the Mortgage. On the basis of the Representation, he expected that the Mortgage would secure Toys Unlimited's liabilities to ARL for 12 months and that, at the expiration of that period, ARL would be legally obliged to discharge the Mortgage. It follows that he was induced by the Representation to execute the Mortgage.

173 Paul Moore acted to his detriment by relying on the Representation because the Property became encumbered by a second mortgage that was not limited to 12 months.

174 ARL has acted contrary to the Representation by refusing to discharge the Mortgage following the payment of all amounts owing by Toys Unlimited to ARL as at 29 July 2007. Based on the evidence, those amounts were fully paid no later than 31 December 2007.[12]

175 ARL's actions resulted in Paul Moore suffering financial hardship after 31 December 2007, particularly when he was not able to use the Property as security for a loan to purchase a laundrette. Paul Moore relied on financial assistance from Mr Grosse to meet his financial obligations. ARL has refused to avoid this detriment by acting in accordance with the Representation.

176 In these circumstances, it would be unconscionable for ARL to resile from the Representation and to enforce the Mortgage as if the Representation had not been made.

177 It follows from the above that ARL is estopped from enforcing the Mortgage.

178 Section 51AA(1) of the TPA provides that a corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.

179 In cross-examination, Mr Williams conceded that:

(a) no steps were taken by ARL to have the limitation of 12 months included in the Mortgage;

(b) when he considered Paul Moore's request for the Mortgage to be released, he took into account only ARL's commercial position and ignored whether there was any legal substance to Paul Moore's assertion that the Mortgage was limited to 12 months;

(c) he did not regard as a serious or important issue Paul Moore's request for the Mortgage to be released on the basis that it was to operate for 12 months; and

(d) ARL is now seeking to enforce the Mortgage without regard to the 12-month limitation.

180 It is not necessary for me to consider in detail s 51AA(1) of the TPA. This is because, in the light of the matters set out at [179] above and my findings in relation to the making of the Representation, breach of ss 52 and 53(g) of the TPA and estoppel, it must follow that ARL's failure to limit the term of the Mortgage to 12 months and its subsequent refusal to release the Mortgage constituted unconsciona[13]e conduct.13

Discharge of liability under the Mortgage arising from the Settlement Agreement

Relevant provisions of the Settlement Agreement

181 It will be recalled from [64] above that the Settlement Agreement was executed on 23 February 2010, at the conclusion of the mediation that took place on that day. The Settlement Agreement incorporated the Court heading of this proceeding to the extent of naming ARL as the plaintiff, Toys Unlimited as the first defendant, Mr Grosse as the second defendant, Mrs Grosse as the third defendant and Matthew Grosse Pty Ltd as the seventh defendant.

1. This agreement is made between the named parties to the proceeding only.
2. The first, second, third and seventh defendants will pay the plaintiff the following amounts in full and final settlement of the plaintiff's claim against them, inclusive of all interest, costs and disbursements:

(1) $2,500 on or before 31 March 2010;

(2) $2,500 on or before 30 April 2010;

(3) $2,500 on or before 31 May 2010;

(4) $2,500 on or before 30 June 2010;

(5) $2,500 on or before 30 July 2010;

(6) $2,500 on or before 31 August 2010;

(7) $2,500 on or before 30 September 2010;

(8) $2,500 on or before 29 October 2010;

(9) $2,500 on or before 30 November 2010;

(10) $2,500 on or before 31 December 2010.

...

1. The proceeding is to be struck out with a right of reinstatement against the first, second, third and seventh defendants, and the parties agree to execute consent orders to that effect if so required by the Court.
2. In the event that any payment due to be made in accordance with paragraph 2 is outstanding for more than 2 days after the due date, the plaintiff shall be entitled to reinstate the proceeding, and enter judgment against the first, second, third and seventh defendants for all amounts remaining to be paid under these terms, together with the costs of reinstating the proceeding and entering judgment.
3. Upon all payments required to be made by the first, second, third and seventh defendants to the plaintiff pursuant to these terms of settlement having been received by the plaintiff, the plaintiff will lodge with the Australian Securities and Investments Commission notifications of discharge of its registered charges nos. 1330793 (in respect of the first defendant) and 1330796 in respect of the seventh defendant.
4. For the avoidance of doubt, the payments to be made under these terms of settlement are to be secured by the Charges.
5. The plaintiff agrees to execute all documents necessary to discharge the registered mortgage no. 709902869 given by the second defendant to the plaintiff in respect of the property described in Queensland Certificate of Title no. 50234114.
6. The plaintiff agrees to execute all documents necessary to discharge the registered mortgage no. 709902875 given by the second and third defendants to the plaintiff in respect of the property described in Queensland Certificate of Title no. 50181207.
7. In consideration of the parties entering these terms of settlement, the first, second, third and seventh defendants (jointly and severally) release the plaintiff from all claims which they have or may have against it arising out [of] the matters the subject of the proceeding, or in ... respect of any other matters whatsoever.
8. In consideration of the parties entering these terms of settlement, the plaintiff agrees to forbear from seeking to enforce against the first, second, third and seventh defendants all claims which it has or may have against any one or more of them arising out [of] the matters the subject of the proceeding, or in ... respect of any other matters whatsoever, save as provided for by these terms of settlement. For the avoidance of doubt, the plaintiff agrees to forbear from seeking to enforce against any of the first, second, third and seventh defendants all existing costs orders which it has against them in the proceeding.

183 At common law, a release of one of a number of co-debtors who are jointly, or jointly and severally, liable for the same debt releases all of them.[14] Similarly, if a creditor, without having received full payment or performance from the debtor, agrees to release the debtor, any guarantor will also be released.[15]

184 This rule does not apply where the creditor enters into a covenant not to sue a debtor because such a covenant does not affect the underlying liabilities of the co-debtors or guarantors.[16]

185 The question of whether a contractual term operates as a release or as a covenant not to sue must be determined by construing the term in the context of the contract as a whole.[17] If it appears that the term, properly construed, was intended by the parties to the contract not to operate as a release of all co-debtors or guarantors, then the term should be construed only as a covenant not to sue the debtor purportedly released by the contract.

186 In James v Surf Road Nominees Pty Ltd,[18] the New South Wales Court of Appeal observed that '[t]he question of construction is not always easy to resolve' and the court may have 'to search for factors that may determine the matter one way or the other.'[19] The Court identified the following three factors:

(a) where there is a joint obligation, a term that is expressed to be a release will usually be construed to have that meaning;

(b) even if there is a joint obligation, if any intention to reserve rights against the co-debtors or guarantors is found, expressly or impliedly, in the contract, then it is most likely that the parties intended the term to operate as a covenant not to sue; and

(c) the court may have regard to the surrounding circumstances in determining whether the term was intended to operate as a release or as a covenant not to sue the party who bears a joint or joint and several liability.[20]

187 It is clear that the first factor identified above is subject to the second factor. In Dorgal Holdings Pty Ltd v Buckley,[21] for example, the creditor and one of three co-debtors executed a deed of settlement by which the debtor agreed to make partial payment of the alleged debt in 'full and final settlement' of all moneys owing by him, and the creditor expressly agreed to release him from any further liability. The deed also provided that it did not 'extinguish or limit in any way the rights, remedies and claims of [the creditor] against any other person'. McLelland CJ in Eq held that the deed should be construed as a covenant not to sue, and that it did not operate to release the other co-debtors.[22]

Parties' submissions on the construction of the Settlement Agreement

188 ARL did not make any submissions on the construction of the Settlement Agreement.

189 Paul Moore submitted that cl 2 of the Settlement Agreement had the immediate effect of reducing Toys Unlimited's liability to ARL to $25,000 and that, upon payment of that amount, cl 2 released Toys Unlimited, Mr and Mrs Grosse and Matthew Grosse Pty Ltd from any further liability. He contended that, by operation of law, his liability to ARL under the Mortgage was also reduced to $25,000 upon the signing of the Settlement Agreement on 23 February 2010 and that the liability was fully released when that amount was paid in accordance with the Settlement Agreement on 31 December 2010.

190 Paul Moore submitted that cl 12 of the Settlement Agreement was not a covenant not to sue but a covenant not to enforce existing liabilities, such as existing costs orders. He contended that cl 2 was an 'accord and satisfaction' clause, which operated as a release once the payments set out in the clause were paid.

191 Mr Evans submitted that, upon service of the demand for payment of the amount of $460,073.11 on Paul Moore on 26 March 2009, Paul Moore became personally liable to pay that amount pursuant to the Mortgage and his liability was independent of any liability of Toys Unlimited. He contended that Paul Moore's liability was not released or otherwise dealt with by the Settlement Agreement.

192 According to Mr Evans, the Settlement Agreement, on its true construction, provided for a covenant not to sue in favour of Mr and Mrs Grosse and Matthew Grosse Pty Ltd, rather than a release. In support of that submission, Mr Evans relied on the following matters, which he contended were indicia of a covenant not to sue:

(a) Paul Moore was not a party to the Settlement Agreement and did not contribute to the settlement sum;

(b) none of the parties to the Settlement Agreement negotiated the agreement on Paul Moore's behalf;

(c) the Settlement Agreement did not discharge the Mortgage and none of its provisions was expressed to apply to Paul Moore's liabilities to ARL;

(d) the Mortgage did not purport to secure the instalments payable under the Settlement Agreement;

(e) clause 11 used the word 'release', whereas cl 12 used the words 'forbear from seeking to enforce'; and

(f) the fact that the amount of $25,000 was a small portion of Toys Unlimited's overall debt to ARL.

193 Mr Evans also relied on the surrounding circumstances at the time of the execution of the Settlement Agreement. In particular, he relied on Mr Williams' evidence that ARL regarded all the securities that it held in respect of Toys Unlimited's liability, other than the Mortgage, as worthless. He submitted that regard should not be had to the existence of a counterclaim by Toys Unlimited because no evidence had been adduced about the merits of the counterclaim.

194 Mr Evans contended that cll 2 and 6 did not have the effect of discharging the existing liabilities of Toys Unlimited, Mr and Mrs Grosse and Matthew Grosse Pty Ltd to ARL and substituting for those liabilities a liability to pay $25,000. He described cl 6 as a non-exclusive mechanism for enforcing the Settlement Agreement upon default in the payment of any of the instalments set out in cl 2.

Decision on the construction of the Settlement Agreement

195 The Settlement Agreement contains two types of provisions that - to use a neutral term - protect the parties from liability. The first type - cll 5, 9, 10, 11 and 12 - provide immediate protection, whereas the second type - cll 2 and 7 - provide protection prospectively upon the making of the payments set out in cl 2. Another distinguishing feature of the two types of provisions is that cll 11 and 12 provide protection extending beyond the parties' respective claims in the proceeding, whereas cl 2 provides protection only in respect of ARL's claim against Toys Unlimited, Mr and Mrs Grosse and Matthew Grosse Pty Ltd in the proceeding.

196 As the protection provided to Toys Unlimited, Mr and Mrs Grosse and Matthew Grosse Pty Ltd under cll 2 and 12 differs in scope and does not arise at the same time, it must follow that they were intended to have independent operation. This is made clear by cl 12, which states that the protection provided by that clause is subject to the other terms of the Settlement Agreement. It follows that cl 12 is subject to cl 2, and not vice versa. Accordingly, cl 2 cannot be read down by reference to cl 12.

197 Clause 2 is an 'accord and satisfaction' clause that had two effects: first, a new obligation to pay $25,000 by 10 instalments replaced the existing obligations of Toys Unlimited, Mr and Mrs Grosse and Matthew Grosse Pty Ltd in relation to 'the plaintiff's claim'; and, secondly, upon compliance with the new obligation, those parties were released from that claim.[23] Although the expression 'the plaintiff's claim' is not defined, in its context, it can only mean all claims made by ARL against Toys Unlimited, Mr and Mrs Grosse and Matthew Grosse Pty Ltd in the proceeding. ARL's claims against those parties in the proceeding included all the liabilities that Toys Unlimited incurred to ARL in the course of their trading relationship and all the liabilities of Toys Unlimited that Mr and Mrs Grosse and Matthew Grosse Pty Ltd guaranteed to ARL.

198 Read as a whole, it is clear that the Settlement Agreement provided for a mutual compromise and release of the parties' respective claims in two stages. At the first stage, on 23 February 2010, ARL's liabilities to the other parties were immediately released and the other parties' liabilities to ARL were immediately subject to a covenant not to sue[24] save for the liabilities arising from the subject matter of the proceeding; the latter liabilities were reduced to $25,000 payable in 10 instalments ending on 31 December 2010. At the second stage, once all the instalments were paid on 31 December 2010, Toys Unlimited, Mr and Mrs Grosse and Matthew Grosse Pty Ltd were released from any liability to ARL arising from the subject matter of the proceeding. It follows that, contrary to Mr Evans' submissions, to construe cl 2 as a release does not render cl 12 redundant.

199 For the above reasons, upon the signing of the Settlement Agreement on 23 February 2010, the only ongoing liability that Toys Unlimited, Mr and Mrs Grosse and Matthew Grosse Pty Ltd had to ARL was to pay $25,000 by way of the 10 instalments set out in cl 2. If they defaulted in making any of those instalments and ARL sought to enforce the Settlement Agreement, ARL could not recover any more than the balance outstanding on the amount of $25,000. Clause 6 provided a mechanism for such enforcement.

200 The fact that the Settlement Agreement contains both a covenant not to sue clause (cl 12) and a release clause (cl 2) in favour of Toys Unlimited, Mr and Mrs Grosse and Matthew Grosse Pty Ltd, with material differences between them in relation to scope and timing, precludes a finding that cl 2 provides for a covenant not to sue rather than a release. It also precludes a finding that the Settlement Agreement contains an implied reservation of rights against Paul Moore.

201 The indicia of a covenant not to sue upon which Mr Evans relied - some of which were irrelevant or involved circuitous reasoning - cannot alter the clear meaning of the Settlement Agreement when construed as a whole.

202 There is also nothing in the objective surrounding circumstances that were known to all the parties to the Settlement Agreement that detracts from the clear meaning of the agreement. Mr Williams' evidence that, at the time of the mediation, ARL was of the view that the other securities were worthless is not admissible because it does not relate to an objective circumstance that was known to all the parties. In any event, it is clear from cl 8 of the Settlement Agreement - which provides that the amounts payable under cl 2 were to be secured by the two debenture charges - that the parties did not regard all the other securities as worthless.

203 The objective surrounding circumstances that were known to all the parties to the Settlement Agreement included the following:

(a) ARL had made a claim on Toys Unlimited which, at the time of the mediation, was quantified at approximately $800,000;

(b) Toys Unlimited had made a counterclaim against ARL;[25]

(c) Mr Grosse had asked Paul Moore to provide the Mortgage in response to ARL's request for additional security;

(d) Mr and Mrs Grosse and Matthew Grosse Pty Ltd had guaranteed the same liabilities as those guaranteed by Paul Moore;

(e) at Paul Moore's request, Mr Grosse had asked ARL to release the Mortgage on the basis that it was limited to 12 months;

(g) the Mortgage had caused Paul Moore to suffer financial hardship.

204 These surrounding circumstances do not indicate that the parties to the Settlement Agreement intended that the agreement would operate as a covenant not to sue in respect of the liability of Toys Unlimited, Mr and Mrs Grosse and Matthew Grosse Pty Ltd to ARL rather than as a release of their liability.

205 It follows that, as a result of the execution of the Settlement Agreement and the payment of the amounts set out in cl 2, Toys Unlimited, Mr and Mrs Grosse and Matthew Grosse Pty Ltd ceased to have any liability to ARL.

206 In accordance with the rule set out at [183] above, upon the discharge of Toys Unlimited's liability to ARL on 31 December 2010, there were no longer any moneys secured by the Mortgage. This is because, as at that date, Toys Unlimited ceased to have any 'debts and liabilities' to ARL within the meaning of the defined term 'Advance' in the Mortgage.

207 Although, as Mr Evans contended, Paul Moore's obligations under the Mortgage were personally binding on him, he was a guarantor and the subject matter of his obligations was Toys Unlimited's debts and liabilities to ARL. The quantum of Paul Moore's obligations fluctuated depending on the quantum of Toys Unlimited's debts and liabilities to ARL from time to time.

208 There is nothing in cll 8.1.2, 8.1.7, 21.1, 24 and 38 of standard terms document number 701994211, upon which Mr Evans relied, that affects the conclusion at [206] above. Those clauses provide:

8. RIGHTS OF MORTGAGEE NOT PREJUDICED

8.1 Waiver

The Mortgagee's rights under this Mortgage will not be prejudiced or affected by:

...

8.1.2 the compounding, compromise, release, abandonment, waiver, variation, relinquishment or renewal of any security, document of title, asset or right of the Mortgagee against the Mortgagor or any other surety;

...

8.1.7 any alteration, variation or addition to any agreement in respect of all or part of the Secured Moneys;

...

21 CONTINUING SECURITY

21.1 Continue until released

This Mortgage and any Additional Security are continuing securities and will remain in force and effect until a final discharge is given by the Mortgagee notwithstanding:

21.1.1 that no Secured Moneys are owing at that time;

21.1.2 any settlement of account; or

21.1.3 any other matter or thing;

...

24 INDEMNITY

The Mortgagor indemnifies and will keep indemnified, the Mortgagee against all actions, claims, demands, losses, damages (including property damage and personal injury, economic loss and any other kind of damage) costs, charges, payments and expenses of any kind occurring against or incurred or occasioned to the Mortgagor by the Mortgagee or any other person by reason of:

24.1 the relationship of Mortgagor and Mortgagee created by this Mortgage;

24.2 anything done or omitted to be done by the Mortgagor or the Mortgagee under this Mortgage or concerning the Mortgaged Property;

24.3 the exercise, attempted exercise or failure to exercise any of the powers conferred on the Mortgagee by this Mortgage or any Act;

24.4 any neglect or default by the Mortgagee or of any person for whose acts or omissions the Mortgagee may be vicariously or otherwise responsible;

24.5 the Mortgagee being in possession of the Mortgaged Property,

and all amounts for which the Mortgagee is indemnified will accrue and be deemed to be part of the Advance in arrears.

...

38. JOINT AND SEVERAL LIABILITY

If an obligation is to be performed by a person for or with another person, each person will be both jointly liable with the other person and severally liable on its own account to perform the obligation. A release given to the other person shall not release the other from any obligation. The granting of time or any other indulgence to another person will not release the person from its obligations under this Mortgage.

209 Clause 8.1.2 refers to the release of any security or right of ARL against Paul Moore or any surety and does not deal with the release of the Covenantor, Toys Unlimited. Clause 8.1.7 refers to an amendment to any agreement relating to the Secured Moneys and does not deal with the release of the Covenantor's debts and liabilities to ARL. Clause 21.1 deals with the continuation in force of the Mortgage and says nothing about what is owing under the Mortgage. Clause 24 provides for an indemnity to be given by Paul Moore to ARL against liabilities incurred by ARL in specified circumstances and does not deal with Toys Unlimited's debts and liabilities to ARL. Clause 38 is inapplicable because it deals with obligations imposed by a mortgage on multiple parties to that mortgage.

What amount is payable by Paul Moore to ARL under the Mortgage?

210 It follows from [177] and [206] above that, at present, no amount is payable by Paul Moore to ARL under the Mortgage.

Was Mr Evans negligent and, if so, did his negligence cause any loss to ARL?

211 At [67] and [68] above, I found that, prior to the mediation, Mr Williams instructed Mr Evans to draft the terms of the Settlement Agreement in such a way that it did not result in a loss of ARL's rights to claim against Paul Moore under the Mortgage. In the light of these instructions, Mr Evans had a duty to ARL to draft the Settlement Agreement in a manner that preserved ARL's rights of recovery against Paul Moore under the Mortgage.

212 Mr Evans could have discharged his duty to ARL quite easily by including in the Settlement Agreement an unequivocal covenant by ARL not to sue Mr and Mrs Grosse and Matthew Grosse Pty Ltd together with a clause that expressly preserved ARL's rights against Paul Moore, and omitting any words that could be construed as a release in favour of those parties.[26] Mr Evans' failure to adopt this approach had the effect of discharging any liability that Paul Moore had to ARL under the Mortgage as at 31 December 2010.

214 However, as a result of the findings I have made at [167] to [177] above, as at 23 February 2010, ARL was estopped from enforcing the Mortgage. Accordingly, Mr Evans' negligence did not cause any loss to ARL.

215 Paul Moore relied on a number of defences in addition to his principal defences that I have discussed already. In view of my conclusions on the principal defences, it is not necessary for me to discuss the additional defences in detail. Accordingly, I will set out my conclusions on those defences in summary form.

Is the interest clause in the Terms of Trade void for uncertainty?

216 ARL's claim for interest arises out of cl 5.6(a)(ii) of the Terms of Trade, which obliged Toys Unlimited to pay to ARL on demand, 'interest on all outstanding amounts due from time to time ... at the then current default interest rate as determined from time to time by ARL'.

217 Mr Williams gave evidence that, when the owner of a Toyworld store becomes a member of ARL, the owner is provided with a membership pack that includes details of the interest rate that ARL charges on overdue accounts. A New Member Information Manual dated 2008 was tendered in evidence. That Manual specifies an interest rate of 18 per cent per annum on overdue accounts. Mr Williams gave evidence that the membership pack was in a similar form in June 2006 and that the rate of interest specified at that time was 18 per cent. Monthly invoices from ARL to Toys Unlimited for interest charges on overdue accounts were also tendered. Each invoice specified an interest rate of 18 per cent per annum.

218 Paul Moore has alleged that cl 5.6(a)(ii) of the Terms of Trade was void for uncertainty because it did not specify a particular rate of interest or set out a formula by which the rate could be calculated. As the meaning of cl 5.6(a)(ii) is clear, that contention must be rejected.[27] From the outset of their trading relationship, ARL provided notice to Toys Unlimited that the rate that ARL would charge for overdue amounts was 18 per cent per annum and Toys Unlimited, knowing that ARL would charge interest at that rate on overdue accounts, continued to order goods in accordance with the Terms of Trade without any protest. In these circumstances, it is difficult to see how Toys Unlimited could seek to impugn cl 5.6(a)(ii) on the ground of uncertainty. I note that Paul Moore did not seek to impugn the clause on other grounds, such as that it constituted a penalty.

Did the Representation form part of the terms of the Mortgage?

219 Paul Moore has alleged that the Representation became part of the terms of the Mortgage.

220 Clause 31 of standard terms document number 701994211 provides:

ENTIRE MORTGAGE

Except to the extent set out in this Mortgage:

31.1 this Mortgage constitutes the entire agreement between the parties with respect to its subject matter and contains all of the representations, undertakings, warranties, covenants, agreements and deeds of the parties;

31.2 this Mortgage supersedes all prior negotiations, contracts, arrangements, understandings, agreements and deeds with respect to the subject matter of this Mortgage;

31.3 there are no representations, undertakings, warranties, covenants, agreements or deeds between the parties, express or implied, except as contained in this Mortgage.

221 As discussed at [93] above, the terms of the Mortgage did not, at any time, contain a provision limiting Paul Moore's liability to a period of 12 months. Having regard to the entire mortgage clause, the terms of the Mortgage are those contained in the mortgage documents to which I have already referred, and did not include the terms of the Rep[28]sentation.28

Did the Settlement Agreement vary the Terms of Trade

222 Paul Moore has contended that the Settlement Agreement varied the Terms of Trade. I reject this contention. The Settlement Agreement did not purport to vary the Terms of Trade. It is a stand-alone agreement which deals with the debt arising from the Terms of Trade.

Section 84 of the Property Law Act 1974 (Qld)

223 Paul Moore has asserted that ARL is precluded from taking possession of the Property as it has not given the requisite 30-day notice under s 84 of the Property Law Act 1974 (Qld).

224 Section 84(1) relevantly provides:

84 Regulation of exercise of power of sale

(1) A mortgagee shall not exercise the power of sale conferred by this Act or otherwise unless and until -

(a) default has been made in payment of the principal money or interest or any part of it secured by the instrument of mortgage, and notice requiring payment of the amount the failure to pay which constituted the default under such instrument of mortgage has been served on the mortgagor and such default has continued for the space of 30 days from service of the notice; ...

225 Paul Moore's contention must be rejected. Although ARL has served on Paul Moore a notice of exercise of power of sale under s 84, it has not taken any step to sell the Property.[29] It has merely commenced this proceeding seeking possession of the Property in order to be in a position to sell it.

226 Paul Moore has asserted that the Mortgage is void and ineffectual as creating or imposing an invalid clog upon his right to redeem the Mortgage. The basis for the assertion is not clear.

227 The contention is without merit and is rejected. In the light of my conclusion that Paul Moore does not owe any amount under the Mortgage, however, there would not be any lawful basis for ARL to refuse a request from him to discharge the Mortgage.

228 It follows from the above discussion that ARL's claims against Paul Moore and Mr Evans must be dismissed.

Adjournment to enable parties to make submissions on the form of the judgment

229 I will adjourn the proceeding to a time to be fixed to hear submissions from the parties on the form of the judgment to be made by the Court in the light of my reasons.

[1] This contention is discussed below at [218].

[2] See above [79]-[80].

[3] The notes are discussed above at [79]-[80].

[4] Mr Williams' handwritten notes contained the following statement: '27 Nov 2007 - RW Conversation with Pickard. Pickard told me that Moore had declined to sign NAB's consent form re deed of priority as he (Moore) was alleging that [mortgage] was only for 12 months. First time that I had heard about the 12 month thing. Nothing was said about $150,000 limit in that conversation.'

[5] See above at [42]-[43] and below at [151]-[160].

[6] See above at [51].

[7] Mr Grosse gave evidence that Mr Pickard had taken charge of Toys Unlimited's dealings with Ms Murrell in relation to Paul Moore's mortgage. He also said that there was tension in his relationship with Ms Murrell's firm, O'Reilly Stevens Bovey. See also below [147].

[9] See above at [162].

[10] Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, 428-9 ('Waltons Stores'); Commonwealth v Verwayen (1990) 170 CLR 394, 502; Commonwealth v Clark [1994] VicRp 66; [1994] 2 VR 333, 360.

[11] Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406, 435-7; Foran v Wight [1989] HCA 51; (1989) 168 CLR 385, 410-1.

[12] See above at [37].

[13] My findings above at [103], [132], [161]-[162], [165] and [175]-[176] are particularly significant.

[14] Walker v Bowry [1924] HCA 28; (1924) 35 CLR 48, 58.

[15] Hill v Anderson Meat Industries Ltd [1972] 2 NSWLR 704, 706-7; Ehrenfeld v Oriana Nominees Pty Ltd [1999] WASCA 222 (13 October 1999) [19].

[16] Dorgal Holdings Pty Ltd v Buckley (1996) 22 ACSR 164, 167 ('Dorgal'); Pollak v National Australia Bank Ltd [2002] FCA 237 (14 March 2002) [15] ('Pollack').

[17] James v Surf Road Nominees Pty Ltd [2004] NSWCA 475 (21 December 2004) [41] ('Surf Road').

[18] [2004] NSWCA 475 (21 December 2004).

[19] [2004] NSWCA 475 (21 December 2004) [42].

[20] Surf Road [2004] NSWCA 475 (21 December 2004) [43]-[44].

[21] (1996) 22 ACSR 164.

[22] Dorgal (1996) 22 ACSR 164, 167-8. See also Carr v Thomas [2009] NSWCA 208 (23 July 2009) [22]-[24].

[23] Osborn v McDermott [1998] 3 VR 1, 10-11.

[24] A covenant not to enforce can be equated with a covenant not to sue: Pollack [2002] FCA 237 (14 March 2002) [24].

[25] See above [65].

[26] See above [183]-[187].

[27] For a discussion of the principles for determining when a contractual provision is void for uncertainty, see Talacko v Talacko [2009] VSC 533 (24 November 2009) [289]-[292].

[28] Hope v RCA Photophone of Australia Pty Ltd [1937] HCA 90; (1937) 59 CLR 348, 357-8, 363, 365-6, 368.

[29] See above at [57].