Plum v Commonwealth Bank of Australia

REASONS FOR JUDGMENT WILCOX J: 1 Two associated claims have been heard together. They both concern dealings between officers of the State Bank of New South Wales, then trading as 'Colonial State Bank' ('CSB'), and Peter William Plum. 2 The Commonwealth Bank of Australia ('the Commonwealth Bank') is the statutory successor to CSB. It is common ground between the parties that the Commonwealth Bank has all the rights, and is subject to all the liabilities, in relation to its dealings with Mr Plum, that CSB would have had if it had remained an independent institution.

The proceedings 3 On 21 May 2003, the Commonwealth Bank filed, in the District Court of New South Wales, a Statement of Liquidated Claim whereby it sought to recover from Mr Plum the sum of $204,043.55 plus interest and costs. This sum was said to be the balance due to the Commonwealth Bank after the sale of certain properties in Wagga Wagga that had been mortgaged by Mr Plum to the CSB in order to secure loans made to him by it. The proceeding was numbered 2201 of 2003. 4 On 15 August 2003, Mr Plum filed a Defence in matter 2201 of 2003 in which he admitted the terms of the mortgage but claimed it was not valid or enforceable against him, for reasons arising out of the terms of the Trade Practices Act 1974 (Cth) ('the TP Act') or the Contracts Review Act 1980 ('the CR Act'). Mr Plum also filed a cross-claim seeking damages. 5 On 14 August 2003, Mr Plum filed in this Court an Application, commencing proceeding NSD 983 of 2003, in which he named, as respondents, the Commonwealth Bank and Michael Quirk, a person who was employed at relevant times by CSB. The Application sought the following relief: '1. An order setting aside the agreements founding the loans advanced by the State Bank of New South Wales ("the Bank"). 2. An order declaring void or unenforceable the loan agreements either in relation to the repayment of monies advanced by the Bank to the Applicant and/or in relation to the payment of interest thereon. 3. An order requiring the First Respondent to repay such monies as the Court finds has been unconscionably retained by the Bank and/or it including by reason of the purported enforcement of its purported security to date. 4. An order discharging the Applicant from any further liability to the First Respondent. 5. An order rescinding the loan contracts. 6. Restitution of such monies to which the First Respondent is not entitled. 7. Equitable compensation or damages. 8. An account of profits. 9. Damages against the First and Second Respondent. 10. Damages or compensation against the First and Second Respondent pursuant to Sections 82 and 87 of the Trade Practices Act, Sections 86 and 72 of the Fair Trading Act, Sections 12GF and 12GM of the Australian Securities Investments Commission Act 1989 and 2001. 11. Ancilliary [sic] relief pursuant to Section 87 of the Trade Practices Act, Section 72 of the Fair Trading Act and Section 12GM of the Australian Securities & Investments Commission Act 1989 and 2001 and Section 7 of the Contracts Review Act 1981. 12. Interest pursuant to Section 51A of the Federal Court of Australia Act 1976. 13. Costs.' 6 A Statement of Claim, also filed by Mr Plum on 14 August 2003, pleaded that the loans advanced to him by CSB were procured by common law misrepresentation and/or misleading and deceptive conduct on the part of CSB and Mr Quirk. References were made to s 52 of the TP Act, s 42 of the Fair Trading Act 1987 (NSW)('the FT Act') and s 12DA of the Australian Securities and Investment Commission Act 2001 ('the ASIC Act'). To the extent that certain representations related to future matters, Mr Plum relied on s 51A of the TP Act, s 41 of the FT Act and s 12BB of the ASIC Act. 7 The Statement of Claim also included counts alleging negligence, unconscionable conduct and breach of fiduciary duty. 8 On 26 September 2003, Bennett J ordered that District Court proceeding 2201 of 2003 be transferred to this Court, pursuant to s 86A(4) of the TP Act and s 12GK(4) of the ASIC Act, and that the matters be conducted as a single proceeding on the basis of the pleadings in the District Court. The transferred proceeding was allocated Federal Court identification number NSD 1714 of 2003. 9 The hearing of the consolidated proceeding commenced on 7 February 2005. On that day, counsel for Mr Plum (Mr R D Wilson and Ms M Tibbey) indicated their client did not press the aspects of his claim that were based on unconscionability, the CR Act and breach of fiduciary duty. Counsel said the only issue in relation to the Commonwealth Bank's claim against their client was the legal validity of the mortgages, having regard to the conduct of CSB and Mr Quirk. In this respect, counsel said, they would argue only negligence and misleading or deceptive conduct. The result of counsel's announcement was that Mr Plum was effectively the moving party in the litigation. So it was agreed his case should be presented first. 10 At an early stage of presentation of evidence, a problem arose about the availability of a witness for cross-examination. This was resolved by agreement being reached that the hearing should proceed, in the first instance, only in relation to liability; that is, whether CSB and Mr Quirk were negligent or had engaged in misleading or deceptive conduct. Issues concerning the quantum of damages to be allowed, and the appropriate other relief (if any), were deferred to a later hearing, if that should prove necessary having regard to the findings on liability. 11 At the conclusion of the evidence, on 8 February 2005, counsel who had appeared for the Commonwealth Bank and Mr Quirk (Mr P J Dowdy) requested that submissions be put to the Court in writing. He said he wished to consider whether it was necessary or desirable, having regard to Mr Quirk's cross-examination, that Mr Quirk should be separately represented, for the purpose of presenting submissions. There being no objection by Mr Wilson, I acceded to this request. Written submissions were first supplied on behalf of Mr Plum. Separate submissions were later supplied on behalf of both the Commonwealth Bank and Mr Quirk. Counsel for Mr Plum replied. Outline of the facts 12 Mr Plum was born in 1950. He went to school in Wagga Wagga. He left school at the end of year 10, after having obtained his Intermediate Certificate. For some time, he worked as a shearer. He then bought a farm at Tarcutta, near Wagga Wagga. In 1989, Mr Plum commenced a carpenter's apprenticeship and moved back to Wagga Wagga. Towards the end of his apprenticeship, his employer and he built a number of duplex units on land that he had purchased with the proceeds of sale of his farm. 13 In 1993 or 1994, Mr Plum commenced to carry out building work on his own account. He purchased land at Kenneally Street, Wagga Wagga on which he built eight single storey villa units. For the purpose of this project, he borrowed money from Westpac Bank. He repaid the loan from the proceeds of sale of the units. 14 In early 1997, Mr Plum became aware that three adjoining Wagga Wagga parcels of land were being put up for sale, in one line, at auction. The properties were known as 67 and 69 Crampton Street and 52 Travers Street. Each parcel of land contained an old house. The auction was to take place on Friday, 7 March 1997. 15 The total area of the three properties was 7,588 square metres. Mr Plum conceived the idea of developing the whole site as a staged residential unit development. The site adjoined another property, 54 Travers Street, which also contained an old house. 16 Mr Plum had dealt with CSB in 1996, when he had borrowed money to finance the purchase of a property that he later sold. He still held a line of credit with CSB, in the sum of $80,000. This was secured over another Wagga Wagga property. 17 Mr Plum decided to approach CSB for finance to purchase the properties that were being offered at auction. He spoke to Mark Hately, a bank officer with whom he had previously dealt. Mr Hately referred him to Mr Quirk. At that time, Mr Quirk was employed by CSB as a Business Development Officer in the Small Business Department of its Wagga Wagga branch. 18 Mr Plum met Mr Quirk, by appointment, on 28 February 1997, exactly one week before the auction. This was the first contact between the two men. There is dispute between them as to what was said at that meeting. In paras 13-15 of an affidavit made on 16 March 2004, Mr Plum gave this account of the conversation: 'Mr Quirk and I sat down and I came straight to the point and told him what I wanted. I said words to the effect: "I am looking to purchase the properties which are coming up for auction on 7 March at 67, 69 Crampton Street and 52 Travers Street, Wagga. I am very interested in it. I will be needing a loan to buy the land and a further loan to develop it to construct about 30 units on it. The idea is to take 12 months to get approvals and then build it over two-three years. I think it will go for around $550,000. I am looking for an interest only loan on the basis that I will pay off the debt from the profits of the development." In response to my enquiry Mr Quirk said during the meeting words to the effect: "I think that you would be better served by taking out a housing loan to buy the properties. It will be quicker to obtain and at a cheaper rate of interest. You can later apply for a development loan to finance the actual construction of the townhouses". Mr Quirk said words to the effect "we can apply for a development loan later" … Mr Quirk did not at this meeting or at any time say to me words to the effect: (a) the bank is unlikely to approve the development loan; (b) there are particular lending requirements in relation to development loans and this will depend upon the circumstances at the time of the loan application; (c) The bank would not permit a home loan to be paid out of the profits of the townhouse development.' 19 The version of the conversation in Mr Quirk's affidavit is as follows: 'On or about 28 February 1997, I first met Mr Plum whom I had never previously met. My recollection is that he was referred to me by Mr Mark Hately, who was the manager of the South Wagga branch of the Bank. After meeting Mr Plum and the usual pleasantries, I took him to an office when he said to me words to the effect of: "There are three properties which are coming up for auction in a week's time, being 67 and 69 Crampton Street, and 52 Travers Street. There are houses on each of these properties and I believe that the rental income from these properties and my existing rental properties should generate sufficient income to service the necessary loan. I think that they will go at auction for around $520,000. Later on down the track, I will consider the development potential for these properties, but I want to hold them for at least twelve months and see how the residential property market goes in Wagga. I want to see whether the opening of the new bridge over the river will increase the demand for central Wagga home units. If things look good in the property market, I will probably try to put together a development company to finance the construction and sell some of my other properties to fund it. Until I know what I am really doing, I would like to have the loan on interest only for as long as possible. Do you think the Bank will be able to help?" I replied in words to the following effect: "Well Bill, you haven't left the Bank much time to get you a formal approval prior to auction. I can't approve the loan but I will take down your relevant financial information and put together a proposal as a matter of urgency to submit to the Bank in an attempt to get an approval before the auction. I will do all I can to achieve this. However, I can't make any promises. Mr Plum replied in words to the effect of: "I would appreciate that. What sort of interest only period do you think the Bank would approve?" I replied in words to the effect of: "Well, on an investment home loan the maximum interest only period the Bank allows is five years. You could perhaps have the first year at a fixed interest rate. If you now give me your basic financial details, I will complete this application on your behalf.' 20 It is common ground that Mr Quirk filled out a Business Finance Application form and this was signed by Mr Plum. The document listed Mr Plum's assets and liabilities. It contained the following note concerning the purpose of the proposed loan: '3 houses to by [sic] purchased. Net rental $300 per week = 15600.' 21 In his affidavit, Mr Quirk denied that Mr Plum said anything to him about a further loan to construct 30 units on the land or that he would build the units over the next two to three years, after taking about 12 months getting approvals. 22 It is common ground that Mr Quirk informed Mr Plum, in a telephone call shortly before the auction, that CSB would approve his loan application. At the auction, Mr Quirk purchased the three properties for a total sum of $525,000. 23 On 21 April 1997, Mr Plum signed an application to CSB for an interest-only 'Home Loan' of $550,000. Nothing turns on the content of that application. The loan was granted and the purchase was completed. 24 Some time after the auction sale, Mr Plum became aware that 54 Travers Street was available for purchase by private treaty. The property contained 1,200 square metres of land. Mr Plum thought it would be a valuable addition to the development site. He negotiated to buy the property for $154,000 and applied to CSB for a further loan of $170,000. This application was approved. In July 1997, Mr Plum completed the purchase of 54 Travers Street. 25 At about this time, Mr Plum formed a company, Quanttro Holdings Pty Ltd ('Quanttro'), in which he and his wife jointly held a four-sevenths interest. Three other persons (including Mr Plum's brother, Alan) each held a one-seventh interest. The idea was that Quanttro would be involved in the development of the land. In the meantime, it was agreed, the Quanttro shareholders would service the two CSB loans in proportion to their interest in the company. Mr Plum's solicitors told CSB about this arrangement. 26 Shortly before settlement of the 54 Travers Street purchase, Mr Plum became interested in purchasing 50 Travers Street. He met Mr Quirk on 17 July 1997 and discussed the possibility of borrowing a further $130,000. It is common ground that he told Mr Quirk about Quanttro and the arrangement he had made with the other Quanttro shareholders about interest payments. Mr Quirk conceded that, at least by the time of this meeting, he was aware of Mr Plum's desire to develop the whole site with townhouses. Mr Quirk said that, at the meeting of 17 July, he expressed pessimism to Mr Plum about the new application. In his affidavit, Mr Quirk claimed to have said words to this effect: 'Bill, I will need to get a number of things together and I will then submit this application to Sydney on your behalf. However, I should make it clear that this application will probably be tough to get approval for. Further, if in due course, you want to make an application for finance to develop the units, there will be no guarantee of that being approved. As the small business section can only process business applications up to $500,000, any such finance application will have to be dealt with in a separate part of the Bank.' 27 Mr Quirk assisted Mr Plum to complete the loan application. Mr Quirk submitted it to Patrick Guillon of Business Credit Services, at the Parramatta office of CSB, together with a memorandum in which he [Mr Quirk] said that Mr Plum was a 'well regarded CST [sic: CSB?] customer with all accounts in order'. He 'strongly recommended' the application for the new $130,000 loan. 28 Notwithstanding this recommendation, on 13 August 1997, the application was refused. Mr Quirk deposed that, in accordance with his usual practice, he would have telephoned Mr Plum and told him of the refusal. Mr Plum does not dispute that he became aware of the refusal at about this time. 29 Mr Plum retained architects to design the townhouses, to be erected on the first four parcels of land, and to prepare a development application for submission to Wagga Wagga City Council. Mr Plum said that, in late 1997, before he submitted the development application to the council, he called into the bank and informed Mr Quirk of his intention to demolish the Travers Street houses 'so site works can commence'. Mr Plum claimed that Mr Quirk acknowledged this information, with words like 'that's good', and did not offer any caution or advice against taking that step. Mr Quirk denied there was any such conversation. He claimed that the first he knew about demolition of the houses was in about March-April 1998, when Gary Traynor, a bank officer who was a friend of Alan Plum, said to him words such as 'Bill Plum has started his development - he's knocked down two of the houses'. Mr Quirk said he expressed surprise and told Mr Traynor that Mr Plum had not lodged any finance application with him. He claimed to have said to Mr Traynor: 'I don't know who will be financing him. Are you blokes looking at it yet? Wouldn't he need the Bank's permission to demolish the houses?' 30 Mr Quirk explained in evidence that 'you blokes' was a reference to the three-man team, of which Mr Traynor and Geoffrey Frost were members, that handled Wagga Wagga business loan applications for sums exceeding $500,000. According to Mr Quirk, Mr Traynor said he had not yet received any application and agreed that Mr Plum would need the bank's permission to demolish. 31 Mr Quirk gave evidence that, after work that day, he drove home via Travers Street and noticed that the houses at 52 and 54 Travers Street had been demolished. He said he was surprised at the demolition but did not regard it as his job to take up the matter with Mr Plum. 32 Mr Plum lodged a development application with the council on about 5 January 1998. This application sought approval for construction of 30 residential units on the combined site of 52 and 54 Travers Street and 67 and 69 Crampton Street. The development was intended to be staged; initially 20 units and then a further 10 units. On 5 February 1998, the council approved the application. 33 Mr Plum deposed that, with council's permission, the houses at 52 and 54 Travers Street were demolished in early March 1998. He erected an advertising hoarding on the site and commenced a marketing campaign. 34 In late April 1998, Mr Plum again contacted Mr Quirk. It is common ground that Mr Plum told Mr Quirk he was ready to apply for the development loan for the construction of the townhouses and that Mr Quirk replied he did not handle development loans and introduced him to Mr Frost. 35 Mr Frost submitted Mr Plum's development loan application to the relevant CSB approving authority in Sydney. It was rejected. Mr Plum then applied to other financial institutions. All his applications were unsuccessful. As he could not proceed with the townhouse project, he commenced to sell properties, including the four properties in the development site, and applied the proceeds towards reducing the debt ($720,000) he had incurred in order to purchase these properties. There was a shortfall, resulting in a residue of debt to the bank that, with accrued interest, amounted to $210,675.16 at 1 December 2003. The meeting of 28 February 1997 (i) Significance 36 The most important factual issue in the case is the content of the conversation at the meeting between Mr Plum and Mr Quirk on 28 February 1997, when Mr Plum sought a loan to enable him to bid at the auction due to be held on the following Friday. 37 The applicant's case is that Mr Quirk's conduct at that meeting was misleading or deceptive, having regard both to what he said and what he omitted to say; alternatively, that the conduct breached the duty of care which, Mr Plum argues, CSB owed to him. 38 The only participants in the conversation were Mr Plum and Mr Quirk. Nobody else was present at any stage. Neither participant claimed to have made a contemporaneous record of what was said. So it is necessary for me to consider carefully what each man said about the meeting during cross-examination. It may be necessary to determine the witnesses' respective credibility. It will be necessary for me to consider some evidence given by Mr Frost and Mr Traynor, relied on by Mr Plum, and certain bank documents that are argued to throw light on what occurred at the meeting. (ii) Mr Plum's oral evidence 39 In cross-examination, Mr Dowdy took Mr Plum to his earlier applications for finance. Mr Plum agreed that, although the bank officer who initially put together each of his earlier applications might have commented on its chance of success, he knew the final decision, in each case, was made by a higher bank officer. Mr Plum agreed that no architectural drawings or plans had been prepared by 28 February 1997. However, he disputed that he 'had no real awareness' of the likely cost of the development. He said he was able to form an idea of cost because of his earlier development projects. He thought the overall cost of the development, including purchase of the land, would be about $3,000,000. 40 Mr Plum denied Mr Dowdy's suggestions that he told Mr Quirk he would hold the properties for at least twelve months to assess their development potential and that he had spoken to Mr Quirk about assessing the effect of the new bridge. He agreed there had been discussion about the length of the loan and that it would be an interest-only loan. 41 Mr Plum denied he would still have gone ahead with the loan application, if Mr Quirk had told him CSB could now only consider the application for money to purchase the properties and he could later apply for a development loan to cover construction costs. Mr Plum explained his denial by saying: 'Well there's no guarantee there of me getting the loan, is there?' He insisted that he took Mr Quirk's response on 28 February 1997 as meaning the bank guaranteed it would advance a development loan for the construction costs of the development. 42 Mr Dowdy took Mr Plum to his affidavit statement about Mr Quirk saying he could later apply for a development loan to finance the construction of the town houses. The evidence went on: 'You, of course, knew and accepted in this meeting that at a later point of time, you would have to put in a development loan application to construct the buildings. Correct? --- Yes. But you say, do you, that was just an unnecessary formality because you were guaranteed the amount that you would require in any event. Is that what you say to the court? --- No, I understand that it should have been put in as one loan, the entirety of the loan, as I see it. Mr Quirk should have advised me that it should have been done in a development loan in the entirety of the purchase of the land and the actual development. I see, but the fact of the matter is, you accept that he made clear to you that a later development application by you would have to be put in? --- Yes. You've just told us that you were in effect, or you considered yourself to be guaranteed the full amount of the construction cost, haven't you? --- Yes, well the second - to put in the loan for the development I took as just a formality from being guaranteed the loan for the purchase of the land. And you assumed this from a man who [you] knew … couldn't even approve the loan of $550,000 you were asking. Is that right? --- Yes, but it had to go through bank channels to be approved. It's the same thing at the end of the day isn't it? Well, the only thing that Mr Quirk ever came back to tell you was that your loan of $520,000 had been approved. That's correct, isn't it? --- Yes. He never came back to you and said, well, the development loan has been approved for whatever this development cost, did he? --- But he didn't come back and say to me, it hasn't been, either. He never came back to you and said to you anything to the effect that any development loan application had been approved, did he? --- No.' 43 Mr Plum also agreed his formal application for the $550,000 loan, made after the auction, stated the loan's purpose as being to purchase an investment property. 44 Mr Plum agreed he could not produce any document from CSB that referred to approval of development loan funding. 45 Mr Dowdy referred Mr Plum to Mr Quirk's memorandum to Mr Guillon of 24 July 1997 recommending Mr Plum's application for the $130,000 loan; in particular, the following points: '• The vacent [sic] land to be purchased is next to the recently financed properties. • Customer's plan is to rent the properties in the short term (12-24 months) with long term plans to build 20 units on the block of properties. The long term plans will depend on the strength of the real estate market in Wagga Wagga. • Customer has formed a company with his brother, brother in law and a local real estate agent. The other three partners own 3/7ths with PW Plum owning 4/7ths of the company which will service the borrowings and eventually build the units. • Customer has been made aware that the Bank has made no guarantees as to the finance of the development.' 46 Mr Plum agreed the first point was correct, but not the second. He said the third point is not totally correct because the borrowings were to be serviced by the shareholders personally, not by the company. Mr Plum denied the accuracy of the fourth point. 47 Mr Plum firmly denied that Mr Quirk ever said to him that if, in due course, he made an application for construction finance, 'there will be no guarantee of that being approved'. Mr Plum agreed that he knew Mr Quirk only dealt in loans below $500,000 and had no power of approval; he could only refer applications to others. 48 Mr Dowdy took Mr Plum to his decision to demolish the Travers Street houses. The evidence went on: 'Why were you planning in late 1997 to demolish the houses when the bank had declined a small loan of $130,000? --- Because I still believed that it was going to be forthcoming. Sitting here in 2005, I can understand what you are saying. You would accept, would you not, with the benefit hindsight, that it was completely unreasonable for you to think that the bank would continue to lend you a development loan when it had refused a loan for $130,000? --- In hindsight. Well you put yourself before the court as an intelligent man and a capable business man, do you? --- Yes. Why would you have taken such an unreasonable view? Can you help us with that, to still continue to think that the bank would advance a sum which must be in the millions of dollars when it had refused a loan of 130,000? --- But you must agree with me, you learn a lot in life, don't you? And that's what I have learned. But why would you continue to think that, can you give us any inkling as to why you would continue to think the bank would lend you a large sum of money, in the millions of dollars, when it had just a month or two before declined a loan of 130,000, can you explain that? --- I just go from what I was thinking of at the time and what I knew and what I believed. As we both agree hindsight is a great thing. Anyway whatever you may have been planning, what I am putting to you is that you never told Mr Quirk that? --- I did.' 49 Mr Plum explained his delay, till April 1998, in making a formal application for development finance by saying he was busy with tradesmen, procuring materials and the like. His evidence went on: 'What was the point of making a development loan application if you were guaranteed the monies in any event? --- Well, you'd still have to apply for it, wouldn't you? Why do you say that you would have to apply for it? --- Well, for the formal documents and that of it. How else are you going to get it? There's got to be paper work in the Bank. According to your version of events, from 28 February 1997 you were entitled to require from the Bank a loan of any amount that you needed to fund the development according to whatever plans you'd put together. That's right, isn't it? --- No. You know and I know that you've still got to make an application. But, as you've said, you had a guarantee of whatever funding was required to make your development come good from the State Bank. Isn't that your case? --- I didn't have a written guarantee. I believe from the impression from my first meeting that it was forthcoming.' 50 Mr Plum denied he had made up his case in order to defeat the Commonwealth Bank's claim against him for his residual indebtedness. He did agree he had made no complaint about CSB's conduct until he received a letter of demand in 2001. He had solicitors advising him in 1998. 51 In re-examination, Mr Plum told Mr Wilson that he saw no relationship between CSB's refusal to finance the purchase of 50 Travers Street and the development loan. The effect of adding 50 Travers Street to the site would have been to enhance the development either by adding four extra units or making the original 30 units a little larger. (iii) Mr Frost's evidence 52 Mr Frost left the bank in December 1999. He was declared redundant. He recalled being introduced to Mr Plum by Mr Quirk in April or May 1998. At the first meeting, according to Mr Frost, Mr Plum said to him words to the following effect: 'I have bought four old homes at Crampton Street and Travers Street Wagga through the Bank and I want to develop the land and build some townhouses on it. I've come in to finalise the second stage of the loan.' 53 Mr Frost said he told Mr Plum it is 'a little bit more difficult than that' and outlined the basic requirements. In his evidence, Mr Frost went on to detail the steps he took on Mr Plum's behalf. However, he made it clear that he never thought the application for development finance would succeed; it did not comply with the bank's lending guidelines. Mr Frost said he told Mr Quirk, at the time, that the purchase loan should never have been approved. In his evidence, he advanced an opinion about that approval: 'I continue to maintain the opinion that it was bad banking practice for the Bank to have approved the initial investment loan to Mr Plum for the purchase of the four old houses at Crompton Street and Travers Street, Wagga Wagga. Had Mr Plum initially approached me for a loan to purchase the four houses in Wagga Wagga and develop them as townhouses, I would have considered the proposal in total. In particular, I would have said to Mr Plum words to the effect "The Bank needs to look at what you want to do with the properties and how you propose to finance the total project". In my opinion, the Bank should have investigated Mr Plum's proposal more fully rather than simply approving it initially on an investment housing basis without regard to his construction plans. According to the procedures which operated in the Wagga Wagga branch of the Bank at the time, had Mr Plum disclosed to Mr Mick Quirk in the first place that he intended to purchase the land for subsequent unit development, the matter should have come directly to my section of the Bank as it was a development proposal and therefore not a matter for the Small Business area of the Bank. In my opinion at the time the Bank approved in 1997 the home loan application by Mr Bill Plum for the purchase of the four old houses at Crampton Street and Travers Street Wagga, there was little or no prospect that the Bank would subsequently approve a construction loan application for the building of townhouses on that land in the absence of a significant change of circumstances.' Mr Frost gave reasons for that opinion. 54 Mr Frost also opined that, if Mr Plum had lodged an initial application for sufficient funding to cover both the purchase of the four properties and their development, CSB would have rejected that application because of the inadequacy of the proposed security and the serviceability arrangements and because Mr Plum did not have a history of successfully completing a project of this size. 55 In an affidavit in reply to Mr Quirk, Mr Frost said: 'if I had occupied Mr Quirk's position in the bank and a client had said to me the words attributed to Mr Plum therein, I would have regarded it as prudent conduct to discuss the application with a person experienced in development loans. This is particularly the case given the fact that:- • the development was to be long term; • Mr Plum was borrowing 100% of the purchase price of the development property.' 56 Mr Dowdy cross-examined Mr Frost about some peripheral matters but did not challenge any of the evidence I have mentioned. (iv) Mr Traynor's evidence 57 Mr Traynor, also, has now left the bank's employment. He recalled Mr Frost's involvement in seeking development finance for Mr Plum. Mr Traynor said that, at the time, he saw Mr Frost's analysis of the application. He almost immediately formed the view 'that there was no way the second loan application could have been approved by the bank'. He gave reasons for that view. Mr Traynor said: 'Should Mr Plum's matter [have] been handed over to me in the first place in 1997, I would have required a feasibility study to be undertaken of the total project including building costs and a marketing plan. It is likely that the bank would also have required the input of the credit assessment area, valuers, a building consultancy firm and an experienced project manager. In my opinion, had Mr Plum's loan application been put up as a total package for the purchase of the four home sites and the construction of the townhouses on it, the bank would not have approved his application. Mr Plum did not meet the bank's security or serviceability criteria. More importantly, Mr Plum did not have a track record of having successfully completed development of this size. No feasibility study had been carried out and the matter required a lot more work before it could be put up to the bank for approval.' 58 In an affidavit in reply, Mr Traynor said the first knowledge he had about demolition of the houses was from Mr Quirk; he was not involved in Mr Plum's finance application and he had no conversation with Alan Plum about the loan, the project or demolition of the houses. 59 In cross-examination, Mr Traynor agreed he was a friend of Alan Plum but he denied Mr Quirk's claim that he [Mr Traynor] told Mr Quirk about the demolition, based on what Alan Plum had told him. 60 Mr Dowdy did not challenge any of the evidence given by Mr Traynor concerning the manner in which Mr Plum's application had been handled. (v) Mr Quirk's oral evidence 61 Mr Wilson commenced his cross-examination of Mr Quirk by obtaining his agreement that, in the year to 30 June 1998, he received a CSB performance bonus. Mr Quirk agreed that, in order to qualify for the bonus, he had to satisfy a variety of criteria, including being responsible for writing loans over a certain amount (apparently $12 million) in the year. However, he said, housing loans carried less weight because the interest rate was lower than for business loans. Mr Quirk agreed that, in Wagga in 1997, $500,000 was a large housing loan. Mr Quirk agreed he had won some non-monetary awards in 1997 and 1998 for his performance in procuring loans. 62 Mr Wilson asked Mr Quirk some questions about proper banking practice. The evidence was as follows: 'What I'm suggesting to you is that in 1997, if a client came to you and said, I want to buy some land, get my approvals in 12 months and build some units on it, it would be contrary to banking process and what you had been taught and learnt to put up a home loan and disregard the construction component, correct? --- No, no, until we know what's the construction component, all we're looking at is one loan for the purchase of land. We don't know when or where the construction loan that you're referring to is coming through. So all we're doing is looking at a holding situation. But if it was apparent to you that the total cost of the land and construction component was significantly more than $500,000, you were required to pass it to the larger business banking section? --- No, no. What I'm suggesting to you is that in 1997, if a client came to you and said I want to buy land for $500,000 and build about 30 units on the land and it was apparent to you that the total project was going to be in the order of two or three million dollars and the timeframe was within the next year, you would have passed it and should have passed it to Mr Frost and Mr Traynor, correct? --- If we were aware of the amounts that you're talking about and the timeframes that you're talking about, it would have made sense to refer it to them. Yes, thank you. Now, had Mr Plum in his first meeting with you on 28 February 1997 said to you that he had plans to develop the block, get his approvals by March 1998 and build 25 units on the site, the position was this, isn't it, that you should have referred it to Mr Frost and Mr Traynor? --- No, because at the end of the day, we didn't have any timeframe or any amounts so all we were assessing at the time was whether the client could service the holding costs.' 63 Mr Quirk agreed that, if a client told him he intended to buy land, get approvals and build in twelve months, and was looking to the bank for construction finance, it would be standard practice to tell the client he has no guarantee of getting a construction loan until he later applies for it. 64 Mr Wilson referred Mr Quirk to a document discovered by the bank in the course of this litigation. The document became exhibit 5. It included seven sheets, some of which were handwritten. Mr Quirk acknowledged that he wrote the second and third sheets. He explained the notes they contained. His explanation confirmed he had contemplated, at the time, that Mr Plum might pay as much as $550,000 for the three properties due to be auctioned on 7 March 1997. 65 The third sheet contained the following material: '450 - 550 K P/P 3 tenanted houses $300 per week = Plans for development March 1998 (6 - 8 - ) $350,000