Plaintiff v First Defendant

3 Mr Nicholls guaranteed to Westpac payment of all liabilities and obligations of Carlingford Fleet Pty Ltd ('Carlingford') (alone or with others) now or in the future under or in respect of a Business Finance Agreement (hereinafter referred to as 'BFA') dated 15 June 2007 or any other arrangement or obligation he agreed was covered by the guarantee. The facilities were also secured by a fixed and floating charge granted by Carlingford.

4 The first defendant, Mr Trevor Souter, and Mr Nicholls were directors of Carlingford. Mr Souter did not defend the proceedings and Westpac has entered a judgment against him in default of appearance.

5 Mr Nicholls represented himself at the hearing and presented his case in an able manner.

6 Carlingford operated a business of leasing motor vehicles. Its customers were car rental companies, who in turn leased, or as Westpac put it subleased, the vehicles to customers. It entered into hire purchase agreements with Westpac for vehicles that it required for its business. Westpac provided finance under the BFA for the purchase of the vehicles. Payments made under the hire purchase agreements were credited against the amount owing under the BFA.[1]

7 Carlingford also obtained finance for other vehicles from other financiers.

8 Westpac advanced $7 million to Carlingford under the BFA in two tranches of $3 million and $4 million, the latter being in February 2008. These advances were secured by Mr Nicholls' and Mr Souter's guarantees and the charge. The guarantees were varied in February 2008 when the BFA facility was increased to $7 million. However, Westpac accepts that Mr Nicholls' potential liability as guarantor remained $3 million plus government duties and charges, fees, costs, expenses and interest.

9 Initially, it was envisaged that Westpac would provide a third tranche of funding of a further $3 million, but that did not occur and there was a dispute as to whether it had unreservedly agreed to do so.

10 The BFA was subject to conditions precedent. These included that draft copies of the external leases were to be vetted by the Bank's external solicitors and to be to the satisfaction of the Bank. Another condition was that Westpac would enter into a priority deed concerning its rights upon the enforcement of securities with the ANZ and Bendigo Banks, who were also financiers and secured creditors of the Carlingford Group. That agreement was to include an acknowledgement that, upon realisation of any asset secured by a Westpac Finance Charge, Westpac would be entitled to retain all proceeds of that realisation. Westpac did enter into such a deed on 11 September 2007. It was known as the pari passu deed.

11 During the Global Financial Crisis in 2008 and 2009, Carlingford's lenders changed their financial facilities from 'revolving credit' to 'amortising credit' or terminating facilities. This change limited the finance that Carlingford had available to purchase new vehicles and in 2009 it experienced a credit squeeze.

12 Westpac considered that Carlingford was in breach of its lending covenants. Together with other financiers, Westpac representatives met with Mr Nicholls, Mr Souter and other Carlingford representatives. On 22 October 2009, the financiers agreed to a two month standstill on the payments that Carlingford was obliged to make and that standstill was extended to 12 January 2010. The financiers did not agree to its further extension.

13 On 20 January 2010, Westpac's solicitors wrote to Carlingford terminating a number of hire purchase agreements as detailed in an attached schedule, on the ground that Carlingford had failed 'to punctually pay moneys due by it to the Bank under each of the Agreements'. Westpac stated that the vehicles that were the subject of the agreements 'must be returned immediately to the Bank'.

14 There was a dispute about whether any of the lessees was in default under their leases. Mr Nicholls said no lessee were in default, whereas Westpac contended that about 36 per cent of them were in default.

15 As at January 2010, Carlingford had about 2700 cars under hire purchase, with about 270 of them financed by Westpac.

16 On 21 January 2010, Mr Nicholls emailed Ferrier Hodgson, who were Westpac's agent for the purpose of exercising its powers under the securities given by Carlingford, stating:

We are disappointed that Westpac are proceeding down this path particularly given that we had proposed a strategy that would avoid any financial loss to all parties. However, we believe that at this point the best strategy is to provide you with as much assistance as we can in order to mitigate any further losses. Accordingly, we acknowledge your letter and we support its despatch as suggested. Further, we reiterate our commitment to provide our assistance and support in returning the vehicles financed by Westpac to your nominated address. To this end, we would be grateful if you would provide us with a list of Dominions locations as soon as possible as we have cars to return now.

Please note that we continue to reserve our rights.

17 The letter referred to in this email was a proposed letter that Westpac would send to Carlingford's lessees concerning repossession of the vehicles.

18 Westpac repossessed most of the vehicles that it was hiring to Carlingford and sold them at auction or private sale. Nine were sold to existing lessees. One had been previously extensively damaged and was not sold. Westpac permitted the end user lessees to use their vehicles for the remainder of their short term hirings, subject to payment of the hiring charges.

19 The sale price and additional leasing charges that were received for the vehicles amounted to $3,223,690. No lessees made claims against Westpac on account of the repossessions.

20 Apparently, Carlingford's other financiers did not repossess their vehicles which were the subject of hire purchase agreements with Carlingford.

21 Mr Nicholls did not pursue the argument, pleaded in his defence, that Westpac had mishandled the sale of the vehicles and obtained lower sale prices than it should have obtained.

22 Following the sale of the vehicles, Westpac made demands under the guarantees of Mr Souter and Mr Nicholls for payment of the sum of $3 million.

23 Westpac served Notices to Admit documents and facts upon Mr Nicholls. He did not dispute the matters contained in them. Accordingly, he is taken to have admitted, inter alia: the execution of the hire purchase agreements, the valid termination of the hire purchase agreements, that Carlingford was indebted to Westpac under the hire purchase agreements in an amount not less than $3,011,428.75 and that Westpac had made a written demand of him under the guarantee for that amount which he had not paid. The case was argued on the basis that Westpac terminated the hire purchase agreements when Carlingford was in default of the repayments due under each of these agreements.

24 The amount claimed under the guarantee was the maximum amount secured by it of $3 million. In fact, Westpac's shortfall was greater than the $3 million. It advanced $7 million to Carlingford under the BFA and received $3,223,690 from the realisation of the vehicles. That shortfall was both an amount owing to Westpac under the BFA and was also owing under the hire purchase agreements. The common provisions that were incorporated into the BFA included that Carlingford agreed to pay all money which it owed Westpac for any reason (clause B1), that a Default Event occurred if Carlingford did not pay Westpac any amount due under any Lender Arrangement, which included the hire purchase agreements (clause D2 and A2) and that Carlingford was also obliged to pay Westpac all other losses, costs liabilities and expenses which Westpac suffered or incurred as a direct or indirect result of a Default Event. (clause B1). The effect of all these provisions was that amounts owing by Carlingford under the hire purchase agreements were also owing under the BFA. Mr Nicholls' guarantee secured Carlingford's liabilities under the BFA.

25 Under the common provisions incorporated into the guarantee, a written statement by a representative of Westpac as to amounts owing under the Document, ie the guarantee, was sufficient evidence against the guarantor unless the guarantor proved it was wrong (clause H5).

26 Mr Nicholls relied on three defences, which Westpac accepted he could maintain despite the admissions that flowed from the Notices to Admit.

27 First, that Westpac did not have the legal right to repossess the vehicles if Carlingford's lessees were not in default.

28 Secondly, Westpac's conduct breached implied terms of the BFA, hire purchase agreements and guarantee, namely that it could only repossess the vehicles if Carlingford's lessees were in breach of their leases. Mr Nicholls described the implied term in the following manner:

It was an implied term of the BFA and any hire purchase agreements entered into and funded by the said Revolving Limit that in the event of any default under the BFA by Carlingford Fleet Pty. Ltd., the plaintiff would honour, alternatively, not act inconsistently with the terms of any subsisting lease between Carlingford Fleet Pty. Ltd. and any third party in the form, or substantially in the form of those vetted and accepted by the plaintiff.

29 Mr Nicholls argued that Westpac breached that term by repossessing the vehicles and selling them. He contended that if Westpac had complied with the implied term and let the leases run their term, it would not have suffered any loss, but would have recovered a sum in excess of the $3 million that it claims from him.

30 Mr Nicholls has not counterclaimed against Westpac seeking damages for breach of the implied term in the BFA, in the hire purchase agreements or in the guarantee. Westpac accepted that his defence should be treated as the equivalent of a claim to an equitable set-off. In GE Capital Australia v Davis,[2] Bryson J, in dealing with claims by a guarantor that a property provided as security had not been properly realised, stated:

In my opinion and subject to the terms of the guarantee, the guarantor is entitled to have the correct amount of any credit ascertained and brought into account in calculating the amount of the liability of the principal debtor which in its turn determines the amount of the liability of the guarantor. If the mortgagor is entitled to have a further credit brought into account on taking the mortgage accounts, the guarantor can get the benefit of the credit by relying on the equitable set-off against the creditor's demand.

31 Mr Nicholls' third defence is that Westpac was estopped from exercising its rights to repossess the vehicles. This estoppel is said to arise from two representations that Westpac made about the action it would take if Carlingford breached its repayment obligations.

32 Mr Nicholls first contends that by entering into the BFA, Westpac represented to him that it was obliged to, and would, honour the terms of the leases Carlingford had granted and/or that it had no entitlement to demand or take possession of the motor vehicles that were subject to subsisting leases between Carlingford and any third party. The pleadings do not allege that Mr Nicholls acted in reliance on that representation, however, he gave evidence that he entered into the agreements on that understanding.

33 Secondly, in respect of the estoppel defence, Mr Nicholls pleaded that Westpac:

represented to [him] that in the event of default by Carlingford Fleet Pty. Ltd. it would honour the said subsisting leases and cooperate with other lenders of Carlingford Fleet Pty. Ltd. in the orderly and reasonable realisation of any security held so as to obtain a reasonable recovery on such security and thereby reduce losses under the BFA and the potential liability of the second defendant.

In reliance upon the said representation the second defendant entered into the second guarantee and in the circumstances the plaintiff is estopped from asserting any claim to recover its loss or damage from the second defendant over and above that which it would have suffered had it so acted.

34 Mr Nicholls' defences raise the following issues:

(a) did the terms of the securities, express or implied, permit Westpac to repossess the vehicles upon default by Carlingford?

(b) if so, was Westpac estopped from asserting that right?

35 Before considering these issues, I will refer to Westpac's financial documents and securities.

36 The BFA contained conditions precedent, to which I have previously referred. It also required that Carlingford provide information about the location and condition of each of Westpac's vehicles within 45 days of the end of each financial year.

37 The BFA provided equipment finance with a 'revolving limit' which was initially $3 million and was later increased to $7 million. The purchase costs of the vehicles were deducted from the 'revolving limit'.

38 The BFA incorporated provisions contained in a Memorandum of Common Provisions to which I have previously referred.

39 Westpac was entitled to review the BFA annually and at any other time upon notice to Carlingford.

40 Westpac and Carlingford entered into a standard form commercial hire purchase agreement for each vehicle which Carlingford wished to purchase. The agreements incorporated a memorandum of common provisions relating to equipment finance.

41 The provisions of the Hire Purchase Act 1959 no longer applied and the Personal Property Securities Act 2009 did not apply to the security documents that Carlingford executed because they were entered into prior to its commencement.

42 Under the general law, Carlingford was entitled to continued possession of the vehicles, according to the terms of the hire purchase agreement, and acquired a proprietary interest in the vehicles which equity would protect.[3]

43 In clause 3.2 of the Memorandum of Common Provisions, Carlingford acknowledged that the motor vehicles were and remained Westpac's sole property unless the option to purchase given to Carlingford under it was exercised. Clause 8 gave Westpac the power to inspect the vehicles.

44 Clauses 9.2 and 9. 5 gave Westpac the following rights or imposed the following obligations upon Carlingford upon an event of default, which included Carlingford not paying Westpac any amount due under any document or security:

(b) to require payment by way of liquidated damages of all unpaid instalments and instalments which would have been due if the loan had continued up to the principal repayment date with the application of a discount rate;

(d) to return the goods promptly and, if they were not returned, Westpac could repossess them 'and for that purpose [Westpac] or its Manager may enter into any place where the [vehicles] are or are suspected to be located.'

45 Westpac approved a form of motor vehicle lease ('MVLA') which Carlingford used in all its lease agreements of vehicles which were subject to the hire purchase agreements. Clause 11 of the Lease is headed 'Acknowledgements by the Lessee' and included the following provisions:

11.1 The Lessee acknowledges that the Lessor has not given any condition, warranty or representation as to the disposal of the Vehicle after the Expiry Date. In particular, the Lessee has not been given any promise, option or representation or expectation whatever (whether express or implied) that the Lessee may purchase the Vehicle after the expiry Date (or at any earlier time).

11.2 The Lessee acknowledges that the Lessee has no property rights in the Vehicle and that it will remain the sole property of the Lessor and/or the Lessor's financiers from time to time. The Lessee's only right is to use the Vehicle on the terms and subject to the conditions set out in this Lease.

...

11.10 The Lessee acknowledges that the Vehicle is legally and beneficially owned by the Bank and the Lessee warrants that it will not deal with the Vehicle in any manner other than in accordance with the Lessee's rights under this Lease.

11.11 The Lessee will not object to the Bank or any of the Bank's agents, employees or servants entering upon the Lessee's property at any reasonable time for the purpose of inspecting, repairing, maintaining, repossessing, taking, removing, or carrying away the Vehicle.

11.12 The Lessee agrees that the Lessor has a right to enter upon the Lessee's property at any time for the purpose of repossessing, taking, removing or carrying away the Vehicle(s) to enable the enforcement of the Lessor's and/or the Bank's interest in the Vehicle(s) under this Lease.

46 Clause 13 gave Carlingford the right to terminate the lease upon default by the lessee. Clause 15 dealt with Carlingford's rights against the lessee if Carlingford terminated the lease because of the lessee's default.

Submissions about the express terms of the agreements

47 Mr Nicholls argued that Westpac did not have any greater right than Carlingford to repossess the vehicles and that its only right in that regard was found in clauses 13 and 15 of the approved lease. The lessees were not in breach of their obligations under the motor vehicle leases. He submitted that Westpac had used its market size and power to force the lessees to relinquish vehicles that were critical to their businesses and had thereby breached the motor vehicle leases and lost the income that Westpac received from the leases.

48 Mr Nicholls submitted that Westpac could not repossess the vehicles. Clause 11.2 of the motor vehicle lease did not give Westpac the right to repossess the vehicles if Carlingford's lessees were not in breach of their leases. If Westpac had such a right, the third party lessees would be in a commercially untenable position and Carlingford would have been unable to find any lessees for the vehicles.

49 Westpac disputed this submission and relied on the express terms of the hire purchase agreements.

Conclusion concerning the express terms of the finance agreements

50 I consider that Westpac had the express right to terminate the hire purchase agreements upon Carlingford's default in making the required payments and the right to exercise the powers to repossess the vehicles contained in clause 9, to which I have referred. In so acting, Westpac was not terminating the motor vehicle leases, but terminating the hire purchase agreements.

51 However, that conclusion leaves for determination the other defences upon which Mr Nicholls relies and which I now consider.

Has Mr Nicholls established the implied terms upon which he relies?

52 I have set out above the implied terms that Mr Nicholls contends were contained in the BFA, the hire purchase agreements and the guarantee. The key issue is whether the hire purchase agreement contained the implied term upon which Mr Nicholls relies .

53 In order for a term to be implied into a written contract, the five matters identified in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[4] must be established. The term must be reasonable and equitable, it must be necessary to give business efficacy to the contract, it must be so obvious that 'it goes without saying', it must be capable of clear expression and it must not contradict any express term of the contract. Some of these requirements overlap, for example, the requirement that the term be reasonable and equitable and goes without saying.

54 The purpose of the application of these requirements is to identify the intention of the parties, viewed objectively.

55 Mr Nicholls submitted that there was a term implied in Carlingford's agreements with Westpac that it could lease the vehicles, as that was necessary for the agreements to make sense. This term was implied, even though there was a term in the memorandum of common provisions that there could be no dealing in the vehicles, because Westpac had agreed to Carlingford leasing them. He submitted that there was an implied term that, in the event of a default by Carlingford, Westpac would take over the leases and receive the income under them. Each of the requirements described in the BP Refinery case[5] was satisfied. The term upon which he relied was required to give business efficacy to the underlying third party leases and to provide the third party lessees with quiet enjoyment of the vehicles. Westpac and Carlingford understood throughout their transaction that Carlingford owned the vehicles and that Westpac had no right to break the third party leases.

56 To consider these defences, I next turn to the evidence of how the agreements between Westpac and Carlingford came to be made.

57 Mr Nicholls gave evidence that Carlingford entered into the BFA in June 2007, after several months of negotiations and correspondence with Westpac.

58 He described Carlingford's business model as leasing vehicles to companies or entities that conducted car rental businesses, who would then lease them to consumers. One client, A1 Car Rentals, was a wholly owned subsidiary of the Carlingford group and leased cars that were about six or seven year old to consumers.

59 Carlingford usually leased a particular vehicle for a period of six to seven years. The lessees were categorised as belonging to particular tiers and the vehicles were leased to different tiers of lessees as the vehicles became older. A1 Car Rentals was a third tier rental company.[6]

60 Mr Nicholls stated that a key to the Carlingford business model was that if the vehicles were sold when about three years old, they would be able to realise a profit above their depreciated value.[7] In fact, Carlingford leased the vehicles for the five year term of the hire purchase agreement and then, presumably having purchased them, leased them for an additional one or two years.

61 Mr Nicholls contended that Westpac provided finance to Carlingford not just to enable it to purchase vehicles, but also to fund a business model.[8] In return, Westpac received the security provided by the vehicles, by Carlingford's leases with third party customers and from the income that resulted from those leases. The leases were for a fixed term and had a real value. No lessee was in breach of its lease obligations.

The Plaintiff raised concerns at that time with regard to its rights of possession in the event of a default by the Company and there was significant negotiation around that point. The Plaintiff questioned whether or not the provisions gave it a right to possession in the event that the Company defaulted. The Company argued that the Plaintiff's rights through the operation of the MVLA and the Plaintiff's own security documentation was to place it in the shoes of the Company with respect to the MVLA. Accordingly, the Plaintiff understood its rights to possession to be only in the event of default by both the Company and the Third Party Lessee.

The Company's position on this point was that it would not be commercially prudent for a Third Party Lessee to enter into a Third Party Lessee MVLA if there was a real potential that it could lose its rights to quiet enjoyment of the motor vehicles as a result of a default by the Company through no fault of its own. The Third Party Lessees were predominantly small car rental operators whose businesses could not survive the loss of what was in some cases the bulk of their fleets.

The Plaintiff ultimately accepted this position and entered into the lending agreement with the Company. The Plaintiff's Manager, Noel Waring confirmed that he understood that [the] Plaintiff could not expect to be in any better position in an event of default by the Company than the Company itself. Waring also confirmed that the Company would have no business for the Plaintiff if it were unable to guarantee quiet possession to a Third Party Lessee that was not in default.

63 Mr Nicholls considered that the extent of Westpac's rights to repossess the vehicles was an important issue in the transactions, because it affected the leases that Carlingford could provide to customers.[9] The third party lessees were predominantly small car rental operators whose businesses could not survive the loss of the vehicles leased by Carlingford. In some cases, the vehicles Carlingford leased made up the bulk of their fleet.[10] He was concerned that Carlingford may not have been able 'to sign a single lease' if Westpac could have repossessed the vehicles upon Carlingford defaulting in its obligations to Westpac.[11]

64 Mr Nicholls' dealings with Westpac were with Mr Noel Waring, who was a Senior Relationship Manager in Westpac's commercial banking department.

65 Prior to entering into the BFA, Westpac had concerns as to whether it could seize the vehicles from the lessees if Carlingford defaulted in its obligations. Mr Waring said that after discussions with Mr Nicholls and another director of Carlingford, Mr Bardsley, he prepared an internal submission to Westpac's Credit Risk Manager, Mr Gary Fryar, to seek approval for Westpac to enter into the BFA with Carlingford.

1. What happens if Carlingford goes into VA/Receivership. Would the Bank be able to call up its assets/security or are we tied into the agreement Carlingford has with its customers?

67 Mr Nicholls prepared a document dated 21 May 2007 on the letterhead of Carlingford headed 'Meeting with Westpac Banking Group Limited' which apparently was sent to Westpac, and which stated:

1. Ramifications for Bank in the event of default or external administration

The Bank has a number of options open to it in order to secure its position if the above was to occur:

1. The Bank would hold a registered mortgage debenture ranking in pari passu with the other Primary Lenders. This would give the Bank the ability to appoint a receiver to take control of the leases over its assets and receive the income from those leases.
2. The Bank (as with other Primary Lenders) has the requirement to approve the Lease Agreement. The standard Lease Agreement used by Carlingford has already been vetted by the External Lawyers of the other Primary Lenders and an example is attached for your perusal (refer point 11). You will note that the Bank is defined in the Lease Agreement and its rights in the event of default are clear.

68 Later in May 2007, Mr Waring prepared a revised sponsor memorandum, which stated in part:

A copy of the formal lease agreement has been provided and perusal of same reveals clauses that the lessee acknowledges that the vehicles are beneficially owned by the bank (11.10) and that the bank or its agents etc can enter the property for the purposes of inspecting, repairing repossessing, taking, removing or carrying away the vehicle. Whilst this identifies the rights of the Bank to gain access to the vehicle, it is unsure as to whether the lessee has to be in default of the lease to forfeit the vehicle. As a condition precedent, the lease and Pari Passu agreements are to be vetted by the banks external solicitors to ensure they do not impinge on the bank's rights.

...

Pari Passu

Obviously the legal agreement will need to be prepared by the Bank's external solicitors to ensure satisfactory protection for the Bank. On discussion, we will be seeking that the Bank has a specific right to the assets financed via our facility, with the Pari Passu agreement to then settle distribution on the overall business value relative to each Bank's outstanding debt.

At the time the BFA was entered into, Westpac was aware that Carlingford intended to lease Westpac's vehicles to its customers. However, it was important to Westpac that it remain free to exercise its rights in relation to Westpac's vehicles in the event that Carlingford defaulted, including its rights to repossess and sell them. For a similar reason Westpac required (at page 4 of the BFA) that Carlingford provide information about the location and condition of each of Westpac's vehicles within 45 days of the end of each financial year, in the form of an Asset Register including vehicle type, registration number, location and age. This condition was included because information regarding the location of Westpac's vehicles would be important if Westpac needed to take possession of them.

71 Mr Waring recalled outlining his concerns about Westpac's rights under the leases in meetings with Mr Nicholls and Mr Bardsley, but denied that he understood or conveyed to Mr Nicholls that in the event of a default by Carlingford, Westpac would not stand in a better position than Carlingford. Mr Waring still referred to Westpac's right of recourse to the vehicles in his submission to Mr Fryar, prepared after his meetings with Mr Nicholls.[12]

72 Mr Waring could not produce the legal advice that Westpac obtained about its rights to repossess the vehicles.

73 Under cross-examination by Mr Nicholls, Mr Waring could not recall a conversation with Mr Nicholls in which Mr Nicholls suggested that he had referred to 'the uncommercial reality' of Carlingford securing leases with potential customers if Westpac reserved the right to 'jump in over the top and pull the vehicles out without the third party lessees being in default.'[13] Mr Waring said of such a conversation:

it doesn't make sense to me why I would acknowledge a conversation like that and then immediately after that conversation put something that contradicts that in a sponsor to our credit people.[14]

74 However, Mr Waring said that Westpac's transaction with Carlingford was unusual, in that Westpac purchased an asset, hired it a customer who then on- leased it to a third party.[15]

75 Westpac's lending managers were uncertain whether Westpac could repossess the vehicles that it hired to Carlingford, if Carlingford defaulted under the hire purchase agreements. The financial arrangement with Carlingford was unusual. The other banks that had provided finance to Carlingford did not repossess their vehicles when Carlingford defaulted. Mr Nicholls' case was based on the critical commercial importance to Carlingford of being able to lease vehicles to customers and ensure their quiet enjoyment of them.

76 However, Westpac's uncertainty about its rights does not justify implying the term that Mr Nicholls seeks into the BFA or the hire purchase agreements, or the guarantee.

77 The implied term upon which Mr Nicholls relies would contradict Westpac's right to repossess its vehicles upon Carlingford's default. That right is an express term of the hire purchase agreements. Westpac and Carlingford were in a banker-customer relationship. Westpac and the lessees were not. They had no contractual or other legal relationship. Westpac protected its interest in the vehicles by including a term in the hire purchase agreements that entitled it to repossess the vehicles if Carlingford committed an act of default under them. Westpac was entitled in law to repossess the vehicles although Carlingford had leased them to third parties. Westpac's ownership of the vehicles was acknowledged in clause 11.10 of the third party leases.

78 Secondly, the implied term that was suggested by Mr Nicholls was not necessary to give commercial efficacy to the hire purchase agreement or the transaction between Westpac and Carlingford. The agreements had commercial efficacy if Carlingford made the payments that were owing under the hire purchase agreements.

79 Commercial relationships like those between Carlingford and its lessees are based on expectations that both parties will remain solvent. Security is usually sought in case those expectations do not eventuate. However, there would be no expectation held about the continuation of the relationship should one of the parties lose its finance or become insolvent.

80 The insolvency of one party to a commercial relationship will usually adversely affect the other party. This can happen in the case of a sublease of real property, when a lease is terminated because of a lessee's failure to pay rent and as a result an associated sublease is terminated.

81 Westpac provided finance to Carlingford to enable it to conduct a business of hiring vehicles to third parties. However, once Carlingford became unable to make payments due under the hire purchase agreements, its business became unviable. In those circumstances, Westpac was not obliged by law to assist Carlingford's business by allowing the continuation of the third party vehicle leases, even if the third party lessees agreed to pay the lease payments. Westpac could have followed that path, but because of the terms of the hire purchase agreements it was able to give primacy to its own interests, based on its assessment of the commercial risks and to decide not to do so. Westpac was a lender and financier and not engaged in the vehicle leasing business.

82 The lessees had other sources of vehicles once Westpac repossessed its vehicles.

83 Carlingford did not seek relief against forfeiture, probably because its failure to pay amounts due under the hire purchase agreements was repudiatory conduct. Relief against forfeiture is unavailable in such circumstances.[16]

84 Mr Nicholls' argument that Westpac was estopped from seeking the amount of its claim from him, requires that he establish that:

(a) Mr Waring's statements induced him to assume or have an expectation that if Carlingford breached its obligations under the hire purchase agreements, Westpac would honour the subsisting leases and/or co-operate with other lenders for an orderly and reasonable realisation of the securities;

(b) that he acted in reliance on that assumption or expectation in giving the guarantee;

(c) that he has suffered detriment as a result of that reliance.[17]

85 The evidence of the discussions between Mr Nicholls and Mr Waring does not provide a basis for Mr Nicholls to have understood or expected that, if Carlingford defaulted, Westpac would honour the subsisting leases. Nor does it provide a basis for an understanding or expectation that Westpac would cooperate with other lenders in the realisation of any security held in order to obtain a reasonable recovery on such security and thereby reduce losses under the BFA and the potential liability of Mr Nicholls under the guarantee.

86 Mr Waring told Mr Nicholls that he was uncertain about Westpac's rights, but I find that he did not tell him that Westpac would not exercise the rights that it had under the finance agreements, including the hire purchase agreements, in the event of a default by Carlingford.

87 Mr Nicholls did discuss with Mr Waring the business difficulties for Carlingford and lessees that would result from repossession of the vehicles and Mr Waring expressed uncertainty about Westpac's rights. The evidence does not support a finding that anything more definite was said.

88 It follows that Mr Nicholls has not established that Westpac made the representations on which his claim for estoppel relies.

89 In any event, Mr Nicholls has also not established that Westpac's actions caused him any detriment. If the leases to the third parties had run their course, it was by no means certain that Westpac would have recovered the amounts suggested by Mr Nicholls.

90 Mr Nicholls gave evidence that if Westpac had allowed the leases to continue until the end of the hire purchase agreements and then sold the vehicles, it would have received a surplus of $1.73 million instead of the $3.01 million shortfall that it has claimed. He based this on the following calculations:

1. Total Lease Income on the balance of the MVLAs to expiry of $3.36 million, Plus
2. Estimated Sale proceeds of the motor vehicles at the end of their respective MVLAs of $4.23 million,

c. A total debt as at the date of termination of $5.86 million.

91 Mr Nicholls' estimate of the amounts that would have been received on the sale of the motor vehicle was based on his consideration of figures in a Dealer's Guide.

92 Mr Nicholls' calculation of total lease income assumed that the lessees would pay the sums they owed. The evidence for that conclusion is far from clear.

93 Mr Anthony D'Aloia, who is a Senior Relationship Manager in the Australian Banking Risk, Product & Operations Department of Westpac. He gave evidence that the longer the subleases ran, the more money Carlingford would have lost. The vehicles would have diminished in value. Returns were maximised and Carlingford's debt reduced by the repossession and sale of the vehicles.

94 According to Mr D'Aloia's calculations, 36 per cent of the leases were in arrears.[18] Mr Nicholls suggested that those arrears might have been for only a few days while the lease payments were processed by the banks. However, Mr D'Aloia concluded that the income Carlingford earned from the leases was insufficient to cover the monthly hire purchase instalments that were due to Westpac. He considered that Carlingford's monthly lease income, which at most was $138,360, was below the monthly amount of $145,000 that it was required to pay under the hire purchase agreements.[19]

95 The amount that Westpac would have received if it had allowed the leases to continue is uncertain and involves considerable speculation. The evidence does not enable me to find that, if Westpac had allowed the leases to run their term, that it would have recovered any more than it did by selling the vehicles in 2010.

96 As I have previously stated, Mr Nicholls did not, maintain the separate argument pleaded in his defence that Westpac acted unreasonably in selling the motor vehicles en masse and by the particular auction house that it used and therefore recovered an unreasonably low price or failed to obtain the best price that it could have and therefore failed to mitigate its loss.[20] It is therefore unnecessary to consider the statutory obligations imposed on a financier of chattels exercising a power of sale to take all reasonable care to obtain the market value of the property or the best price that was reasonably available.[21]

97 Westpac is entitled to judgment against Mr Nicholls for the sum of $3 million plus interest. I will hear the parties about the terms of the orders that should be made including the question of costs and about any charges that Westpac claims to be entitled to.

[2] [2002] NSWSC 1146; (2002) 180 FLR 250 1146 at [83].

[3] Esanda Finance Corporation Ltd v Plessnig [1989] HCA 7; (1989) 166 CLR 131 at 151.

[16] Esanda Finance Corporation Ltd v Plessnig [1989] HCA 7; (1989) 166 CLR 131 at 151, On Demand Information Plc v Michael Gerson (Finance) Plc [2002] UKHL 13; [2003] 1 AC 368 and Celestial Aviation Trading 71 Limited v Paramount Airways Private Ltd [2010] EWHC 185 (Comm)

[17] Grundt v Great Boulder Pty Gold Mine [1937] HCA 58; (1937) 59 CLR 641 at 674-675 cf; The Commonwealth v Verwayen (1990) 170 CLR 394 at 431-440. In this paragraph I have joined the terms of the two estoppels upon which Mr Nicholls relies.

[21] See s 420A of the Corporations Act 2001 and s 121 of the Goods Act 1958.