Rabobank Australia Limited v Colly Cotton Marketing Pty Limited

HEARING DATE(S) : 4, 5, 6, 11, 12, 13, 18, 19 April 2005 w/s 6 May 2005

CATCHWORDS : [SECURITIES] - Whether Crop Lien granted to the Bank pursuant to the Liens on Crops and Wool and Stock Mortgages Act 1898 is 'preferential' or has priority over claim for losses on liquidation of foreign currency positions in relation to cotton crop - [CONTRACT] - Identity of contracting parties for forward sales of cotton and currency positions or contracts - identification of terms - nature of the various transactions - Whether breach of warranty - Whether cotton grower required to indemnify cotton merchant for amount it is required to pay the Bank under the Crop Lien - [TRADE PRACTICES] - Whether representations made - Whether reasonable grounds for making representation - Whether misleading or deceptive (s 51A - s 52) - [DUTY OF CARE] - Whether cotton merchant owed a duty of care to cotton grower - scope - whether duty breached - [CONTRACTS REVIEW] - Whether currency contracts should be declared void or varied in whole or in part - [DAMAGES] - whether cotton grower entitled to damages - measure of damages

Australian Securities Commission Act 1989 (Cth) Banking (Foreign Exchange) Regulations Contracts Review Act 1980 (NSW) Conveyancing Act 1919 (NSW) LEGISLATION CITED : Corporations Act 2001 (Cth) Liens on Crops and Wool and Stock Mortgages Act 1898 (NSW) Liens on Crops and Wool and Stock Mortgages (Amendment) Act 1992 (NSW) Trade Practices Act 1974 (Cth)

Attorney General for NSW v Hill & Halls Limited (1923) 32 CLR 112 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Chiarabaglio v Westpac Banking Corporation (1989) ATPR 40-971 CASES CITED : Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 Fraser v NRMA Holdings Ltd (1995) 127 ALR 543 Olsson v Dyson (1969) 120 CLR 365

Rabobank Australia Ltd (Plaintiff / 3rd cross defendant) Colly Cotton Marketing Pty Ltd (Defendant / 1st cross claimant) PARTIES : John Edward Simmons (1st cross defendant) ACN 073 056 461 Pty Ltd (2nd cross defendant)

DJ Russell SC (Plaintiff) COUNSEL : M Cashion SC and KP Smark (Defendant / 1st cross claimant) Dr AJ Greinke (Cross-defendant / 2nd cross claimant)

Dibbs Barker Gosling (Plaintiff) SOLICITORS : Kemp Strang (Defendant/1st Cross Claimant) Shannon Donaldson (Gillis Delaney Brown - City Agent) (Cross defendant/2nd Cross Claimant)

• 80 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50166/03 RABOBANK AUSTRALIA LIMITED V COLLY COTTON MARKETING PTY LIMITED JUDGMENT Introduction 1 This is a rather complicated case in which a cotton farmer, with the purported assistance and guidance of a cotton merchant, entered the heady world of "futures" and "currency" transactions in a complex web of contracts. The identification of the parties to those contracts, the terms of the contracts and their effect has been made less than clear by reason of the rather loose arrangements entered into by the farmer and the merchant. There is also a case brought by a bank to enforce its security in the form of a Crop Lien.

The Claims 2 The plaintiff, Rabobank Australia Limited, formerly Primary Industry Bank of Australia (PIBA), (the Bank), seeks declarations and consequential orders that the defendant, Colly Cotton Marketing Pty Limited (Colly) pay to it $390,571 plus interest. That amount is alleged to be owed to the Bank by ACN 073 056 461 Pty Limited (the Company) in respect of a $350,000 seasonal funding facility provided to the Company in respect of the Company's 2001/2002 cotton crop, marketed by Colly, and in respect of which the Bank holds a Crop Lien, registered as a Charge under the provisions of Chapter 2K.2 of the Corporations Act 2001. 3 Colly defends the Bank's claim on the basis, inter alia, that by its conduct the Bank created and/or encouraged in Colly an assumption that the Bank would allow it to exercise its right of set-off against the Company pursuant to a Cotton Marketing Agreement in respect of the proceeds of sale of the 2001/2002 crop and would not enforce its rights in respect of such proceeds in a way that was inconsistent with the exercise by Colly of its right to set-off.

4 At all relevant times Colly was a cotton merchant/marketer of cotton crops and claims to have entered into a contract with either John Edward Simmons (Mr Simmons) a director of the Company, or the Company, in respect of the 2001/2002 cotton crop over which the Bank holds the Crop Lien. Colly's Cross Claim particularises the contract into which it alleged it entered with Mr Simmons. It is alleged that "in about December 1997" Colly entered into an agreement, referred to in the pleading as "the Marketing Agreement", with Mr Simmons, alternatively with the Company "for the sale of cotton grown or to be grown" on the property known as "Retro" in Warren, New South Wales for the growing seasons 1998/1999, 1999/2000, 2000/2001, 2001/2002 and 2002/2003. 5 It is alleged that the Marketing Agreement was partly oral and partly in writing, with the oral parts comprising conversations between Mr Simmons and representatives of Colly and the written parts comprising: (a) a fax from Colly to Mr Simmons dated 23 December 1997 (and returned to Colly endorsed by Mr Simmons); (b) a letter from Mr Simmons to Peter Cottle, the Grower Services Manager for Colly, dated 16 January 1998; (c) documents entitled "Colly Cotton Standard Conditions Version 1" and "Colly Cotton Standard Conditions Version 2" (the Standard Conditions); and (d) transactional documents between Colly and Mr Simmons pursuant to which Mr Simmons and Colly recorded the terms for the pricing of the cotton and the exchange rate for the conversion of US dollars to Australian dollars. Category (d), "the transactional documents" was further particularised during the trial and I will deal with those documents in detail later in this judgment.

6 It is alleged that the Marketing Agreement contained a warranty that at the time of delivery of the cotton to Colly, Mr Simmons, or the Company, would have full and beneficial title to the cotton. It is also alleged that it was a term of the Marketing Agreement that Mr Simmons, alternatively the Company, would indemnify Colly in respect of all damages incurred by Colly as a result of any failure by Mr Simmons, alternatively the Company, to comply with the Marketing Agreement. Colly seeks indemnity from Mr Simmons, alternatively the Company, for any amount it might be ordered to pay to the Bank in respect of its claims pursuant to the Crop Lien on the basis that there was a breach of the warranty. Colly also cross claims against the Bank alleging that the Bank knew of that warranty and wrongfully induced and procured Mr Simmons, alternatively the Company, to breach the warranty by giving the Crop Lien to the Bank. There is an alternative claim against the Bank that it engaged in conduct, the substantially certain consequence of which was that the warranty would be breached. The Bank defends Colly's Cross Claim with a denial that it had any knowledge of the warranty and denies any breach of warranty and alleges that, in any event, Colly waived its rights in respect of such a breach and further that, by its conduct, Colly is estopped from making the claim against the Bank. 7 Mr Simmons and the Company defend the Cross Claim with, inter alia, a denial that there was ever a "Marketing Agreement"; an allegation that a number of the documents relied upon by Colly were documents emanating from a different company, Colly Farms Risk Management Pty Ltd (Colly Farms); and a claim that the fax of 23 December 1997 was a fax from Colly Farms, not Colly, and was "in relation to a forward currency agreement entered into between the Company and Colly Farms". Notwithstanding this pleading, at trial Mr Simmons and the Company claimed that Mr Simmons signed the letter of 23 December 1997 on his own behalf and not on the Company's behalf. It is alleged that Colly agreed to the granting of the Crop Lien to the Bank and/or that Mr Simmons, alternatively the Company, assumed that Colly had agreed to the granting of the Crop Lien. 8 Mr Simmons and the Company bring a Cross-Claim against Colly and Colly Farms on the limited basis described in the Cross-Claim as a "set-off to Colly's Cross-Claim" in the event that Mr Simmons or the Company are held to be liable to Colly. The Cross-Claim seeks, inter alia, damages for breach of contract (the Contract Claim), damages for negligence (the Negligence Claim); damages pursuant to the Trade Practices Act 1974 (Cth) (the TPA Claim) and relief under the Contracts Review Act 1980 (NSW) (the CRA Claim). 9 It is claimed that in December 1997 Colly, through its agent Robert Luke McKay (Mr McKay), represented that: (a) the Company, or Mr Simmons, "would make substantial profits from taking out forward currency contracts to sell US dollars"; (b) "such profits would be made at little or no risk" to the Company and without the need for any training or education in currency trading or hedging; (c) if any currency was "out of the money" when it fell due, then it could be "rolled" until it was in the money; and (d) currency positions could be rolled into the future (the Representations). It is also claimed that about the same time Colly, once again through Mr McKay, advised the Company, or Mr Simmons, to take out forward currency contracts to sell US$2.5 million over the following five cotton seasons (the Advice). 10 It is claimed that the Company, alternatively Mr Simmons, in reliance upon the Representations and the Advice, entered into a "foreign exchange contract" with either Colly or Colly Farms on 23 December 1997 for the sale of US$2.5 million, extended by US$1 million on 11 May 2000, such contract including the express term that such amount could "be rolled at your discretion". 11 It is also claimed that as a result of entering into that contract the Company, alternatively Mr Simmons, was required to enter into Commitment Contracts to sell cotton to Colly, later converted into Cash Contracts and On-Call Contracts. It is claimed that in breach of the contract, from about 2000/2001 Colly, or Colly Farms, (a) refused to allow any further rolling of the currency; and (b) closed out the currency position then outstanding, being a total of US$1.65 million at a loss of $382,745.29. Notwithstanding this pleading, at trial it was claimed that the Cotton Contracts were between the Company and Colly and the currency contracts were between Mr Simmons and Colly Farms. 12 In the TPA Claim it is alleged that the Representations and the Advice were misleading or deceptive within the meaning of s 52 of the Trade Practices Act 1974 (Cth), that the Representations were as to future matters within the meaning of s 51A of that Act, and that Colly did not have any reasonable grounds for making the Representation. In the Negligence Claim it is alleged that Colly owed a duty of care to the Company and Mr Simmons to take reasonable care in making the Representations and giving the Advice and that it failed to take such reasonable care. 13 In the CRA claim it is alleged that the FEC and the cotton contracts were unjust within the meaning of the Contracts Review Act 1980. It is alleged that there was an inequality of bargaining power, the presence of a position of special disadvantage, an inability to negotiate certain terms and the presence of an unusual and onerous term not brought to the attention of Mr Simmons. There are also allegations of a failure to encourage the taking of legal advice and unfair pressure being applied to enter into the cotton contracts with Colly. There is also a claim that neither Colly nor Colly Farms was authorised by the Reserve Bank of Australia under the Banking (Foreign Exchange) Regulations (the Regulations) to buy, borrow, sell, lend, exchange, or otherwise deal with foreign currency and, in those circumstances, the FEC was in breach of the Regulations. This last mentioned claim is limited to discretionary matter in the CRA claim. 14 Colly and Colly Farms deny the Representations were made and deny that the Advice was given. Although it is admitted that neither company was authorised under the Regulations, it is denied that either company breached the Regulations. It is denied that there was any misleading or deceptive conduct or the existence of a duty of care or breach thereof. It is admitted that from 2000/2001 there was a refusal to roll "certain currency positions", but it is claimed that the Marketing Agreement included the terms that: (a) for each of the crop years US$500,000 of the forward currency position was to be used; (b) in the event that there was insufficient crop value to use the entire amount, the surplus up to US$500,000 would need to be traded out in that year; and (c) the balance of the currency position would be rolled forward to the following years. It is admitted that the outstanding currency positions were closed out in 2002 at a loss of $382,745.29 with a claim that such conduct was pursuant to rights under the Marketing Agreement. It is admitted that there was no encouragement of Mr Simmons or the Company to take legal advice, however there is a claim that there was never discouragement of such conduct. It is claimed that the Company is unable to rely upon the Contracts Review Act 1980 because it is a corporation, and in those circumstances it is claimed that the cross claim should be dismissed. 15 The proceedings were heard on 4, 5, 6, 11, 12, 13, 18 and 19 April 2005. Leave was granted to file written submissions, the last of which were received on 6 May 2005 when judgment was reserved. Mr DJ Russell SC appeared for the plaintiff, Mr M Cashion SC leading Mr KP Smark, of counsel, appeared for Colly and Colly Farms, Dr AJ Greinke, of counsel, appeared for Mr Simmons and the Company. Cotton industry 16 It is appropriate to describe generally the nature of the cotton industry limited to the relevant issues in this case, before turning later to the analysis of the particular contracts that were entered into by the parties. Cotton is a commodity that is traded on the futures market, the central marketplace for which is the New York Cotton Exchange (NYCE). At the NYCE, contracts are traded for the purchase and sale of cotton in US dollars (USD) for the delivery of specific qualities of US cotton delivered to specific warehouse locations in the USA at specified future dates. The Australian cotton price is determined by reference to the US Cotton Futures Price fixed by the New York Board of Trade and listed on the NYCE. 17 Cotton merchants, or marketers as they are called, in New South Wales, of which Colly is one, purchase cotton from growers and sell it to cotton mills throughout the world. Cotton marketers offer prices to growers for forward delivery of their cotton to be grown in the current season, or future seasons, and growers sell the cotton crop for that season and sometimes future seasons in advance of the harvest. 18 A cotton grower in Australia is subject to a number of risks, financial and otherwise. There are the physical or environmental risks associated with the crop, for instance, the volume of production or crop yield and the quality of the crop. These risks are managed using insurance for protection against crop damage and taking agricultural or agronomic advice to optimise crop yield and quality. The financial risks for the cotton grower flow from the fact that cotton marketers price cotton on the basis of the USD price of cotton. There are three factors for consideration in the financial risks to a cotton grower. They are (1) the USD price of cotton, referred to as "futures"; (2) the difference in price between the US cotton and Australian cotton, known as "basis"; and (3) the Australian dollar (AUD) and the USD exchange rate, referred to as "currency". The futures, the basis and the currency, when forming part of a process of fixing a price under a cotton marketing agreement are referred to as "legs".

19 It is apparent that most cotton growers finance the growing of their cotton crops. In the present case it was by way of seasonal facility from the Bank although cotton merchants, including Colly, also offer finance. The cotton industry at the time relevant to the events in this case operated, in the main, with growers selling their cotton to marketers pursuant to "marketing agreements". At one extreme the grower might simply sell cotton to the merchant at the going rate at the time of harvest. At the other extreme the grower might enter into a fixed price cash contract in which the grower agrees to deliver a fixed number of bales to the merchant who agrees to pay a fixed price in AUD. Between these two extremes the grower might opt for a contract in a combined growers pool in which a group of growers pool their cotton for a marketer to market on their behalf. 20 The types of contracts offered by marketers to the growers in the pool include what are referred to as On Call Contracts (OCC). The theory of OCCs seems to be that during the period up to about the future delivery date but subject to certain time limitations, the grower may call on the merchant to fix the various legs of the OCC so as to hedge the grower's risk against fluctuations in price and exchange rate. The term "hedge" may be understood in this context to be the putting in place of a transaction to eliminate a risk or to protect against a risk. When the legs are fixed the price for the cotton under the OCC is then able to be determined pursuant to a price fixing formula in the OCC. If a grower fixes currency without fixing futures and basis, there is speculation on the cotton price. A grower who does not fix the legs appropriately will be at risk and may be adversely affected by the volatility of the movement in both the futures and the exchange rate or dollar value. This type of contract is obviously one that requires close scrutiny both in respect of the physical production of the cotton and close analysis of the markets pertinent to the legs. 21 Colly claims that the OCCs with the growers, and in particular with the grower in this case, included Standard Terms and Conditions of Sale (Standard Conditions). Those Standard Conditions that deal specifically with futures, basis and currency will be dealt with in detail later in this judgment.

22 The AUD price per bale of cotton fluctuates considerably. It changes on a daily basis depending upon movements in futures and currency. Price fluctuations, both short term and annually, can cause major uncertainties or risks for cotton growers when deciding whether to plant cotton and when to sell cotton. Fixing prices before harvest is also risky particularly if production levels are uncertain. 23 In New South Wales cotton crops are usually planted towards the latter part of the calendar year, in about October, and harvested in April or May of the following year. The New York Board of Trade Futures Market trades the prices of US cotton for delivery in the months of March, May, July, October and December each year going forward for 18 months. Changes in the futures price, for May and July futures in particular, usually have a high correlation with Australian cotton prices each day. The difference between the Australian cash prices expressed in US cents per pound and the May or July futures price on any day is the basis. This has been broadly defined as the premium or discount to the New York futures price for cotton being sold at any point in time in any particular location, taking into account differences in quality and transport costs between New York and the place where the cotton is being delivered. When marketers, including Colly, fix futures for growers, they adjust the basis factor to allow for the fact that the cotton is Australian cotton, delivered to the marketer in Australia rather than in the US. The basis fluctuates according to market conditions and is expressed in US cents per pound. 24 The majority of growers in Australia wish to be paid in AUD for their cotton. For that to occur the price of the cotton in the OCC expressed in USD must be converted using foreign exchange transactions. Foreign currency is traded in an over-the-counter (OTC) market with international trading banks for spot (immediate) delivery and also forward (at some future time agreed with the bank) delivery. Colly offers its growers what have been described as forward currency contracts (FCC) to convert USD proceeds of the sale of the cotton to Colly to a payment from Colly to the grower in AUD on delivery of the cotton. 25 Colly trades futures contracts in its own right on the NYCE to offset its dealings with its growers. By doing this, Colly aims to minimise the financial risk of its contracts with growers due to price fluctuation between the time the price is fixed in the contract with the grower and the time the grower has contracted to deliver the cotton. It also enters into foreign exchange contracts, as opposed to FCCc, with its bankers at a margin on the price offered to the grower in the FCCs, once again with the aim of minimizing the financial risks of the contracts it has with growers. 26 The world in which the legs are fixed in OCCs has its own language. The theory of the FCCs is said to be to enable growers to hedge some of the financial risk inherent in OCCs. Unfortunately the conversion of that theory into practice and the analysis of it in this case has been made all the more foggy by a variety of terms that have been used in this case, apparently to describe FCCs, including "foreign exchange contracts", "forward exchange positions", "forward foreign exchange contracts", "forward currency contracts", "forward currency positions", "currency positions", "currency contracts", "forward contracts". 27 The linguistic preferences of merchants in this case were elaborated upon when a merchant banker, formerly employed with Colly, gave this evidence in describing a suggested strategy for the grower (tr 170): Q. Under item 3 there, you are talking about buying some calls and then selling some calls at different target rates, is that what you are doing there? A. No, we are buying a 51 cent strike call option and selling a 58 strike call option, both of which on that day were trading at 330 and 110 points respectively. Q. Is the effect of that transaction that there are gains to be made when the final rate lies between 51 cents and 58 cents? A. Or above 58 cents. Q. Above 58 cents? A. It is anything above 51 cents there will be returns to be made. Q. Now, if the price were to fall below 51 cents, there would be a loss incurred on that transaction, is that correct? A. But which would be the cost of 220 points. There would be no further losses.

Q. That is because you have arranged the two call options at different rates and you are selling and buying one, is that correct? A Buying one and selling one. It is the right to buy cotton futures. Q. It is that called a collar in the industry, or am I thinking of a wrong derivative? A. No, it's not a collar. It is a - it is called a bull call spread.

28 Further aspects of the language were exposed when the merchant banker continued his evidence (tr 170-171): Q. What is the 220 points? A. The grower would be buying 300 - buying one option for 330 points and selling another option and would receive 110 points so the net difference was 220 points. That is 2.2 cents per pound. Q. And the use of the term "points"? A. Points. Q. Is why? A. Is an industry term to describe the price of cotton. Q. But it is a 51 cent - -? A. 51 cent, point zero zero points. Q. And 58 cents? A. Yeah, it is 3.30 cents and 1.10 cents, so the cost is 2.20 cents and we - we in the industries, in the financial industries, in the cotton industry, call that 220 points per pound. Q. Equal to 2.20 cents per - - A. Per pound. 29 Some of the other terms used, "stacking a hedge", "rolling a hedge" and "spread risk" were explained by one of the experts in this case, Stephen Wyatt, in the following evidence (tr 206-208): Q. Isn't it the case then that if a grower takes out currency the grower, at least from the outset, becomes exposed to a futures risk, that's right, isn't it? A. It is. Q. And the currency along with that is based on an assumed number of bales that will be produced, isn't that right? A. It is. Q. So if the grower does not produce that number of bales, then there is going to be an excess currency element in there? A. Yes, yes. Q. And that excess currency is of itself speculative, isn't it? A. Yes. Q. And if the futures price were to fall between entering into the on-call contract and the harvesting of the cotton, even if the grower produces the number of bales, it may well be that the price that they receive also doesn't cover the currency is that right? A. Yes. Q. In that case, it will also be a speculative excess currency, is that right? A. Yes. Q. You talked about taking out futures for more than three years would involve stacking a hedge, is that right? A. Yes. Q. And stacking a hedge involves, in a sense, taking out a hedge as far as you can go and then once you reach the end of that, moving forward again, do I have that correct? A. Yes. Q. Now when you roll the hedge forward, there is no guarantee that you are going to obtain the same futures price on the roll as what you found when you did the first hedge, is that right? A. That is correct. Q. Because the futures may have risen or fallen during that time? A. The risk when you are rolling a futures position from time one to time two, from May 2000 - and as time goes by, you might be in 1999, you are rolling it and as May 2000 becomes close, you can then - the liquidity will be there in 2001. You can roll that May 2000 futures position to 2001. The risk that you incur is called a spread risk between those two futures positions and spread risks are not dissimilar to basis which is a price differential and spread risks aren't nearly as volatile as outright cotton price movements. Q. But you have to be closer to the point of rolling to, I suppose, diminish that volatility? A. In a sense that's correct. The - the spread risk - the - as you get closer to the May 2000, it is simply that the liquidity develops in the 2001 futures contract so you can - you can certainly assess what that spread risk is at that time. Q. Better than you would have been able to earlier? A. Indeed, yes. The Facts 30 Mr Simmons was born on 7 February 1957. He married Diana Mary Simmons in 1980 at which time he was living and running the family farm, "Retro", situated about 50km north of Warren in the State of New South Wales. Mr Simmons was educated to the equivalent of Year 10 and returned to the land soon after he completed his schooling. He went up to the Northern Territory and did some general cattle work before returning to the Warren area and obtaining a Wool Classing Certificate. Mrs Simmons worked as a secretary for a year and a half after her schooling before she married Mr Simmons in 1980. 31 Mr and Mrs Simmons and their six children live on Retro, and from 1980 to 1994 Mr and Mrs Simmons operated Retro as a mixed sheep, cattle and grain farm. The total land area of Retro was about 5,000 acres of variable open plain soil. In 1994 Mr and Mrs Simmons purchased the property "Charlievale", north of Retro on the Marthaguy Creek, comprising about 2,560 acres for the specific purpose of growing cotton. At that time Charlievale had a 1,306 mega litre allocation of water from the Burrendong Dam on the Macquarie River and only required some land levelling to be ready for cotton growing. They had a share farming arrangement in respect of Charlievale and the first crop of cotton was planted in October 1994. 32 Charlievale became a member of Marthaguy irrigation scheme, of which there were 20 members. Water was pumped directly out of the river and through head ditches into the property. Over the years the water allocation for Charlievale dwindled as a result of competing claims on the water, including environmental issues and drought. Water allocation dwindled from 1,100 megalitres in 1994 to approximately 684 megalitres in 2004. Mr and Mrs Simmons generally budgeted on receiving 565 megalitres a year in the latter part of this period because water is lost as it is conveyed to the property. 33 It takes approximately 8 megalitres a year to grow 1 hectare of irrigated cotton so that the "safe irrigated" cultivation area of Charlievale is probably in the order of 70 hectares or 180 acres. There was an expectation to yield about 2.8 bales per acre with a probable reliable production of about 500 bales.

34 In the 1994/1995 cotton season Mr and Mrs Simmons engaged in a share farming arrangement with "Reality Cotton". They had a 20 per cent share of a share farming arrangement that planted 330 acres and yielded to them 183 bales of cotton. That was sold for a cash price of $585.26 per bale with Cotton Trading Corporation (CTC), a cotton marketer. In the 1995/1996 cotton season the share farmers planted about 70 acres but then left the farm due to financial troubles. Mr and Mrs Simmons subsequently took over growing the crop that ultimately yielded 160 bales which was sold for a $485 per bale with CTC.

1 July 1996 - The Company takes over the operations 35 From the commencement of the cotton growing operations and up to 30 June 1996, Mr & Mrs Simmons traded in partnership under the name "J & D Simmons". From 1 July 1996, as a result of accounting advice, the Company, as trustee of a family trust, the Retro Pastoral Trust, conducted all the farming operations, including the growing of cotton. 1996/1997 season 36 In the 1996/1997 cotton season, the cultivation area on Charlievale was expanded to about 540 acres. In that season there was some trouble securing water and only 152 acres were planted yielding 473 bales. It was in this season that Mr and Mrs Simmons and the Company first began dealing with Robert Luke McKay, a long standing friend of Mr Simmons and a second cousin of Mrs Simmons. 37 Mr McKay is a director of AgFarm Marketing Pty Limited (AgFarm), an agency business that acts for agricultural marketers in their dealings with growers or producers. Mr McKay had worked as a farmer between 1979 and 1992 growing, amongst other things, cotton and wheat. He established AgFarm in 1992 and worked in the business until 2000. From August 2000 until June 2004 he continued as an owner of AgFarm but did not work in the business. He returned to work at AgFarm in June 2004. In about 1996 AgFarm commenced operating as an agent for Colly Cotton Limited in its dealing with growers for the purchase of cotton. First contracts with Colly - 10 February 1997 38 It was in early 1997 that Mr McKay, as Colly's agent, completed one of Colly's "New Grower Notification Forms" in relation to Mr Simmons. That form identified Mr Simmons as the grower "trading as J & D Simmons" with the grower number, 676. Mr McKay arranged Mr Simmons' first transactions with Colly in early 1997. On 22 February 1997 Mr and Mrs Simmons signed two documents. The first was entitled "Confirmation On Call Contract" and the second was entitled "Confirmation Fixed Bale/Cash Price Contract".

39 The Confirmation OCC was between Colly Farms Gin Pty Limited, the predecessor to Colly, and J & D Simmons trading as J & D Simmons as the grower. The contract number was 973177-02 dated 10th February 1997 and was signed by Colly on 12 February 1997 and by Mr and Mrs Simmons as the Grower on 22 February 1997. It included the following: 1. THIS CONFIRMATION MUST BE READ TOGETHER WITH COLLY'S STANDARD TERMS AND CONDITIONS FOR ON CALL CONTRACTS. THOSE STANDARD TERMS AND CONDITIONS ARE CONTAINED IN A SEPARATE BOOKLET, COPIES OF WHICH HAVE BEEN PROVIDED TO THE GROWER AND EACH INTERESTED PERSON. 2. ANY CAPITALISED WORDS OR EXPRESSIONS USED BUT NOT DEFINED IN THIS CONFIRMATION HAVE THE MEANINGS RESPECTIVELY ASCRIBED TO THOSE WORDS OR EXPRESSIONS IN COLLY'S STANDARD TERMS AND CONDITIONS FOR ON CALL CONTRACTS. COLLY WILL NOT MAKE ANY PAYMENT AGAINST THIS CONTRACT UNLESS THIS CONFIRMATION IS COMPLETED, SIGNED AND RETURNED TO COLLY. 40 The Contract also included the following: Colly agrees to buy, and the Grower agrees to sell AGREEMENT TO BUY AND SELL: 400-550 standard 227 kg bales of Lint Cotton ("the Specified Bales") for the price and on the terms and conditions stated in this Confirmation read together with Colly's Standard Terms and Conditions for On Call Contracts ("the Standard On Call Conditions"). An amount per Specified Bale calculated in accordance with the formula: AUD$ price, Basis quoted C + F Japan a = [( b + c ) x 500] - f BASE PRICE: WHERE (Note: The base price may vary across different lots of Specified Bales - see Clauses 8 & 9 of Standard On call Conditions) a = the Base Price per Specified Bale b = the Futures Price (expressed in US cents per 1b), established pursuant to clause 8 of the Standard On Call Conditions c = the Basis (expressed in US cents per 1b), established pursuant to clause 9 of the Standard On Call Conditions f = the AUD$ Marketing Charge, established pursuant to clause 11 of the Standard On Call Conditions such Base Price stated on the basis that the Lint Cotton comprising the Specified Bales will meet the Standard Classification BASE PRICE ADJUSTMENT: The Base Price is subject to adjustment for Quality in accordance with Colly's Premium and Discount Schedule, a copy of which is available upon request. BASIS OPTION: TO BE ADVISED PAYMENT TERMS: POOL PAYMENT TERMS DELIVERY OPTION: Lint Cotton Delivery Option SEASON: 1996/97 GIN: TO BE DETERMINED GINNING CHARGE: Not Applicable SEED EQUIVALENT RETURN PROCEDURE Not applicable SEED REBATE: Not applicable INDICATIVE MARKETING CHARGE: AUD $70.00 per Specified Bale. DISTRIBUTION OF NETT SALE PROCEEDS: To be made in accordance with the Payment Schedule attached. LOAN FUNDING The Grower will require/will not require loan funding from Colly. SPECIAL CONDITIONS: ACKNOWLEDGEMENT: ALL THE SIGNATORIES TO THIS CONFIRMATION ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE STANDARD ON CALL CONDITIONS

Standard Conditions 41 The Standard Conditions referred to in this Confirmation as the Standard On Call Conditions provide for rather complex and detailed steps to be taken in respect of the legs to be fixed under an OCC. The first of the legs is the futures or the US dollar cotton price. The grower is able to lock in or fix the futures price by giving notice to Colly. The time for locking in the futures is "at any time and from time to time" prior to what is referred to in the Standard Conditions as the "First Notice Day of the Key Contract Month". That is the 5th working day in New York prior to the beginning of the month designated by Colly as the Key Contract Month and, if not so designated, then prior to the beginning of July of the relevant season (the relevant date) (cl 10.1). 42 If the grower does not, or fails to, lock in the futures by the second last trading day prior to the relevant date, the grower will automatically be locked in to the settlement price quoted on the NYCE on the day prior to the relevant date (cl 10.2). If the grower locks in the futures price prior to the relevant date, the grower is permitted to "roll its futures position forward" from month to month prior to the relevant date (cl 10.3(a)). If the grower has not rolled the futures position in any given month, the grower is deemed to have rolled the futures position on the first notice day of the relevant month, subject to what occurs if a grower has a position in a May Cotton Futures Contract, where the grower may "close-out" the position rather than rolling it forward (cl 10.3(b) & (c)). The roll over pricing is based on the futures price then being offered by Colly for the relevant month and any gains or losses made as a result of rolling forward or closing out are to the account of the grower (cl 10.3(d) & (e)). The locked in futures price, whether directly or by roll over, is the variable "b" in the Base Price formula set out in the OCC Confirmation extracted above. 43 The next leg to be fixed is the difference in price between US cotton and Australian cotton, and as explained earlier is known as basis. The choices available to the grower in an On-Call Contract are the Fixed Basis option or the Average Pool Basis option. If neither is chosen the Fixed Basis option is fixed by default (cl 11.1). The Fixed Basis is the basis quoted by Colly from time to time for cotton during a particular month. If the Fixed Basis option applies the grower could, up to the 7th business day in July of the season, notify Colly in writing to lock in the Fixed Basis then being offered by Colly for all or any (in this instance up to 100 bales) of the specified bales. If the Fixed Basis option applies and the grower does not lock in the Fixed Basis then the Fixed Basis offered by Colly on the 8th business day of July applies. The Fixed Basis or the Average Pool Basis is the variable "c" in the base formula set out in the Confirmation Extracted above. 44 The third leg to be fixed is the currency. The Base Price is expressed in US dollars but the grower is given the choice to direct Colly in writing to pay the whole or any part of the Nett Sale Proceeds in US dollars and/or hedge the whole or any part of the grower's US dollars/Australian dollars exposure in relation to the Nett Sales Proceeds (cl 12). The Nett Sale Proceeds of any specified bales is the aggregate Adjusted Base Price (being the Base Price adjusted for quality and applying the spot rate as determined by Colly on the day the bales are classed) less ginning charges, marketing charges, taxes, charges, brokerage fees and the like (cl 34).

45 A Currency Selection Notice or a Hedge Notice may be given by the grower to Colly subject to certain conditions. No notice is able to be given in respect of bales already the subject of a notice. Notices are only able to be given to Colly in relation to so much of the estimated Nett Sale Proceeds attributable to cotton futures contracts expiring in May or July of the season. Notices in respect of a May contract may be given by close of business on the second last New York business day of May. Notice in respect of a July contract may be given by close of business on the 7th New York business day in July. Notices must be given in minimum tranches of US $100,000 unless the Notice relates to all of the bales. 46 When a Hedge Notice is given to Colly it is required to hedge so much of the grower's US dollars/Australian dollars (USD/AUD) exposure specified in the Notice at the Hedged Rate of Exchange, being the rate offered by Colly from time to time for such conversion of USD to AUD at a particular time in the future. That rate is "to be set by reference to current market pricing in the foreign exchange markets". If there are unallocated bales as at certain specified dates then Colly is obliged to hedge the grower's exchange exposure on the bales at the hedged rate of exchange applicable; in respect of May contracts on the last New York business day in May; and in respect of July contracts on the last New York business day in June. However Colly is not obliged to hedge the grower's exchange exposure pursuant to a Hedge Notice if it is unable to execute a trade in the market to cover its own currency risk. 47 If the grower requests Colly to provide an estimate of the Nett Sale Proceeds to facilitate the giving of a Hedge Notice, Colly was obliged to provide such estimate to the grower. The provision of such estimate is on the basis that Colly does not warrant the accuracy of the estimate and will not "under any circumstances" be liable to any loss, damage or expense suffered by the grower.

48 Mr Simmons gave evidence that at the time he signed the OCC he did not understand the expression "on call" as meaning that the grower fixed various aspects of price of the cotton. Mr McKay gave evidence that he did not recall any currency hedging involved in this transaction. Indeed there are no Colly records suggesting that any legs were fixed in respect of the OCC dated 10 February 1997. It is probable that this OCC was treated as a Fixed Bale/Cash Price Contract at AUD500 per bale (tr 161). In any event the crop was delivered mid 1997. Fixed Bale/Cash Price Contract 49 The Fixed Bale/Cash Price Contract no 983178-01 and dated 10th February 1997 was signed by Colly on 12 February 1997 and by Mr and Mrs Simmons as the Grower on 22 February 1997. It included the following: THIS CONFIRMATION MUST BE READ TOGETHER WITH COLLY'S STANDARD TERMS AND CONDITIONS FOR FIXED BALE/CASH PRICE CONTRACTS. THOSE STANDARD TERMS AND CONDITIONS ARE CONTAINED IN A SEPARATE BOOKLET, COPIES OF WHICH HAVE BEEN PROVIDED TO THE GROWER AND EACH INTERESTED PERSON. COLLY WILL NOT MAKE ANY PAYMENT AGAINST THIS CONTRACT UNLESS THIS CONFIRMATION IS COMPLETED, SIGNED AND RETURNED TO COLLY. 50 The Contract recorded that the cotton was sourced from "Retro" and included the following: AGREEMENT TO BUY AND SELL: Colly agrees to buy, and the Grower agrees to sell 400- 500 standard 227 kg bales of Lint Cotton ("the Specified Bales") for the price and on the terms and conditions specified in this Confirmation read together with Colly's Standard Terms and Conditions for Fixed Bale/Cash Price Contracts ("the Standard Conditions of Sale"). SEASON 1997/98 BASE PRICE: $500 Australian dollars Specified Bale, stated on the basis that the Lint Cotton comprising the Specified Bales will meet the Standard Classification. BASE PRICE: Gross (i.e. without allowing for Ginning Charge and Seed Rebate) BASE PRICE ADJUSTMENT: The Base Price is subject to adjustment for Quality in accordance with Colly's Premium and Discount Schedule No.5, a copy of which is available upon request. PAYMENT TERMS: 14 DAYS FROM CLASSING DELIVERY OPTION: Lint Cotton Delivery Option. GIN: TO BE DETERMINED DISTRIBUTION OF NETT SALE PROCEEDS: To be made in accordance with the Payment Schedule attached. LOAN FUNDING: The Grower will require/will not require loan funding from Colly. SPECIAL CONDITIONS: ACKNOWLEDGEMENT: ALL THE SIGNATORIES TO THIS CONFIRMATION ACKNOWLEWDGE THAT THEY HAVE READ AND UNDERSTAND THE STANDARD CONDITIONS OF SALE APPLICABLE TO THIS CONFIRMATION.

51 Although this Contract had the years "1996/1997" typed in the section next to the word "season", that was crossed out and the years "1997/1998" were inserted in handwriting, and initialled by Mr McKay but not by Mr and Mrs Simmons. This Contract related to the Crop to be harvested in the first half of 1998. Standard Conditions for Fixed Bale/Cash Price Contract 52 The Standard Conditions for a Fixed Bale/Cash Price Contract provided that the sale of the committed bales was at the Base Price offered by Colly on the day on which the grower allocated the committed bales to the contract. That price was deemed to be stated gross, unless expressly agreed otherwise, with payment due within 20 days of classing or as otherwise agreed. The mechanism for payment by Colly was the grower completing and delivering a Payment Schedule to Colly. December 1997 Conversation 53 In December 1997 Mr Simmons had a conversation with Mr McKay, the terms of which are in issue. It is clear that Mr Simmons had been speaking with other clients of Colly in the area that were serviced by Mr McKay about their dealings with Colly and their experiences in dealing with currency with Colly. Mr Simmons telephoned Mr McKay to discuss his interest in becoming involved in foreign currency. Mr Simmons claims that in this telephone conversation Mr McKay informed him that it was a "good idea" to get into "currency" and there was "easy money" to be made by taking out currency. Mr Simmons also recalled that Mr McKay said "you'd be good at this, Simmo" and informed him that he could always "roll out" if the currency was "out of the money". 54 There was then a discussion about "taking out " US$1 million to "cover" his wheat and cotton by taking out a foreign exchange contract for US$1 million "cover" in each of the following five years. Mr Simmons claimed that Mr McKay said that he would have to speak to Colly's people in Sydney before he could do that. Mr Simmons claimed that Mr McKay telephoned him later that day and said that Sydney would not allow him to do US$1 million a year, but that they would "let us take out" US$500,000 a year. Mr McKay also informed Mr Simmons that he was not able to do any currency in relation to his wheat crop. 55 Mr McKay's version of the conversation is different. He claimed Mr Simmons telephoned him and said: "I have been speaking with some growers who have been hedging currency and they have been doing well out of it. I want to get involved in that myself. I am looking to hedge my currency exposure for the next 5 years. I am selling cotton and wheat in US dollars and I want to take out hedging positions for both of those crops". Mr McKay gave evidence that he spoke with Colly's Grower Services Manager, Peter Cottle, who informed him that Colly would not take out currency in relation to wheat. 56 Mr McKay said that he telephoned Mr Simmons after speaking to Mr Cottle and informed him that he was unable to "hedge currency" in relation to his wheat crop. He said that he asked Mr Simmons what his "likely production" was going to be per season and that Mr Simmons informed him that he would be growing 400-500 acres producing about 1500 bales per season. Mr McKay said: "For 1500 bales you will be able to take currency positions for US$500,000 per season". Mr Simmons asked him whether he could possibly hedge currency for five years and Mr McKay informed him that Colly would only do currency for five years "if you commit five seasons' production". Mr Simmons said that he would make that commitment. Mr McKay claims that he then informed Mr Simmons that he would need to use US$500,000 of the currency position each year for the crop and if there was any surplus currency he would need to trade it out. He also claimed that he advised Mr Simmons that if he made a profit he would get it but if he made a loss he would have to take that loss. Mr McKay also claimed that he asked Mr Simmons whether he was "sure" he wanted to go ahead and that Mr Simmons advised him that he had spoken to other growers and that they had said that there was good money to be made and he wanted to go ahead. 57 Mr Simmons claimed that in this conversation Mr McKay did not ask any questions of him in relation to his financial situation or the ongoing water allocation for the property. Indeed Mr McKay does not claim to have asked Mr Simmons about those matters. Mr Simmons also denied that he was asked about expected production in terms of bales of cotton. He claimed that Mr McKay told him that he was unable to take out currency for five years in advance and that he would arrange for it to be taken out initially for two or three years and that "we could then roll some of it out into the later years at that time as we needed it". Mr Simmons was not cross examined on his evidence that Mr McKay had advised him that he would arrange for the currency to be taken out initially for two or three years. 58 Mr McKay agreed in cross-examination that he did not give Mr Simmons any kind of risk disclosure document. He said that apart from explaining that if he did not utilise the amount of currency in the year that he would be responsible for any profits or losses, there was nothing else that he said about the risks involved in currency. He knew that Mr Simmons did not have any experience in currency and he also knew that Mr Simmons was concerned not to sign anything that had a commitment for 1500 bales. First letters re currency 59 After the conversation with Mr McKay, Mr Simmons received a series of letters, not from Colly, but from Colly Farms. On 23 December 1997 Mr Simmons received a facsimile from Colly Farms, directed to him, trading as J & D Simmons, in the following terms: We confirm having placed the following Foreign Exchange order your behalf: You sell USD$2,500,000 against AUD at spot 0.6500 to be rolled at your discretion Please confirm your agreement by signing and return this facsimile Mr Simmons signed and returned this document as requested.

60 On 5 January 1998 Mr Simmons received a fax directed to him "trading as J & D Simmons" from Colly Farms in the following terms: We confirm having Dealt the following FX deal on your behalf: Details You Sell USD 2,500,000.00 against AUD at spot of 0.6500 to mature on 6th January 1998 Please confirm your agreement by signing and returning this facsimile.

Mr Simmons signed and returned that fax as requested. 61 On 6 January 1998 Mr Simmons received a further fax from Colly Farms directed to him trading as J & D Simmons in the following terms: We confirm having Extended the following FX deal on your behalf: Original Details: You Sell USD 2,500,000.00 against AUD at spot of 0.6500 to mature on 6th January 1998 Extended Details: You Sell USD 2,500,000.00 against AUD at spot of 0.6500 to mature on 6th January 1999 at an outright forward rate of 0.6562 Please confirm your agreement by signing and returning this facsimile. Mr Simmons signed and returned that document.

Purchase Confirmation 1998 62 On 6 January 1998 Mr Simmons signed a "Lint Cotton Purchase Confirmation" which included the statement "Colly Farms Gin Pty Limited is pleased to confirm the following lint cotton purchase pertaining to our verbal contact on 6/1/98". That document recorded: Contract Type - "Balance of Crop with Ceiling"; Payment Terms - "Pool Payment Terms 70% July, 15% Sept and 15% Dec"; Crop Year - 1998; Number of Bales - "Production off 450 acres in excess of 1100 bales to a maximum of 1450 bales [tolerance] 350 bales"; Price - "$516". The document included the statement, "Formal contracts for your signature will be forwarded shortly". This was not an OCC. It was, it seems, a fixed bale/cash price contract. Colly advised of Company 63 It was at the top of the Purchase Confirmation of 6 January 1998 that was returned to Mr McKay that Mr Simmons wrote, "P.S. Bob our trading name is Retro Past Co ACN 073 056 461". It was from this time that Colly was aware that the Grower of the crops was the company. Commitment letter 64 It was in early 1998 that Mr McKay prepared a letter for Mr Simmons to give to Colly in respect of the commitment for five years production of cotton. That letter was addressed to Colly for signature by Mr Simmons and was dated 16 January 1998. It was in the following terms: This is to confirm a commitment for production off "Retro" for the next five years. I understand Colly will send Commitment Agreements for the years 1999, 2000 and 2001. This letter acknowledges the extra commitment for the years 2002 and 2003. 65 Although that letter is dated 16 January 1998, Mr Simmons gave evidence that it was some time later that he signed it. He said that in February 1998 Mr McKay came out to the property to see him with some paper work to be signed and gave him some Colly stubby holders and some Colly caps for the children. Mr McKay asked Mr Simmons to sign a bale commitment to Colly for 1,500 bales, however Mr Simmons refused to commit to 1,500 bales. Mr McKay expressed his concern about that position and also about his own position and blamed "Head Office" in Sydney, claiming that he was "in trouble" for not obtaining a cotton commitment from Mr Simmons. 66 Mr Simmons informed Mr McKay that he was not willing to commit to a definite number of bales unless he could be sure he could grow it. It was in those circumstances that the letter of 16 January 1998 was prepared and ultimately signed without any commitment to a specific number of bales. At the time Mr Simmons signed the letter he understood that it was a promise to sell whatever he could actually grow through Colly without any commitment to any particular number of bales. He gave evidence that at that time he did not appreciate the interaction between the cotton commitment and currency. Mr Simmons was not cross-examined in relation to his evidence about the circumstances of the signing of this letter.

Fixed Bale/Cash Price Contract 1998/1999 season 67 A further Fixed Bale/Cash Price Contract no 995033-01 dated 16th June 1998 between the Company and Colly, signed by Colly but without a date on the signature, and signed by Mr Simmons on behalf of the grower, without a date and unwitnessed, and included the following: AGREEMENT TO BUY AND SELL: Colly agrees to buy, and the Grower agrees to sell 400 standard 227 kg bales of Lint Cotton ("the Specified Bales") for the price and on the terms and conditions specified in this Confirmation read together with Colly's Standard Terms and Conditions for Fixed Bale/Cash Price Contracts ("the Standard Conditions of Sale"). SEASON: 1998/99 BASE PRICE: $508 dollars per Specified Bale, stated on the basis that the Lint Cotton comprising the Specified Bales will meet the Standard Classification. BASE PRICE: Gross (i.e. without allowing for Ginning Charge and Seed Rebate) BASE PRICE ADJUSTMENT: The Base Price is subject to adjustment for Quality in accordance with Colly's Premium and Discount Schedule No.6, a copy of which is attached. PAYMENT TERMS: 14 DAYS FROM CLASSING DELIVERY OPTION: Lint Cotton Delivery Option. GIN: TBA DISTRIBUTION OF NETT SALE PROCEEDS: To be made in accordance with the Payment Schedule attached. LOAN FUNDING: The Grower will require/will not require loan funding from Colly. SPECIAL CONDITIONS: Colly to cover yield risk ACKNOWLEDGEMENT: ALL THE SIGNATORIES TO THIS CONFIRMATION ACKNOWLEWDGE THAT THEY HAVE READ AND UNDERSTAND THE STANDARD CONDITIONS OF SALE APPLICABLE TO THIS CONFIRMATION.

Commitment Contracts 1998 68 There are in evidence two "Confirmation Commitment Contracts" the first numbered 995059-05 dated 30th June 1998 is signed by Colly with a date 10 July 1998. Mr Simmons signature appears on the document unwitnessed and without a date. That Contract was between Colly and the Company and provided: The Grower agrees to commit, and Colly agrees to take

AGREEMENT TO COMMIT AND TAKE COTTON: APPROX. 1500 standard 227kg bales of Lint Cotton ("the Committed Bales")

on the terms and conditions specified in this Confirmation read together with Colly's Standard Terms and Conditions for Commitment Contracts ("the Standard Commitment Conditions"). SEASON: GIN: TO BE DETERMINED DELIVERY OPTION: Lint Cotton Delivery Option DECISION: First Notice Day (July, '99) or a later date if previously negotiated. DEADLINE FOR PLAN SELECTION: SPECIAL CONDITIONS: This Commitment Agreement offsets a currency position held on your instructions and on your behalf by Colly Cotton. In the event you the Grower elect to liquidate the position prior to or at expiry, with all profits or losses being on your account, your existing commitment to deliver bales will be cancelled by mutual agreement. The grower acknowledges that it has read and understands the standard commitment conditions applicable to this confirmation.

The grower also acknowledges that it is familiar with the terms and conditions of the following contractual arrangements offered by Colly, namely:

1. Fixed bale/cash price plan ACKNOWLEDGEMENT: 2. On call plan 3. Seasonal pool plan 4. Floor price seasonal pool plan 5. Irrigated hectare plan

Depending on the choices that the grower makes under this commitment contract, one or more or all of those plans will ultimately apply as between Colly and the grower.

69 The second Commitment Contract is also dated 30th June 1998, no 005058-05, signed by Colly on 10 July 1998. Mr Simmons' signature appears on the Contract unwitnessed and undated. It is otherwise identical to the above Commitment Contract 995059-05, except that the section "Decision" records "First Notice Day (July, '2000) or a later date if previously negotiated". Standard Conditions for Commitment Contracts 70 The Standard Conditions for Commitment Contracts provided that where the "Confirmation" specified that the Agreement was a "Commitment Contract", Colly agreed that, in consideration of the grower committing the bales to Colly, it would allow the grower to defer its selection of the Plan or Plans to govern the terms of sale of the committed bales to Colly (cl 4). The selection of Plans available to the Grower included an On Call Plan and a Fixed Bale/Cash Price Plan. The Grower was required to advise Colly in writing by a specified date the Plan to which the grower wished to allocate the bales of cotton the grower had committed to Colly in the Commitment Contract (cl 5). On Call Contract 1998/1999 season 71 A Confirmation OCC between Colly and the Company for the 1998/1999 season no 995147-02 was signed by Colly on 2 September 1998 and by Mr Simmons on 7 September 1998. It included the following: Colly agrees to buy, and the Grower agrees to sell AGREEMENT TO BUY AND SELL: 300 standard 227 kg bales of Lint Cotton ("the Specified Bales") for the price and on the terms and conditions stated in this Confirmation read together with Colly's Standard Terms and Conditions for On Call Contracts ("the Standard On Call Conditions"). An amount per Specified Bale calculated in accordance with the formula: AUD$ price, Basis quoted C + F Japan a = [( b + c ) x 500] - f BASE PRICE: WHERE (Note: The base price may vary across different lots of the Specified Bales - see Clauses 8 & 9 of Standard On call Conditions) a = the Base Price per Specified Bale b = the Futures Price (expressed in US cents per 1b), established pursuant to clause 8 of the Standard On Call Conditions c = the Basis (expressed in US cents per 1b), established pursuant to clause 9 of the Standard On Call Conditions f = the AUD$ Marketing Charge, established pursuant to clause 11 of the Standard On Call Conditions such Base Price stated on the basis that the Lint Cotton comprising the Specified Bales will meet the Standard Classification BASE PRICE ADJUSTMENT: The Base Price is subject to adjustment for Quality in accordance with Colly's Premium and Discount Schedule No. 6 a copy of which is attached. BASIS OPTION: TO BE DETERMINED PAYMENT TERMS: POOL PAYMENT TERMS SEASON: 1998/99 DISTRIBUTION OF NETT SALE PROCEEDS: To be made in accordance with the Payment Schedule attached. LOAN FUNDING The Grower will require/will not require loan funding from Colly. SPECIAL CONDITIONS: ACKNOWLEDGEMENT: ALL THE SIGNATORIES TO THIS CONFIRMATION ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE STANDARD ON CALL CONDITIONS

The 1998/1999 Crop 72 Mr Simmons planted 197 acres yielding 579 bales of cotton. In that year the Company received $528 per bale and all of the cotton was sold through Colly. Mr Simmons' evidence was that at about harvest time Mr McKay arranged for a "partial close out" of his currency by which he made a profit of $3,679.51. 73 As a result of receiving the $3,679.51, Mr Simmons gave Mr McKay a carton of Tooheys Extra Dry beer when they were at a cross-country carnival at Warren. Mr Simmons thanked Mr McKay for "making this profit" which, he said, he assumed had resulted from Mr McKay's trading strategy. He remembered that there was another profit along the same lines of $1,200 but could not recall how that came about. He said that at one point Mr McKay informed him that he thought the dollar had gone down a bit and then suggested that it would jump a couple of cents in the following fortnight. This occurred and Mr Simmons was impressed that Mr McKay seemed to be able to "get it right". Currency letters 1999 74 On 6 January 1999 Mr Simmons received a fax directed to him trading as J & D Simmons from Colly Farms in the following terms: We confirm having placed the following Foreign Exchange order your behalf: You sell USD $2,500,000 against AUD at spot 0.6500. This was rolled to 6 January 1999 at an outright forward rate of 0.6562. This has been rolled to mature 30 June 1999 at an outright forward rate of 0.6588. Please confirm your agreement by signing and returning this facsimile. Mr Simmons signed and returned that document. 75 On 7 May 1999 Mr Simmons received a fax directed to him trading as J & D Simmons from Colly Farms in the following terms in the following terms: We confirm having executed the following FX deal on your behalf: Details You Buy USD 260,000.00 against AUD at spot of 0.6650. This has been rolled to mature on 30th June 1999 at a forward rate of 0.6650. This position will be used to partially offset the existing position outlined below: You Sell USD 2,500,000.00 against AUD at a rate of 0.6588 to mature on 30th June 1999. Net profit of this partial close out is $A3,679.51. Please note that currency remaining is: You Sell USD 2,240,000.00 against AUD at a rate of 0.6588 to mature on 30th June 1999. Please confirm your agreement by signing and returning this facsimile to Sydney on 02 9325 9050. Mr Simmons signed and returned that document. 76 On 1 July 1999 Mr Simmons received a fax directed to him this time trading as the Company from Colly Farms in the following terms: We confirm having extended the following FX deal on your behalf: Details You Sell USD 1,000,000 against AUD at spot of 0.6500 that matured on 30 June 1999 at a forward rate of 0.6588. This has been extended to 29th June 2001 at an outright forward rate of 0.6640. Please confirm your agreement by signing and returning this facsimile to Sydney on 02 9325 9050. Mr Simmons signed and returned this document. 77 On 1 July 1999 Mr Simmons received a further fax directed to him trading as the Company from Colly Farms in the following terms: We confirm having extended the following FX deal on your behalf: Details You Sell USD 1,000,000 against AUD at spot of 0.6500 that matured on 30 June 1999 at a forward rate of 0.6588. This has been extended to 30 June 2000 at an outright forward rate of 0.6623. Please confirm your agreement by signing and returning this facsimile to Sydney on 02 9325 9050 at your earliest convenience. Mr Simmons signed and returned this document.

Seasonal Facilities 78 From 1999 the Company and Mr and Mrs Simmons operated on a seasonal finance facility with the Bank. That facility allowed the advancement of monies as required through the year and repayment usually by the end of the year. Draw downs from the facility were made as required during the season and were deposited into the local Commonwealth Bank and then used via a cheque account facility. 1999/2000 season 79 In the 1999/2000 season the Company planted 420 acres of cotton yielding 1405.3 bales all of which were sold to Colly. From about the latter part of 1999 Mr McKay had various conversations with Mr Simmons in which Mr McKay informed him that he needed to sign cotton contracts. Mr Simmons refused to sign those documents because he was not prepared to be committed to growing 1500 bales. As the season grew to an end in around April or May 2000, the US exchange rate had dropped quickly from January/February 2000 and was sitting at around 60 cents by April/May 2000. Mr Simmons gave evidence that Mr McKay was continually asking him to sign things "to keep Head Office happy", but that he was not willing to do so. 80 There were two OCCs between Colly and the Company for the 1999/2000 season. Both record the date of the transaction as 14/3/2000. The first was numbered 006504-04 and was signed by Colly on 14/03/00 and by Mr Simmons on 20/3/00. It included the following terms: AGREEMENT TO BUY AND SELL Colly agrees to buy and The Grower agrees to sell 1200 Standard 227 kg Bales - Lint Cotton ("the Specific Bales") Subject to Standard Classification BASE PRICE (Base Price may vary across difference lots of the Specified Bales - see clause 9 & 13 of Standard Conditions) Subject to Standard Classifications, an amount per Specified Bales calculated: A$ price, Basis quoted C F Japan a = [(b + c) x 500] - F where a = the base Price per Specified Bale b = the Futures Price (expressed in US cents per 1b) established pursuant to the Standard Conditions c = the Basis (expressed in US cents per 1b), established pursuant to the Standard Conditions. F = where applicable the AUD$ Marketing charge established pursuant to clause 11 of the Standard Conditions. BASIS OPTION: 450 points off the month of May 2000. FOB Ginyard INDICATIVE MARKETING $0.00 Per Specified Bale. (Only if C and F Japan basis option taken) PAYMENT TERMS: 14 days from classing SPECIAL CONDITIONS 81 This was the first contract in which the term "points" appears. The second On Call Contract was numbered 006505-04 and was between Colly and the Company. It was signed by Colly on 14/3/00 and Mr Simmons' signature on it is undated and unwitnessed. This contract was in identical terms to Contract No 6504-04 except that there was no entry opposite "Basis Option" and "Payment Terms" were recorded as "TBD". 2000 Currency Letters 82 Mr Simmons received three letters from Colly Farms in 2000 directed to him trading as the Company. The first was dated 11 May 2000 and was in the following terms: In response to the order placed with Bob Mckay on May 10, we confirm having dealt the following FX transactions, dated May 11, on your behalf. You sold USD 500,000 against AUD at a spot rate of .5785. This has been rolled to the 16th of June, 2003 at an all-in rate of .5920. This deal will be rolled to 2004 at a later date. You sold USD 500,000 against AUD at a spot rate of .5815. This has been rolled to the 9th of May 2003 at an all-in rate of .5950. This deal will be rolled to 2005 at a later date. For our records, please sign and return this deal confirmation to our Sydney office on 02 9325 9050 at your earliest convenience. Mr Simmons signed and returned this document. 83 The next letter was dated 29 June 2000 and was in the following terms: We confirm having rolled the following FX transaction on your behalf: You sold USD 168,5000 against AUD at a spot rate of .6500. This was rolled to the 30th of June, 2000 at an all-in rate of .6623, and has been extended to the 22nd of November at an all-in rate of .6668. You sold USD 500,000 against AUD at a spot rate of .6500. This was rolled to the 30th of June, 2000 at an all-in rate of .6623, and has been extended to the 15th of July, 2002 at an all-in rate of .6797. For our records, please sign and return this deal confirmation to our Sydney office on (02) 9325 9050 at your earliest convenience. Mr Simmons signed and returned this document. 84 The next letter was dated 23 November 2000 and was in the following terms: We confirm having offset the following FX transaction on your behalf: Opening Deal, dealt 29/06/00 You sold USD 112,471.50 against AUD at a spot rate of .6623. This was rolled to the 22nd of November at an all-in rate of .6668. Offsetting Deal, dealt 22/11/00 You Bought USD 112,471.50 against AUD at a spot rate of .5085. This was predelivered to the 2nd of November, 2000 at an all-in rate of .5085 and offsets the above position. The resulting loss is A$52,509.37 For our records, please sign and return this deal confirmation to our Sydney office on (02) 9325 9050 at your earliest convenience. There is no signed copy of this document in evidence. Futures Exchange Agreement/Risk Disclosure Statement - Colly Farms 85 In his affidavit sworn on 22 June 2004, Mr Simmons gave the following evidence: 47. In February 2000 we received a client agreement and "risk disclosure statement", which I signed and returned on behalf of the Company. The agreement and statement are annexed and marked "E". This agreement and disclosure was in relation to futures and options trading. I had never received a similar document in my dealings with Colly previously. 86 The document annexed to Mr Simmons' affidavit is entitled "Client Agreement and Risk Disclosure Statement Non-Discretionary Account". The Agreement is between Colly Farms as the "Member" and the Company as the "Client". The recital states that "the Client wishes the Member to deal in futures contracts on a Futures Exchange in accordance with the Client's instructions". The Agreement defined "Futures Contract" as those contracts defined by s 72 of the Corporations Law and the Australian Securities Commission Act 1989, including an Option. An Option was defined to mean a prescribed exchanged traded option or a futures option as those terms are defined by the Futures Industry Law. "Futures Industry Law" was defined to mean the Corporations Law and the Australian Securities Commission Act 1989 or the equivalent law of any State and the amendments thereto. 87 The Company acknowledged in the Agreement that it had been given a document which explained the nature of Futures Contracts, the nature of the obligations assumed by the Company when it instructed Colly Farms to enter into a Futures Contract on its behalf, a Risk Disclosure Statement and specifications and details of the essential terms of each kind of Futures Contract in which Colly Farms dealt. By clause 3.3 of the Agreement, the Company appointed Colly Farms as its agent for the purpose of dealing in Futures Contracts in accordance with the terms of the Agreement. Colly Farms agreed to deal in Futures Contracts on a Futures Exchange on behalf of the Company. Clause 3.12 provided: 3.12 The Member in dealing in futures contracts on behalf of the Client may require the buying or selling of foreign currency and the exchange rate which shall apply is the exchange rate applicable at the time the Client's money is exchanged by the Member's bankers or the clearing house, unless otherwise agreed in writing between the parties. 88 In clause 9 of the Agreement the Company agreed and acknowledged that Colly Farms "does deal as principal on its own account". Clause 11 provided that on certain events of default Colly Farms was entitled to close out all or some of the Company's Futures Contracts and to take such other action as a reasonably prudent futures broker would take in the circumstances to protect the personal obligation incurred when dealing on behalf of the Company. Clause 13 provided as follows: EXCHANGE RATE RISK 13. If the Client defaults under the terms of this Agreement the Member may elect to convert any amount owed by the Client (including any interest) into Australian currency either at the date of the Client's default or on the date on which the Client pays the amount owed to the Member in full. 89 The Agreement also included the following: IMPORTANT 31. The Client has given consideration to the Client's objectives, financial situation and needs and has formed the opinion that dealing in futures contracts is suitable for the Client's purpose. 32. The Member is authorised to act upon the written or oral instructions of the Client and the persons authorised to instruct the Member on the Client's account. The persons authorised to instruct the Member on the Client's account are those listed in the Schedule below unless otherwise directed in writing to the Member. 90 The persons authorised in the Schedule were Mr and Mrs Simmons. Attached to the Agreement was a "Risk Disclosure Statement" which was in the following terms: This statement is given to you as required by section 1210 of the Act. The risk of loss in trading in futures contracts can be substantial. You should therefore carefully consider whether that kind of trading is appropriate for you in the light of your financial circumstances. In deciding whether or not you will become involved in that kind of trading, you should be aware of the following matters: a) You could sustain a total loss of initial margin funds that you deposit with your futures broker to establish or maintain a position in a futures market. b) If the futures market moves against your position, you may required (sic), at short notice, to deposit with your futures broker additional margin funds in order to maintain your position. Those additional funds may be substantial. If you fail to provide those additional funds within the required time, your position may be liquidated at a loss and in that event you will be liable for any shortfall in your account resulting from that failure. c) Under certain conditions, it could become difficult or impossible for you to liquidate a position (this can, for example, happen when there is a significant change in prices over a short period). d) The placing of contingent orders (such as a "stop loss") may not always limit your loss to the amounts that you may want. Market conditions may make it impossible to execute such orders. e) A "spread" positions is not necessarily less risky than a simple "long" or "short" position. f) The high degree of leverage that is obtainable in futures trading because of small margin requirements can work against you as well as for you. The use of leverage can lead to large losses as well as large gains. g) If you prepose (sic) to trade in futures options, the maximum loss in buying an option is the amount of the premium, but the risk in selling an option are the same as in other futures trading. This statement does not disclose all of the risks and other significant aspects involved in trading on futures market. You should therefore study futures trading carefully before becoming involved in it. 91 The Agreement is dated 25 February 2000 and Mr Simmons signed the Agreement probably around that date. In cross-examination Mr Simmons said that he could not remember signing the documents but accepted that his signature was on them. Receipt for Standard Conditions 92 On 16 March 2000 Mr Simmons signed a document on the letterhead of Colly Cotton Group of Companies entitled "Acknowledgment of Receipt of Contract Conditions of Sale". Receipt was acknowledged of the Standard Conditions of Sale Version 2 said to be Contract Standard Conditions No 142A. Mr Simmons accepted that when he signed that document he knew that it related to the commercial arrangements or dealings with Colly. He gave the following evidence in cross-examination (tr 270): Q. And at the time you signed it, you realised that it might affect contractual arrangements with Colly Cotton? A. Not specifically, no. Q. Did it not occur to you - that just didn't enter your mind, is that right? A. Sir, I dealt with Bob, I put a lot of trust in Bob and Bob wanted stuff signed, I trusted him implicitly. I - I just couldn't motor through all of that. That is just too much heavy going. … Q. So it is your evidence, is it, that you don't recall whether you read Annexure F before you signed it? A. No, I couldn't guarantee I - if it was the last page, I wouldn't have - I wouldn't have read it. It was the first page, I might have said "right, what's this?", and Bob would say, "this is the version two". 93 Mr Simmons said that he did not read those conditions and believes he handed them back to Mr McKay after he signed them. He said that he was not aware of clause 35.2 in those conditions. Mr Simmons claimed his attention was not drawn to clause 35.2, nor was its effect explained to him. There is no suggestion in the evidence that clause 35.2 was drawn to mr Simmons' attention and there was certainly no explanation of the Standard Conditions to him. There is no evidence that there was ever an explanation given to him of the nature of an OCC Contract or the mechanism for fixing the various legs under an OCC. At no time was it suggested that he should seek independent advice in respect of the terms and conditions. Clause 35 is set out in full later in this judgment. 94 Mr Simmons was asked whether he received version one of the Standard Terms and Conditions not long after 5 February 1997. He said that he could not agree with that because "all the gear that I have got to do with Cotton over the last ten years" had been given to his legal representatives. When it was pointed out to him that the document was in fact discovered in the proceedings on his behalf he said that he just could not remember reading it as early as 1997. The earlier version of the Standard Conditions did not have clause 35.2 or an equivalent. Mr Simmons suggested in his evidence that the "masses of paperwork like that" did not start coming through to him until he did what he referred to as "currency".

Refusal to pay proceeds 95 In May 2000, two and a half years after the letter of 23 December 1997 in which Colly Farms had advised Mr Simmons it had "placed" the "Foreign Exchange order" for US$2,500,000 on his "behalf", Colly refused to pay the proceeds to which the Company was entitled in respect of the sale of the 2000 crop, amounting to $122,270, because Mr Simmons would not sign and return the Commitment Contracts or OCCs. On 6 June 2000 Mr Simmons received a letter from Colly Cotton Pty Ltd directed to the Company. It was in the following terms: It has come to our attention that several of your contracts have not been signed and returned to the Colly Cotton Moree office. Until these contracts are signed, Colly Cotton are unable to distribute any proceeds. The contracts is (sic) as follows: Contract No. Year Bales

015579-05 2001 1,500 036816-04 2003 1,500 026815-04 2002 1,500 046817-04 2004 1,500 056818-04 2005 1,500 006822-04 2000 200 You should have received the original copies in the mail. If you have the contracts and have not yet signed and returned them, please do so to Colly Cotton, PO Box 996, Moree 2400. If you have not received the contracts or cannot locate them, please contact us at this office. Here's hoping that picking will be over soon. 96 That letter was signed by Mr McKay who gave the following evidence in cross examination (tr 195): Q. So, Colly was at the time withholding payment on the crop until these things were signed, is that what was taking place? A. Yes. Q. You are aware that as a cotton grower the income from the crop proceeds is their annual income, isn't it? A. Yes, if you are a pure cotton grower that is right, yes. Q. By the end of the season a cotton grower may be at or towards the end of their financing arrangements for the season, is that correct? A. Yes. Q. And some are likely to be financially stretched at that point? Do you know whether or not - A. Yes, some could be. Q. Do you know whether or not Mr Simmons was financially pressed at the time this letter was sent? A. No I didn't. Q. But he may have been? A. He may have been, yes. Q. The intention behind the letter was to force Mr Simmons to sign the bale contracts, that is what you understood the intention to be, isn't it? A. The, the way it was explained to me at the time was that Colly wanted to get all of their contracts returned signed from every grower and that they weren't going to distribute proceeds until that happened, yes. Q. Mr Simmons was concerned because of the 1500 bale commitment, that was his reason for not signing it, isn't that correct? A. Yes. Q. But as a result of this correspondence he did in fact sign some of the contracts, do you recall that? A. Yes.

Conversation at time of signing contracts 97 Mr Simmons gave evidence that at the time of this correspondence he was in financial difficulties and believed he had no real option other than to sign the contracts because he understood that was the only way the proceeds from the sale of the crop could be obtained. At that time he was growing cotton at a cost and getting further and further into "expenses". He claimed that the Bank was beginning to ask questions of him and the financial situation was so poor that during the year 2000 he and his wife received a $60,000 Centrelink payment to assist them to keep going. 98 Mr Simmons gave evidence that prior to signing the contracts Mr McKay advised him it was just a commitment on paper and not a "real commitment". He said that Mr McKay informed him that if he signed the contracts for 1500 bales he would not be "held to them in terms of the number of bales". In evidence in chief Mr McKay was asked to read paragraph 51 of the affidavit of Mr Simmons sworn on 22 June 2004. That paragraph was in the following terms: 51. Bob McKay also personally pleaded with me to sign and return the material to " keep Sydney happy ". Bob said to me that the contracts would not be binding - that it was just a commitment on paper and not a real commitment. Bob said that if I signed the 1500 bale contracts I would not be held to them in terms of the number of bales. 99 Mr McKay gave the following evidence in chief (tr 185-186): Q. And are the statements which he attributes to you in that paragraph, do you agree that you said those things or not? A. No. Q. Insofar as you disagree with things he attributes to you, what don't you agree that you said? A. I don't agree that I said that it was just a commitment on paper and not a real commitment and the last sentence I think I just need to explain that a bit more because I - what I said there was that if you sign the 1500 bale contract, if he didn't produce the bales, he would not be held to them. Q. He would not be - ? A. He would not be held to actually coming up with the bales. 100 Colly suggested in final submissions that Mr McKay's evidence extracted above related only to the Commitment Contracts and not to the OCCs. That is when Colly, through Mr McKay's letter, demanded a signature on the Commitment Contracts before it would pay the Nett Proceeds of Sale to the Company for the delivered crop, Mr McKay advised Mr Simmons that he would "not be held" to that number of bales. One of the problems with the assessment of this submission is that the only contracts referred to in the letter received on 6 June 2000 that are in evidence, are the OCC no 26815-04 for 1500 bales for the 2001/2002 season, the OCC 006822-04 for 200 bales for the 1999/2000 season and the Commitment Contract 015579-05 for 15000 bales for the 2000/2001 season. The other contracts referred to in the letter for the years 2003 (036816-04 for 1500 bales), 2004 (046817-04 for 1500 bales) and 2005 (056818-04 for 1500 bales) are not in evidence and there is no evidence that they were ever signed. It is not clear whether they were Commitment Contracts or OCCs. 101 On the assumption that Mr Cashion SC's submission in relation to Mr McKay's statement is correct and that it was limited to Commitment Contracts, it has rather significant consequences for the currency arrangements or contracts to which I will refer later in this judgment. Two Contracts are signed 102 On 6 June 2000 Mr Simmons signed one of the contracts referred to in the letter from Colly Cotton Pty Limited, OCC 26815-04 for the 2001/2002 season. It recorded the date of the transaction as 25/5/2000 and included the following: AGREEMENT TO BUY AND SELL Colly agrees to buy and The Grower agrees to sell 1500 Standard 227 kg Bales - Lint Cotton ("the Specific Bales") Subject to Standard Classification BASE PRICE (Base Price may vary across different lots of the Specified Bales - see clause 9 & 13 of Standard Conditions) Subject to Standard Classifications, an amount per Specified Bale calculated: A$ price, Basis quoted C F Japan a = [(b + c) x 500] - F where a = the base Price per Specified Bale b = the Futures Price (expressed in US cents per 1b) established pursuant to the Standard Conditions c = the Basis (expressed in US cents per 1b), established pursuant to the Standard Conditions. F = where applicable the AUD$ Marketing charge established pursuant to clause 11 of the Standard Conditions. BASIS OPTION: INDICATIVE MARKETING $0.00 Per Specified Bale. (Only if C and F Japan basis option taken) PAYMENT TERMS: TBD SPECIAL CONDITIONS 103 On 15 June 2000 Mr Simmons signed another of the contracts referred to in the letter, OCC 6822-04 between Colly and the Company for the 1999/2000 season for 200 bales on the Payment Terms "14 days from classing".

2000 Crop Lien and Bank's Notice to Colly 104 In a memorandum dated 25 September 2000 the Bank noted that the existing seasonal facility was unable to be repaid because of the "mixed results" of the Company's recent cotton harvest with "reduced yields and downgraded quality". The Company made application to increase the facility by $85,000 and for finance for the 2000/2001 cotton crop. The Bank noted a forecast of 1,348 bales for that crop with security in the form of a Registered Crop Lien and that: "the client has not forward sold any cotton as yet and cotton prices have been budgeted at $500/bale, in line with" the Bank's prices. The Bank also observed that: "taking into consideration clients foreign currency contracts" $500/bale was considered a realistic price. The Bank noted that the foreign-currency exposure was USD$500,000 at .6650 for the years 2001, 2002 and 2003. The Bank approved a seasonal finance facility of $300,000 to the Company subject to be first registered Crop Lien over all the cotton grown by the Company on Charlievale.

105 On 28 September 2000 the Bank notified the Company of its offer of the facility subject to the Crop Lien. On 6 October 2000 Mr and Mrs Simmons signed an acceptance of that offer as directors of the Company. They also executed the Crop Lien on behalf of the Company on that date. On the same day Mr and Mrs Simmons, as directors of the Company, also executed a "Notice to Marketor" from the Bank to Colly in which the Bank and the Company gave notice that: 1. The Grower has executed a crop lien in favour of PIBA over the cotton the subject of the marketing agreement between you and the Grower which gives PIBA the first right over the proceeds of the crop. 2. You are irrevocably directed and authorised to pay to PIBA as agent for the Grower all amounts which are or at any time become due to Grower under the Marketing Agreement, including any amounts for the sale of any cotton or any proceeds of any loan which you provide to the Grower. 3. Such payments will be made in the manner to the account nominated by PIBA. 4. You are authorised to provide to PIBA full details of the Growers contractual arrangements with you including but not limited to cotton forward sold contracts and currency trading positions. 5. This notice may only be revoked or varied by PIBA. 106 The Bank sent that Notice, together with a document entitled "Acknowledgement", to Colly Cotton Limited under cover of a letter dated 16 October 2000. The Acknowledgment, signed by Colly and returned to the Bank, was in the following terms: We, Colly Cotton Marketing acknowledge receipt of the notice regarding the crop lien from: A.C.N. 073 056 461 Pty Ltd ('the Grower') The Grower does not owe any moneys to us which we can recover by set off against moneys payable to the Grower under a marketing agreement, other than ginning costs for the 2000/1 season. We agree that pursuant to any marketing agreement to be entered into by the Grower in respect of the 2000/2001 cotton crop we shall, in so far as we are able, in respect of currency futures and options dealing only accept from the Grower instructions: 1. To forward sell that amount of US dollars which correspond with, or do not exceed, the expected proceeds of sales in US dollars of the bales, which are the subject of the marketing agreement. 2. To enter into currency option transactions which, taking account of any transactions entered into under 1 above, do not leave the Grower over-hedged on US dollars having regard to the number of bales the subject of the marketing agreement. 3. To sell cotton futures in respect of bales which do not exceed in number the number of bales the subject of the marketing agreement. 4. To buy cotton put options in respect of bales, which do not exceed in number the number of bales the subject of the marketing agreement. 5. To buy cotton call options in respect of bales which do not exceed in number the number of bales the subject of existing sold cotton futures and/or bought cotton put option positions. 6. To sell that number of cotton call options in respect of bales which when combined with the Grower's cotton futures positions (if any) in respect of bales do not exceed the number of bales the subject of the marketing agreement. 107 At the foot of the Acknowledgment there was provision for Colly to tick boxes as to the "current positions and outstanding orders" the grower had with Colly, which were: "cash sales of bales; cotton options; call pool commitments; currency options; cotton futures; currency sales/purchase and any like transactions". There was then a heading, "Grower's positions", under which there appeared a number of lines on which it was clearly anticipated that Colly would write any relevant details. On this Acknowledgment no boxes were ticked and there was no detail included in the space provided. 108 On 18 October 2000 the Crop Lien granted to the Bank by the Company on 6 October 2000 in respect of the Company's 2000/2001 cotton crop, was registered as a Charge in accordance with Chapter 2K.2 of the Corporations Law. 2000/2001 Contracts 109 A further letter was sent to Mr Simmons in February 2001 requiring him to sign Commitment Contract 015579-05 for the 2000/2001 season. This contract was the first in the list in the letter from Colly received by Mr Simmons on 6 June 2000. Once again Colly refused to distribute any proceeds of the sale of the cotton crop for this season until Mr Simmons signed the Contract. This was a Commitment Contract was signed by Colly on 2 May 2001 and by Mr Simmons some time prior to 10 May 2001. However the Contract recorded the "Date of this Transaction" as "16/1/1998". It also included the following: AGREEMENT TO COMMIT AND TAKE COTTON

The Grower agrees to commit and Colly agrees to take 1500 Standard 227 kg Bales - Lint Cotton ("the Committed Bales") DECISION DEADLINE FOR PLAN SELECTION To be Determined

SPECIAL CONDITIONS Commitment of 100% of production estimated bales of 1500. Bale numbers to be amended upon on completion of delivery. This contract is attached to FX position sold 500,000 at 0.6640 due 29/5/2001. ACKNOWLEDGEMENT The Grower acknowledges that it has read and understands the Standard Conditions Applicable to this Confirmation. The Grower also acknowledges that it is familiar with the terms and conditions of the following contractual arrangements offered by Colly, namely: 1. Fixed bale/Cash Price Plan. 2. On Call Plan. 3. Seasonal Pool Plan. 4. Guaranteed Minimum Price Seasonal Pool Plan. 5. Irrigated Hectare Plan.

110 In 2001 there was what Mr Simmons described as "a disastrous financial outcome" for the Company in respect of the sale of the cotton crop for that year, because the cotton was priced using 'out of the money' currency (at an adverse exchange rate) in November 2001 with losses on the 'close out of surplus' currency and an offset of the trading account (or debt account). 111 It was in October 2001 that Allan James Starling, Colly's Risk Manager, (Mr Starling) wrote a number of letters to Mr Simmons on the subject identified as "Cotton Hedging Strategy". These letters are the only evidence of any suggested "strategy" that was given to Mr Simmons in writing in all his dealings with Colly and/or Colly Farms. By this time the USD/AUD exchange rate had fallen below 0.6000 and those in the industry who were in OCCs were at far more serious risk of being "out of the money". The first of Mr Starling's letters was dated 11 October 2001 and was in the following terms: If you look at the chart we've attached below, you can see how distinct the bear trend for cotton is. Given the fundamental situation around the globe, with a looming synchronised worldwide recession, a 50% stock to use ratio for US cotton and record crops on the way, we can't see Cotton bouncing too far from here. An interesting exercise for you to do is to reassess the chart with the prices covered over. To our technical analysis, it looks like a bear trend that will continue for some time yet, we don't believe it is right to say that it is simply too low to sell. Our Mill customers agree and have continued to bring their price fixing down. Strategy #1 Sell 14 Dec '01 Futures @ 31.10 on stop and Sell 14 Dec '01 35 strike Calls @ 50 pts w/ 5 discretion.

The worst outcome for you will be if you are stopped out at 31.10 on the December Futures.

If this happens, your return per bale will be A$56.52 per bale. This includes A$4.86 from the sale of the Call Options and includes the cost of liquidating your excess currency at the current rate of .5000 - approx A$117.

The effect of selling the Calls is that if cotton rallies, and December is trading above 35.00 at option expiry, you would be forced into selling futures at 35 cents.

In this case, you would receive A$95.52. Again this includes the receipt of A$4.86 in premium for the calls, and A$107.16 in losses on excess currency.

This strategy yields you A$63.86, net of the A$117 loss on your excess FX position.

If you wanted an exposure to the market, we would require the premium amount from you at inception of the option trade.

At this stage, your 1,440 bales of Cotton is worth A$63.86 / bale. This gives you a gross income of A$92,151. Your grower finance account shows a debt of A$81,422 and on top of that there is option premium of A$20,500 owing.

Therefore, at last night's close of 32.32 and with the AUD at .5000, there is still a deficit of A$9,771.

The outlook for both Cotton and the AUD is bleak in the near term. We strongly suggest that you instigate one of these strategies sooner rather than later. 112 The second letter from Mr Starling was dated 12 October 2001 and was in the following terms: Following on from our discussion this morning, I have outlined below the plan of action we will be taking in regard to the 1,500 bale On-Call contract for this year's crop.

Sell 14 Dec '01 Cotton futures @ 31.10 On Stop. GTC

We will also place a stop - loss on your excess FX at .4765. Assuming the worst, your excess FX would be USD 338,384.

If you get stopped out on your futures, and on your currency, you will receive A$28.53 / bale. You will however receive A$4.38 / bale for the calls you sell, assuming you are filled at 45.

In the event that you are stopped out on the futures, Colly's standard terms would require you to buy those futures back. You would make a profit on those futures due to the market being lower. We may also make an exception for you, depending on the behaviour of the market. Kim Morison would have to authorise this.

The best case for you would be if you are exercised on the 35 strike calls, and we manage to close your currency out at .5090.

There seems to be plenty of resistance at .5090, however, if it can break that, then there is a definite chance of achieving .5200. In this case, you would receive AUD 98.26 / bale, and again, you would receive A$4.38 for the calls you sold. If we managed to get the currency closed out at .5200, then you would receive AUD 107.20 / bale.

As we discussed this morning, we will not force you to close the currency at the same time as the cotton futures. We will alert you when the AUD trades at say .5080, and make a reassessment of the market at that time.

As far as trying to enhance the price further, this would require the outlay of option premium, which you may or may not wish to do. At this stage we would simply recommend a reassessment of the cotton market after tonight's crop report is released.

I will send an excel spreadsheet to your email address. If you look at cells H1 and H2, you can input the daily December Futures settlement and the spot Aussie dollar into those cells to calculate your AUD price per bale each day. By typing in the rates you think you may get you can perform "what-if" analysis showing you the effect of changing market prices on your bale price.

Attached are the orders I will be placing tonight. Please check them, sign and return them to me.

113 The final letter from Mr Starling was dated 15 October 2001 and was in the following terms: Further to my fax of Friday the 12th, and our conversation of that day, the following orders have been placed:

Sell 14 Dec '01 Cotton Futures @ 31.10 On Stop. GTC

Sell 14 Dec '01 35 strike calls @ 45 pts w/ 5 pts. GTC

If you get stopped out on your futures, and on your currency, you will receive A$28.53 / bale. You will however receive A$4.38 / bale for the calls you sell, assuming you are filled at 45.

In the event that you are stopped out on the futures, Colly's standard terms would require you to buy those calls back. You should make a profit on those calls, due to the market being lower. We may also make an exception for you, depending on the behaviour of the market. Kim Morison would have to authorise this.

The best case for you would be if you are exercised on the 35 strike calls, and we manage to close your currency out at .5200.

If we managed to get the currency closed out at .5200, then you would receive AUD 107.20 / bale.

As we discussed on Friday, we will not force you to close the currency at the same time as the cotton futures. We will alert you when the AUD trades at say .5190, and make a reassessment of the market at that time.

114 There is nothing in evidence in relation to the conversations referred to in these letters. Mr Dalglish, who had signed the Commitment Contract no 015579-05 on Colly's behalf on 2 May 2001, wrote to Mr Simmons, trading as the Company, on 19 October 2001 in the following terms: We wish to advise that we have fixed the futures leg of your cotton as follows: Contract: 015579 -04 Bales: 1443 Price 31.10 usc/lb.

115 There was a request for Mr Simmons to sign this letter and return it "in order to confirm this transaction". There is no contract no 15579-04 in evidence. The "04" was described in respect of a different contract as an internal number for classifying the contracts as OCCs or cash price contracts. The number of contracts in evidence with different suffixes of 01, 02, 04 do not really assist this analysis but it appears that Colly decided to treat the 2000/2001 crop as being covered by an OCC. Mr Simmons signed the letter of 19 October 2001 but it is not clear when that occurred. 116 On 10 December 2001, Colly sent a Payment Advice to the Company in relation to contract 015579-04, a copy of which is not in evidence although it is presumed that 015579-05 was a later edition of the same contract. That Payment Advice recorded that there was a total amount of $9,262.56 payable to the Company with 1,443.22 bales sold at $96,796.95, recorded as a "payment rate" of $67.07 per bale. There was a deduction for a premium and the addition of GST totalling $101,887.61. The Advice then recorded: "Less Grower Debt ($60,489.47)", followed by the deduction of the ginning charges leaving only the amount of $9,262.56 payable to the Company. 2001 Crop Lien and Notice to Colly 117 On 30 November 2001 the Bank provided the Company with a facility for $350,000 as seasonal funding for the 2001/2002 cotton crop secured by a Crop Lien signed by Mr and Mrs Simmons on behalf of the Company. On 9 January 2002 the Crop Lien was registered as a Charge in accordance with Chapter 2K.2 the Corporations Act 2001. On 21 January 2002 the Bank wrote to Colly Cotton Ltd advising it of the Crop Lien and enclosing an Acknowledgement for completion and return. On this occasion Colly returned and the Acknowledgement with the following two paragraphs crossed out: The Grower does not owe any moneys to us which we can recover by set off against moneys payable to the Grower under a marketing agreement, other than ginning costs for the 2000/1 season. … 1. To forward sell that amount of US dollars which correspond with, or do not exceed, the expected proceeds of sales in US dollars of the bales, which are the subject of the marketing agreement. 118 This Acknowledgment also recorded under the heading, "Grower's positions" the words "see attached positions". The attachment was in the following terms: Retro Pastoral Co Grower 676 100% Payee Retro Pastoral Co Contract No : Type No of Bales Price per bale Date signed 026815-04/1 On call 1500 $ 06/06/00 Pay TBA Commodity Options FX USD 500,000 @ .6797 due 15/7/02 USD 500,000 @ 6794 due 30/6/03 USD 500,000 @ 5988 due 15/7/04 500,000 @ 6086 due 13/6/05

119 The Acknowledgement was returned to the Bank in early February 2002. 2001/2002 Contracts 120 The OCC no 026815-04 signed by Mr Simmons on 6 June 2000 when Colly would not pay the proceeds of sale of the crop for that year, was for the 2001/2002 crop and was for 1500 bales. An OCC - Fixed Bale no 026815-04/2 between Colly and the Company was signed on 15 February 2002 by Mr and Mrs Simmons for the Company. Although this contract was between Colly and the Company, Mr Simmons also signed in the section designated as "Signed on behalf of the first Interested Person". That Contract included the following: Date of this Transaction : 14 February 2002 Date of original version (1) : 25 May 2000 Standard Terms and Conditions Version Number 2 Agreement to buy and sell Colly agrees to buy and The Grower agrees to sell 1400 standard 227kg bales of Lint Cotton ("The Specified Bales"), subject to any delivery tolerance specified below. Origin Season: 2001/2002 Cotton sourced from: "Retro" Bales previously contracted by this entity: Not applicable (with respect to the source property & season above) Base Price: An amount per Specified Bale (subject to Standard Classification), stated gross and exclusive of GST, calculated as follows: A = [(B+C) x 500]/[D x 100] - E Where A = the Base Price per Specified Bale B = the Futures Price (expressed in US cents per lb) established pursuant of the Standard Conditions C = the Basis (expressed in US cents per 1b) established pursuant of the Standards Conditions D = the Australian dollar/US dollar currency exchange rate established pursuant to the Standard Conditions E = the AUD/bale Marketing charge established pursuant to clause 13 of the Standard Conditions (Base Price may vary across different lots of the Specified Bales - see clauses 9 & 13 of Standards Conditions) Basis Option Basis (US c/b) Basis Month Basis Delivery Point Indicative Marketing Charge Fixed 2.50on Jul 02 FOB Ginyard N/A

Premium and Discount Schedule Number: Schedule 8 Payment Terms First & Final within 14 days after Classing No payments will be made unless a complete copy of this document is signed and returned to Colly. Special Conditions This contract incorporates the following existing currency position: Sold USD 500,000 against AUD @ an all in rate of 0.6797 value date 15-Jul-02 121 There was a further contract signed on 15 February 2002 between Colly and the Company. It was OCC - Yield Risk 210355.04/1 and included the following: Date of this Transaction: 14 February 2002 Standard Terms and Conditions Version Number: 2 Agreement to buy and sell Colly agrees to buy and The Grower agrees to sell so many standard 227kg bales of Lint Cotton, ("The Specified Bales"), subject to any delivery tolerance specified below, as is derived by the application of the formula: A = B - C Where A = the Specified Bales B = the total number of standard 227kg bales of Lint Cotton as is yielded by the grower's entire harvest or quantity of Seen Cotton as specified below C = the agreed number of bales of lint Cotton to be withheld by the Grower from the Farm/Field in respect of the Season as specified below. Seed Cotton Production Area OR Quantity Agreed number of hectares or modules of cotton 200 Hectare Current estimate of final average lint cotton yield 7.5 bales per Hectare Current estimate of the total Lint Cotton quantity (B) 1500 Agreed number of bales to be withheld (c): 1400 Current estimate of the specified bales deliverable (A): 100 Delivery tolerance Minimum bales deliverable: 0 Maximum bales deliverable: 300 Origin Season: 2001/2002 Cotton sourced from: Bales previously contracted by this entity: Not Applicable (with respect to the source property & season above) Base Price: An amount per Specified Bale (subject to Standard Classification), stated gross and exclusive of GST, calculated as follows A=[(B+C) x 500]/[D x 100] - E Where A = the Base Price per Specified Bale B = the Futures Price (expressed in US cents per 1b) established pursuant of the Standards Conditions C = the Basis (expressed in US cents per 1b) established pursuant of the Standards Conditions D = the Australian dollar/US dollar currency exchange rate established pursuant to the Standard Conditions E = the AUD/bale Marketing charge established pursuant to clause 13 of the Standard Conditions (Base Price may vary across different lots of the Specified Bales - see clauses 9 & 13 of the Standards Conditions) Basis Option Basis (US c/b) Basis Month Basis Delivery Point Indicative Marketing Charge (AUD/bale) TBA TBA Jul 02 FOB Ginyard N/A

122 A second OCC - Yield Risk no. 210355-04/2 dated 30 April 2002 between Colly and the Company was signed by Mr and Mrs Simmons on behalf of the Company. It included the following: Date of this Transaction : 30 April 2002 Date of original version (1) : 14 February 2002 Standard Terms and Conditions Version Number 2 Agreement to buy and sell Colly agrees to buy and The Grower agrees to sell so man standard 227kg bales of Lint Cotton, ("The Specified Bales"), subject to any delivery tolerance specified below, as is derived by the application of the formula: A = B - C Where A = the Specified Bales B = the total number of standard 227kg bales of Lint Cotton as is yielded by the grower's entire harvest or quantity of Seen Cotton as specified below C = the agreed number of bales of lint Cotton to be withheld by the Grower from the Farm/Field in respect of the Season as specified below.

Seed Cotton Production Area OR Quantity Agreed number of hectares or modules of cotton 10 Mondules Current estimate of final average lint cotton yield 27.5 bales per Modules Current estimate of the total Lint Cotton quantity (B): 275 Agreed number of bales to be withheld (C): 0 Current estimate of the specified bales deliverable (A): 275 Delivery tolerance Minimum bales deliverable: 247 Maximum bales deliverable: 303 Origin Season: 2001/2002 Cotton sourced from: Bales previously contracted by this entity: Not Applicable (with respect to the source property & season above) Base Price: An amount per Specified Bale (subject to Standard Classification), stated gross and exclusive of GST, calculated as follows A=[(B+C) x 500]/[D x 100] - E Where A = the Base Price per Specified Bale B = the Futures Price (expressed in US cents per 1b) established pursuant of the Stands Conditions C = the Basis (expressed in US cents per 1b) established pursuant of the Standards Conditions D = the Australian dollar/US dollar currency exchange rate established pursuant to the Standard Conditions E = the AUD/bale Marketing charge established pursuant to clause 13 of the Standard Conditions (Base Price may vary across different lots of the Specified Bales - see clause 9 & 13 of the Standards Conditions) Basis Option Basis (US c/b) Basis Month Basis Delivery Point Indicative Marketing Charge (AUD/bale) Fixed 6.20 on Jul 02 FOB Ginyard N/A

Meetings with Colly in 2002 123 In the 2001/02 season the Company planted 494 acres and grew 1,683 bales which were sold through Colly. Mr Simmons' evidence was that by December 2001 it was obvious they were going to be in a "pretty bad way" by the end of the season unless the dollar improved rapidly. Mr Simmons had heard from other growers in the district that Colly was rolling currency to assist their exposure. In about March or April 2002 Mr Simmons met with Mr Kim Morison, who was then Colly's General Manager of marketing, and said to him, "I want to roll my currency out to get more time". Mr Morison informed Mr Simmons that he would have to speck to the bank and that it was "against the policy of the banks and Colly to roll out currency but I will try". 124 At this meeting Mr Morison also advised Mr Simmons that Colly had a "third party financial adviser who we use to assist in managing seasonal finance" and suggested to Mr Simmons that "it may be of value" for him to meet with that person. Mr Morison advised Mr Simmons that some of the other growers "who are trying to manage out-of-the-money currency positions are using him". Mr Simmons agreed to meet with that person who was Mr Mark Morton. Mr Simmons gave evidence that Mr Morton advised him that they were not in a bad enough position for Colly to help them. Subsequently Karl Sinclair, Mr McKay's successor, advised Mr Simmons that Mr Morison had advised that he could not roll his currency. 125 Mr Simmons then consulted with Mr McKay's brother, Doug McKay (Mr D McKay), a solicitor in Warren, who arranged a meeting on 15 May 2002 with Colly. That meeting took place in Mr D McKay's office with Mr Morison and Mr Karl Sinclair from AgFarm in attendance. Although there is some dispute as to what was actually said at the meeting, it is clear that Mr Morison advised Mr D McKay and Mr Simmons that Colly was working with some other growers in the area, but that they would need Mr Simmons' full co-operation and disclosure and all his financial statements if they were to work with him on this. It is also apparent that Mr D McKay referred to the fact that Mr Simmons may have to place the Company into receivership. On 23 May 2002 Mr Morison wrote to Mr D McKay, listing the documents that Colly wished to review subject to Colly signing a confidentiality agreement. On that same day Mr D McKay advised Mr Morison that Mr Simmons was considering the position. 126 On 31 May 2002, Mr Simmons telephoned Mr Morison and asked what Colly could do for him. It would appear that Mr Morison's response triggered such a reaction in Mr Simmons that he hung up. Mr Morison rang Mr Simmons back and advised him that Colly could look at funding "the debt" over two, three or four years and that it needed to look at Mr Simmons' balance sheet, cash flow, property details and securities to come to some arrangement. 127 By 12 June 2002, Mr Simmons had decided to provide the material to Colly, and advised Mr D McKay that he would bring the material to him but was waiting on a further reply from his accountant. On 13 June 2002 Mr Morison rang Mr D McKay and informed him that Mr Simmons had to price all his cotton by 20 June 2002 or else Colly would close it off on 21 June 2002. Mr Morison said that Colly had to have the matter resolved before he could make any bale advance. Mr D McKay then informed Mr and Mrs Simmons of his conversation with Mr Morison. Colly closes out 128 On 14 June 2002 Mr Morison telephoned Mr Simmons and advised him that Colly had closed out his currency positions. Mr Morison also wrote a letter to Mr Simmons on that day in the following terms: At our meeting of the 15 May 2002 you made it very clear that you intended to walk away from the contractual arrangements your company has with Colly Cotton Marketing Pty Limited. You stated that unless we were prepared to renegotiate your currency positions, you would place your company into receivership. On 23rd May 2002 we requested information from you in order for us to consider our alternatives. We have received no response to date. This has left Colly Cotton Marketing Pty Limited with little alternative. I am writing to inform you that as per clause 35.2 of the Standard Terms and Conditions, Colly Cotton Marketing Pty Limited has closed out all of the outstanding foreign currency positions held on your behalf including the expected excess position for the 2002 crop as follows: Sold USD 150,000 @ .6797 value July 15, 2002 Sold USD 500,000 @ .6794 value June 30, 2003 Sold USD 500,000 @ .5988 value July 15, 2004 Sold USD 500,000 @ .6086 value June 15, 2005

These positions have been pre-delivered to the 15th of July 2002. The new rates are as follows:

Sold USD 150,000 @ .6797 value July 15, 2002 Sold USD 500,000 @ .6865 value July 15, 2002 Sold USD 500,000 @ .6252 value July 15, 2002 Sold USD 500,000 @ .6378 value July 15, 2002

The positions have been offset at a rate of 0.56595 due 15 July 2002 (based on a spot rate of 0.5675 on 11 June 2002). The liquidation has resulted in a loss of AU$382,745.29. This amount will be taken into consideration in determining your proceeds of the 2001/02 cotton delivery to Colly. Furthermore, as per clause 10.2 of the Standard Terms and Conditions you have until the close of trading in New York on 20th June 2002 to lock in the Futures Price for the On Call Contracts basis July futures. If the July Futures Price has not been finalised by this date then you will automatically be locked into the settlement price quoted on the NYBOT on the day prior to the First Notice Day of the July futures. When you are ready to finalise the Futures Price could you please contact Karl Sinclair or myself to place your orders.

Pending finalisation of the 2001/02 cotton proceeds, Colly Cotton Marketing Pty Limited will cancel all your future contractual obligations. 129 On 17 June 2002 Mr D McKay telephoned Mr Morison and said: "We thought the situation was still under negotiation as at last Thursday. You knew we were seeing John Simmons today". Mr Morison responded: "On legal advice we closed the door on Friday. John Simmons hung up on me on the phone ten days ago and I left a message for him Wednesday or Thursday last week. Unless he is prepared to co-operate and give some security, we can't do much. That co-operation has not been forthcoming over the last 12 months. We can restructure the debt with 100% co-operation, higher security with full disclosure of financial activities." 130 On 18 June 2002 Mr D McKay telephoned Mr Morison again who said to him: "I have discussed the matter with Gavin Butler and we are looking to continue trading. However we want financial information and there must be security available, similar to what we have previously asked for. We are continuing to finance and looking to an ongoing relationship. However, after we looked at his situation last time, he had failed to price his cotton, he had no wheat crop and the dollar was falling. If we get the information we have asked for we will then arrange a meeting with Gavin Butler and myself and John and his accountant". 131 On 5 July 2002 the Bank wrote to Colly in the following terms: Re: ACN 073 056 461 Pty Ltd The above mutual client has advised that Colly Cotton Marketing Pty Limited has closed out forward foreign exchange contracts totalling USD1.65 mln prior to their maturity dates realising a debt of $382, 745.29. We refer to your acknowledgement of our crop lien (dated 01/02/02/) over the above client's 2001/02 cotton crop, being crop lien ASIC Registered Charge No: 840430. While Colly Cotton Marketing Pty Limited may have rights of set-off under its contracts with the client, those debts and unsecured and rank after PIBA security. Therefore pursuant to our crop lien we request immediate payment of the full proceeds from the sale of the crop (net of ginning and marketing fees) be paid directly to PIBA in order to repay our seasonal facility and in satisfaction of our lien. We reserve the Bank's rights under its security. Please acknowledge the above prior to close of business on Monday 8 July 2002 confirming all crop proceeds will be paid to PIBA under the lien until our seasonal facility has been cleared. 132 On 10 July 2002 Colly forwarded a Payment Advice to the Bank advising that a payment in the amount of $72,651.41 would be directly deposited into its account on 19 July 2002 in relation to the "Crop Lien-Retro Pastoral Farming". 133 These proceedings were commenced on 26 June 2003. The Contracts 134 In its Defence, (filed 18 August 2003), to the Bank's Statement of Claim, (filed 26 June 2003), Colly admitted that it and the Company had entered into Contract No 026815-04 dated 6 June 2000. It claimed that this contract was later varied by contracts No 026815-04/2 and No 0210355-04/1, both dated 14 February 2002 defined in the Defence as "the Contract". It also admitted that under the Contract, Colly agreed to buy, and the Company agreed to sell, 1400 bales of cotton plus the balance of the Company's 2000/2001 cotton crop. 135 On 11 December 2003 Colly filed an Amended Defence in which it changed the admission previously made in respect of the Contract. In the Amended Defence, Colly admitted that the Contract was entered into with "either" Mr Simmons or the Company. It also corrected the reference to the balance of the crop to the 2001/2002 season, as opposed to the 2000/2001 season. It also added a paragraph in which it specifically pleaded that it did not admit that the grower was the Company. There was an additional agreement pleaded in the Amended Defence. It was that "in about December 1997" Colly entered into an agreement with either the Company or Mr Simmons for the sale of cotton grown or to be grown on the property "Retro" for the growing seasons 1998/1999, 1999/2000, 2000/2001, 2001/2002 and 2002/2003. The 1997 "Marketing Agreement" 136 These amendments in the Amended Defence seem to have been a consequence of Colly's Cross-Claim filed on 11 November 2003, in which Colly made the claim that the Agreement allegedly entered into in December 1997, referred to in the Cross Claim as "the Marketing Agreement", was entered into with Mr Simmons, but with an alternative claim that it was entered into with the Company. This so-called "Marketing Agreement" was particularised, as to its written parts, as (a) the fax of 23 December 1997, extracted earlier; (b) the letter of 16 January 1998, extracted earlier; (c) the Standard Conditions, the relevant terms of which are referred to earlier; and (d) "Transactional document between Colly and Simmons pursuant to which Simmons and Colly recorded the terms for the pricing of the Cotton and the exchange rate for the conversion of US dollars to Australian dollars". 137 The Bank expressed less of an interest in the issue of the identification of the parties and the terms of the contracts prior to the year relevant to its Crop Lien, that is the 2001/2002 season. However, for the 2001/2002 year it submitted that the contracting parties were Colly and the Company. Even at trial Colly was equivocal about the identification of the parties to the Contract in that year and submitted it was either Mr Simmons or the Company. It was equally equivocal in respect of the 1997 Agreement. However Colly's witnesses accepted that for the 2001/2002 season, the OCCs were between the Company and Colly. 138 Mr Simmons and the Company submitted that, after 6 January 1998, the Cotton Contracts were between Colly and the Company and that the currency letters or "contracts" contained in the "transactional documents" were between Colly Farms and Mr Simmons. 139 It is not possible to limit the analysis simply to the 2001/2002 season. The claim that there was a "Marketing Agreement" entered into in about December 1997, the particulars of which are referred to above, requires analysis not only of the web of documents at about that time but also subsequently, firstly, for the limited purpose of deciding whether there was an agreement entered into at that time: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; secondly, to consider the status of the currency position as at 2001/2002; and thirdly, if necessary, as a basis for consideration of the cross-claims brought by Mr Simmons and the Company. 140 Colly's change in position in its pleadings made its case far from clear. The currency letters in the so-called "transactional documents" were all from Colly Farms and not from Colly as alleged in the pleading. None of the letters "recorded the terms of the pricing of the Cotton" as alleged in the pleading. It was only the OCCs and Fixed Bale/Cash Price Contracts for cotton that contained either the formula for fixing the price or the actual price per bale of cotton. The letter of 23 December 1997 from Colly Farms to Mr Simmons recorded that Colly Farms had "placed the following foreign exchange order your behalf: You sell USD $2,500,000 against AUD at spot 0.6500 to be rolled at your discretion". That letter did not state with whom the "foreign exchange order" was placed nor did it indicate that such "order" had any connection with or relationship to any Cotton Contract that Colly had with Mr Simmons. 141 There were two clauses dealing with "currency" in the Standard Conditions to the various Cotton Contracts. The first related to the OCC and the fixing of the currency as one of the three legs of OCCs. That was clause 12, and although its general effect was referred to earlier in this judgment, it is appropriate in this analysis to set the actual terms out in full below: 12. CURRENCY 12.1 Despite the Base Price being expressed in United States dollars, Colly will pay the Nett Sale Proceeds to the Grower in Australian Dollars, except to the extent otherwise directed by the Grower pursuant to the provisions of clause 12.2(a) read together with clause 12.3. 12.2 Subject to the provisions of clause 12.3, the Grower may, by notice in writing, direct Colly to: (a) pay the whole or any part of the Nett Sale Proceeds in United States dollars; and/or (b) Hedge the whole or any part of the Grower's US$/A$ exposure in relation to the Nett Sale Proceeds. 12.3 A Currency Selection Notice and/or a Hedge Notice: (a) may only be given in relation to so much of the estimated Net Sale Proceeds as is attributable to Cotton Futures Contracts expiring in May or July of the Season; (b) if given in relation to a May Cotton Futures Contract, must be given by close of business on the second last New York Business Day of May; (c) if given in relation to a July Cotton Futures Contract, must be given by close of business on the seventh New York Business Day of July; (d) unless it relates to all of the Unallocated Bales, must be given in minimum tranches of US$100,000; (e) may not be given in relation to Allocated Bales. 12.4 Within 2 Business Days of receipt of a Hedge Notice Colly must (subject to clause 12.6) Hedge so much of the Grower's US$/A$ exposure as is specified in the Hedge Notice, at the Hedged Rate of Exchange. 12.5 If: (a) in relation to a May Cotton Futures Contract, by close of business on the second last New York Business Day of May; (b) in relation to a July Cotton Futures Contract, by close of business on the second last New York Business Day of June, there remain any Unallocated Bales, Colly must (subject to Clause 12.6) Hedge the Grower's US$/A$ exposure on the Unallocated Bales at the Hedged Rate of Exchange applicable on the next New York Business Day. 12.6 Colly is under no obligation to Hedge under Clauses 12.4 and 12.5 if Colly cannot execute a trade in the market to cover its currency risk. 12.7 To facilitate the operation of this clause Colly must, upon request by the Grower, provide the Grower with an estimate of the Nett Sale Proceeds. 12.8 While Colly will take reasonable care in making such estimate, Colly: (a) does not warrant the accuracy of any estimates given by it; and (b) will not under any circumstances be liable for any loss, damage or expense suffered or incurred by the Grower if such estimate proves to be inaccurate. 12.9 In particular, Colly will not have any liability to the Grower if the Grower: (a) acting on an estimate provided by Colly, Hedges an amount in excess of the Nett Sale Proceeds; and (b) suffers loss or damage as a result.

142 The other section of the Standard Conditions relating to "currency" was clause 35 which provided as follows: 35. COMMODITIES/CURRENCY HEDGING 35.1 In relation to any order by the Grower to enter into a currency or commodity position, the following shall apply: (a) a currency order must be matched off by an equivalent number Committed Bales; (b) all placement and cancellation orders must be completed in writing on Colly's standard placement and cancellation forms provided to the Grower for that purpose and must be signed by the Grower within 48 hours of placement of an order failing which Colly shall have the right in its absolute discretion to cancel the order or buy out of the filled position at the Grower's expense; and (c) no currency and or commodity orders will be accepted unless the Grower has filled in and signed a SFE Non Discretionary Risk Disclosure Statement. 35.2 Colly may withhold any payment to the Grower or retain funds held on the Grower's behalf and may utilise part or all of those funds to offset or close out any futures/options and/or foreign currency position where such position is held by Colly on behalf of the Grower. The decision to liquidate any such position shall be entirely at the discretion of Colly. Following liquidation of the position by Colly, Colly shall account to the Grower for the balance of funds (if any) held by it. 143 Pursuant to clause 12.2(b) of the Standard Conditions, the Grower could, "by notice in writing" direct Colly to hedge "the whole or any part of the Grower's US$/A$ exposure in relation to the Nett Sale Proceeds". If that occurred Colly was to hedge the exposure specified in the Hedge Notice at the "Hedged Rate of Exchange", defined as that offered by Colly and set by reference to current market pricing in the foreign exchange markets. 144 "Colly" was defined as "Colly Farms Gin Pty Limited ACN 003 263 009 and where applicable any Related Body Corporate of Colly". "Related Body Corporate" was defined as having the "meaning ascribed to that term in the Corporations Law". That definition referred to s 50 of the Corporations Law which provided that a company was related if it was a holding company or a subsidiary of the other company or a subsidiary of the holding company of the other company. "Hedge" was defined in the Standard Conditions as "taking a position in a futures market opposite to a position held in a cash market to minimize the risk of an adverse price change". "Nett Sale Proceeds" was defined as "the amount calculated in accordance with clause 34". Clause 34 provided as follows: 34. CALCULATION OF NETT SALE PROCEEDS 34.1 Within 7 Business Days after classing of any of the Specified Bales Colly must calculate the net Sale Proceeds of those Specified Bales. 34.2 The Nett Sale Proceeds of any Specified Bales is the aggregate Adjusted Base Price of those specified Bales less (where relevant to this Agreement): (a) the aggregate Ginning Charge attributable to those Specified bales (except where the base price is stated nett of ginning or where the Grower has notified Colly in writing that the Ginning Charge has been paid); (b) where applicable the aggregate Marketing Charge attributable to those Specified bales: (c) all taxes, charges, levies or imposts on those Specified Bales required to be paid or collected by Colly; (d) brokerage fees on all Cotton Futures Contracts or options entered into by Colly to Hedge the Futures Price; (e) interest on the funds used by Colly to finance the Grower's participation in an On Call Scheme and in particular, but without limiting the generality of the foregoing, to meet margin calls; (f) all interest and expenses incurred by Colly in hedging the Grower's US$/A$ exposure; (g) all and any other expenses incurred by Colly to implement the On Call Scheme and reasonably attributable or allocable to the Specified Bales; (h) any amounts owing by the grower to Colly, whether under a Loan Agreement or otherwise. 34.3 The Grower authorises Colly to make the deductions and payments contemplated in clause 34.2. 34.4 Where applicable to this Agreement, if the Grower has specified in a Currency Selection Notice that it wishes to receive all or any of the sale proceeds in United States dollars, the aggregate or an appropriate share (as the case requires) of the payments and deductions referred to in clause 34.2 shall be converted to United States dollars at the prevailing spot rate of exchange (as determined by Colly) and the United States dollar proceeds payable to the grower and/or Interested Persons reduced accordingly. 145 Importantly, "Specified Bales" was defined as "the number of standard 227 kg bales of Cotton specified in the Confirmation". "Confirmation" was defined as the "contract form by that name, pursuant to which Colly agrees to buy, and the Grower agrees to sell Cotton subject to these standard conditions". 146 There were therefore two mechanisms in relation to "currency". The first was pursuant to clause 12 in relation fixing the currency as a leg of an OCC by serving a Hedge Notice on Colly in relation to the exchange rate exposure for the price of the Specified Bales. The second was pursuant to clause 35 which allowed a "currency position" to be taken in respect of "committed bales", that is, before the bales were "specified" in a particular plan. That was able to be done by "order" on Colly but only on certain conditions which were: (1) the currency order had to be ("must") be "matched off" by an equivalent number of Committed Bales; (2) all orders had to be on Colly's standard forms and signed by the grower within 48 hours of an order; and (3) the order would only be accepted if the grower had filled in and signed an SFE Non Discretionary Risk Disclosure Statement. 147 As at 23 December 1997 the only cotton contract between Mr Simmons and Colly was a Fixed Bale/Cash Price contract for 400-500 Specified Bales for a fixed price of $500 per bale for the 1997/1998 season that had been signed in February 1997. There was a Confirmation Purchase fax signed by Mr Simmons on 6 January 1998 but that was for a fixed price at $516 per bale. As at December 1997 there were no OCCs in place that would trigger the operation of clause 12 of the Standard Conditions. Additionally, even assuming that the letter of 23 December 1997 satisfied the description in clause 35.1 as being on one of Colly's standard forms, there were no commitment contracts in place by which committed bales could be "matched off" against the currency order. There was certainly no SFE Risk Disclosure Statement signed at that time. 148 Colly Farms letter to Mr Simmons dated 5 January 1998 included the following: We confirm having Dealt the following FX deal on your behalf: Details You Sell USD 2,500,000.00 against AUD at spot of 0.6500 to mature on 6th January 1998

149 Colly Farms letter to Mr Simmons dated 6 January 1998 included the following: We confirm having Extended the following FX deal on your behalf: Original Details: You sell USD 2,500,000.00 against AUD at spot of 0.6500 to mature on 6th January 1998 Extended Details: You Sell USD 2,500,000.00 against AUD at spot of 0.6500 to mature on 6th January 1999 at an outright forward rate of 0.6562. 150 As at 5 and 6 January 1998 there were no OCCs in place that would trigger the operation of clause 12 of the Standard Conditions. There was an OCC dated 6th January 1998 between Colly and the Company for the 1997/1998 season for "0-350" Specified Bales, signed by Colly on 7 January 1998 and Mr Simmons on an undisclosed date, but the evidence establishes that this OCC was cancelled "due to water & agronomic problems". Additionally, even assuming that the letters of 5 and 6 January 1998 satisfied the description in clause 35.1 as being on Colly's standard forms, there were no commitment contracts in place by which committed bales could be "matched off" against the currency order. There was certainly no SFE Risk Disclosure Statement signed at that time.

151 The letter of 16 January 1998 signed by Mr Simmons is extracted again for ease of reference. It was in the following terms: This is to confirm a commitment for production off "Retro" for the next five years. I understand Colly will send commitment agreements for the years 1999, 2000 and 2001. This letter acknowledges the extra commitment for the years 2002 and 2003. 152 The Commitment Contract no 995059-05 dated 30th June 1998 recorded an agreement to commit "APPROX 1500" bales, and in the section "Decision" recorded "First Notice Day (July '99) or a later date if previously negotiated". The Commitment Contract no 005058-05 dated 30th June 1998 recorded an agreement to commit "APPROX 1500 bales", and in the section "Decision" recorded "First Notice Day (July 2000) or a later date if previously negotiated". Both Commitment Contracts were between Colly and the Company and included the following Special Condition: This Commitment Agreement offsets a currency position held on your instructions and on your behalf by Colly Cotton. In the event you the Grower elect to liquidate the position prior to or at expiry, with all profits or losses being on your account, your existing commitment to deliver bales will be cancelled by mutual agreement.

153 The so-called "currency position" stated to be held by "Colly Cotton" at that time was not specified in the Commitment Contracts. The letter most recent to 30 June 1998 referring to currency was the 6 January 1998 letter extracted above from Colly Farms to Mr Simmons. The amount of currency referred to in that letter was US$2,500,000 with a maturity date in January 1999 at the rate mentioned.

154 There is in evidence, as referred to earlier, a Commitment Contract between Colly and the Company no 15579-05 that recorded the "date of this transaction" as "16/1/1998". It recorded a commitment of "1500" bales but in the section headed "Decision Deadline for Plan Selection" there was recorded the words "To be Determined", albeit the season was identified as 2000/2001. The Special Conditions Section of that Contract recorded: Commitment of 100% of production estimated bales of 1500. Bale numbers to be amended upon on completion of delivery. This contract is attached to FX position sold 500,000 at 0.6640 due 29/5/2001.

155 At the date of the transaction, alleged to be 16/1/1998, the most recent letter from Colly Farms to Mr Simmons, trading as J & D Simmons, was the letter of 6 January 1998 extracted above. It of course made no reference to what appears in the Special Conditions to this Commitment Contract, that there was an "FX position sold 500,000 at 0.6640 due 29/5/2001". This Commitment Contract was not signed by Colly until 2 May 2001. The person who signed on Colly's behalf was Richard Dalglish whose signature was witnessed by Mr Morison. The "Date of Signature" was recorded as "2/5/01". Mr Morison's evidence in respect of the execution of this Commitment Contract included the following (tr 167-168): Q. Richard Dalgleish (sic) signed the contract. If that is the case, then the date of the transaction of 16/1/1998, that isn't correct, is it, given that signing? A. No, the date of - no, the date of the transaction is in relation to the 1500 bales that was committed to undertake the currency contract on the 16th of January 1998. Q. So you are saying it was a backdating of the contract to when it should have been done? A. It should have been issued, it should have been signed by the grower, and this is - this appears to be we are following up on paperwork that wasn't returned signed from the grower and reissued the contract from the 1st of January - sorry, the 16th of January' 98. Q. So it may be the case that the contract was issued in 1998 but not yet signed until 2001? A. That's correct. Q. Even though you say that Richard Dalgleish (sic) signed on 2 May 2001? A. Richard Dalgleish (sic) and myself signed 2nd May 2001 as Colly's representatives. Q. I don't see how you can say it was issued in 1998 when you say you yourself signed it in 2001? A. I am saying - yeah, I am saying we reissued this form of the contract. The employee - because we didn't have a signed copy from 1998. It may well have been issued at that time. I don't have a record of that. Q. So this is a second copy of a contract that you signed in 2001? A. This is - this is a - that's right, a reissuing that contract. None of the employees who were around in 1998 were still there to sign so I signed it and Richard Dalgleish (sic) signed it. Q. And from the records that you have, there is no copy of a signed contract that was signed in 1998, is there? A. Not that I can find. 156 There are two matters to be observed in relation to this evidence. The first is that the letter dated 16 January 1998 did not refer to any number of bales. The second is that there was no "transaction" on 16 January 1998, and certainly no transaction that was "in relation to the 1500 bales" that were "committed to undertake the currency contract" as claimed by Mr Morison. The "transactions", as they have been called, occurred on 23 December 1997 and on a number of days up to and including 6 January 1998. This Commitment Contract, the subject of this evidence, was one of the Contracts that Colly, in June 2000, demanded Mr Simmons to sign before it would release the Nett Proceeds of Sale to which the Company was entitled for the crop for that season. Colly knew then there had been no proper matching off of bales of cotton in respect of the currency position referred to in the letter of 23 December 1997. This Commitment Contract remained unsigned but it appears Mr McKay released the monies owing to the Company. Colly sent a follow up letter in February 2001, once again threatening to withhold monies unless the Contract was signed. It was not signed until May 2001. 157 As at 2 May 2001, when this Commitment Contract was signed by Colly, the most recent letter that Colly Farms had sent to the Company, was the letter dated 23 November 2000 that advised the Company: We confirm having offset the following FX transaction on your behalf: Opening Deal, dealt 29/06/00 You sold USD 112,471.50 against AUD at a spot rate of .6623. This was rolled to the 22nd of November at an all-in rate of .6668. Offsetting Deal, dealt 22/11/00 You Bought USD 112,471.50 against AUD at a spot rate of .5085. This was predelivered to the 2nd of November, 2000 at an all-in rate of .5085 and offsets the above position. The resulting loss is A$52,509.37 158 Prior to 2 May 2001 when Mr Morison and Mr Dalglish signed this Commitment Contract, there had been no reference in any of the letters sent to Mr Simmons or the Company by Colly Farms of any "FX position sold 500,000 at 0.6640 due 29/5/2001". However, there was a letter sent by Colly Farms to the Company dated 29 June 2001, nearly two months later, that was in the following terms: We confirm having rolled the following FX transactions on your behalf: Opening Deal, dealt 2/1/98 You sold USD 500,000 against AUD at an all-in rate of .6640 for maturity the 29th of June, 2001. This deal has been extended to the 30th of June, 2003 at an all-in rate of .6794. Opening Deal, dealt 2/1/98 You sold USD 500,000 against AUD at an all-in rate of .6640 for maturity the 29th of June, 2001. This deal has been extended to the 24th of December, 2001 at an all-in rate of .6655.

159 The reference in this letter to the "Opening Deal" on 2 January 1998 is not matched by or referred to in any correspondence with Mr Simmons. The letters he received dated 23 December 1997, 5 January 1998, and 6 January 1998 made no mention of such an "Opening Deal" on 2 January 1998. As can be seen from the letters extracted earlier in this judgment, on 23 December 1997, Colly Farms confirmed it had placed a Foreign Exchange Order to sell USD $2,500,000 against AUD at spot 0.6500 to be rolled at Mr Simmons' discretion and, on 5 January 1998, Colly Farms confirmed having "dealt" the "FX deal" to sell USD 2,500,000 against AUD at spot of 0.6500 to mature on 6th January 1998. There was no mention of maturity or being due on 29 May 2001 and no mention of any deal for 500,000 at an all in rate of .6640. The letter of 6 January 1998 confirmed the "Original Details" of the FX deal as referred to in the letter of 5 January 1998 and extended the deal at spot .6500 to mature on 6th January 1999 at an outright forward rate of 0.6562. Once again there was no mention of maturity or being due on 29 May 2001, and no mention of any deal for 500,000 at an all in rate of .6640.

160 In December 1997 and January 1998 Colly was able to hedge the exposure in relation to Nett Sale Proceeds of Specified Bales, that is, the number of bales specified in the Contract at the time of the hedge. The Contract in place at that time was the Fixed Bale/Cash Price Contract No 983178-01 in respect of the 1997/1998 season and was an agreement to sell to Colly "400-500 Specified Bales" at $500 Australian Dollars per Specified Bale gross without allowing Ginning Charges and Seed Rebate. The Standard Conditions as to currency in Clause 12 applied only to OCCs. There was no provision for the grower to direct Colly to hedge "exposure" in respect of a Fixed Bale/Cash Price Contract.

161 The letter of 16 January 1998 was not a Confirmation as defined in the Standard Conditions. It was a letter expressing a commitment to Colly at a time that Colly had been advised that the Company was the Grower, and expressing an understanding that there were to be Commitment Agreements for 1999, 2000 and 2001 "sent" by Colly. There were no Commitment Contracts in place until 30th June 1998. Thus as at December 1997 and January 1998, there was no Contract other than the Specified Bales/Cash price Contract entered into on 22 February 1997 in respect of the 1997/1998 season. 162 It is not clear what those FX "Deals" and the purported extensions of those deals really were, that were contained in Colly Farms letters of 23 December 1997, 5 January 1998, and 6 January 1998. Each of those letters was directed to Mr Simmons trading as J & D Simmons. They were certainly not part of the only Contract in place at the time. There is nothing more in evidence in respect of these so-called "deals" than the letters from Colly Farms, the evidence of the conversations between Mr Simmons and Mr McKay and Mr Cottle, and the evidence of Mr Starling, who said in his affidavit that "it is not clear from Colly's files precisely what action was taken with regard to Mr Simmons' currency position between 23 December 1997 and 2 January 1998". 163 That observation of Colly's Risk Manager is not surprising having regard to the rather desperate scramble Colly pursued some years later to try, unsuccessfully it seems to me, to put some semblance of regularity into its contractual relationship with this grower. I should say that Mr Starling was not Colly's Risk Manager until mid 2000. Interestingly he makes no mention in his evidence of the "FX position sold 500,000 at 0.6640 due 29/5/2001" referred to in the Commitment Contract signed on 2 May 2001 but stated to reflect a transaction on 16 January 1998, and he does not suggest that the currency transactions at that time were part of or connected to any specific contract. 164 The oral evidence of what was discussed in December 1997 includes Mr Cottle advising Mr McKay that Colly could "do USD2.5 million for Simmons as long as locks in his cotton production with Colly for five years and commits the equivalent of bales". Mr McKay advised Mr Simmons that he would have to "use $500,000 US of your currency position each year for the crop" and that if there was "any surplus currency", Mr Simmons "would need to trade it out". 165 Mr Cottle's reference to the commitment of the "equivalent" number of bales was consistent with the concept of "matching off by an equivalent number of Committed Bales" referred to in clause 35.1(a) of the Standard Conditions. I am satisfied that the meaning of "matching off" in the Standard Conditions was the process of working out the number of bales equivalent to or matched to the amount of currency at the going rate or the rate offered by Colly at the time and committing that number of bales in a Commitment Contract to match the "currency position". For instance if the going rate or the rate offered per bale at the time the currency order was to be placed was A$500 per bale, to bring the example close to the facts of this case, or approximately US$335, and the grower wished to order a currency position of US $2,500,000 then there would need to be at least 7,450 committed bales in a Commitment Contract, or lesser numbers in a number of Commitment Contracts, matched off against the currency. 166 I am also satisfied that the matching off must occur at the time of the order. That conclusion is supported by the serious consequences that can occur by reason of the discretion given to Colly in Clause 35.2. There needs to be certainty as to what has to be delivered and what amount of currency may be taken out. In other words, the matching off needs to occur so that risks may be assessed and managed.

167 In this case there was no matching off of committed bales at the time the currency was "ordered". All that was committed in the Contracts entered into six months after the December 1997 and January 1998 currency letters was 3,000 bales, 1,500 for the 1999 season and 1,500 for the 2000 season. There was simply no "matching off" of committed bales as required by the Standard Conditions at any stage of the contractual relationship between Colly and the Company. What was required in December 1997 and January 1998, when the so-called "currency position" of US$2,500,000 was entered, was the matching off of the "equivalent" Bales against the currency order. It did not happen. 168 Colly has argued that by reason of the definition of "Colly" in the Standard Conditions, Colly Farms, being a related corporation, should be viewed as acting as Colly's agent in the currency letters it wrote to Mr Simmons. There are some problems with that approach. Firstly, there were no contracts in place at the time of the 23 December 1997 and 5 and 6 January 1998 letters that incorporated the Standard Conditions which defined "Colly". Secondly, there is absolutely no evidence that at the time of the letters Colly Farms was acting as Colly's agent to; "place" what was described as the "foreign exchange order" (23/12/97 letter); confirm having "dealt" the so-called "FX deal" (5/1/98 letter); and "extend" the "FX deal" (6/1/98 letter). These letters are evidence of arrangements between Colly Farms and Mr Simmons in which there appears to be no consideration flowing to Colly Farms with no mention of any Cotton Contracts and no mention of any conditions in respect of the so-called placement. 169 Colly Farms continued to write to Mr Simmons trading as J & D Simmons until mid 1999. The letter of 1 July 1999, referred to earlier and later in this judgment, was the first time that Colly Farms mentioned the Company and from that time its letters were directed to Mr Simmons trading as the Company. There was no express agreement that any currency that had been "placed" in December 1997 for Mr Simmons trading as J & D Simmons, extended, offset and rolled was to now be the responsibility of the Company. There was certainly no express agreement that Colly Farms were acting as Colly's agent. The only evidence of the nature of the relationship between Colly and Colly Farms in some of the transactions comes from Mr Morison's memo to the Chief Executive in May 1999 referred to below. It included the statement: "While growers executed these option deals fully aware of their obligations, the trades were executed under the guidance of the Colly Farms Risk Management Team". This is not enough to establish that the transactions said to have been entered into by Colly Farms on Mr Simmons' behalf were transactions entered into between Colly and the Company or Colly and Mr Simmons. These transactions, whatever they really may have been, were transactions by Colly Farms on Mr Simmons behalf. Colly Farms was purporting to act as Mr Simmons' broker or agent to place the deals. It has not been disclosed in this case where such "deals" were "placed". There was however some evidence that suggested there were really no 'actual' deals. 170 On 25 February 2000 Colly Farms and the Company entered into the "Client Agreement" the relevant terms of which are set out earlier in this judgment. In this Agreement it was acknowledged that Colly Farms was acting in its own right. It is difficult to know why that Agreement was entered into unless Colly Farms believed it was necessary for it to do so in order for it to deal in futures contracts on a futures exchange. If all that was happening was that the Company was fixing a particular leg for the pricing of cotton, without the Company actually trading then such an Agreement does not seem to me to have been necessary. However it must also be remembered that the futures leg was required to be fixed under the OCCs and this Agreement may have been necessary for that process. There is nothing in evidence to suggest that these "FX deals" Colly Farms claimed it had done, were the subject of any communication outside Colly Farms or Colly up until the time that Mr Starling sent his letters in October 2001. 171 As to the transactions prior to that date, Colly certainly claimed that it had entered into foreign exchange contracts with its bank hedging the so-called "deal" it had done with the growers, but Gavin Robert Butler (Mr Butler), Director and Chief Financial Officer of Colly, claimed that Colly, or Colly Farms, was not really entering into a foreign exchange transaction with the grower at all. His evidence was as follows (tr 99-100): Q. Do you agree that in Mr Simmons' case, he was not given, at the time he entered into the currency contracts, anything that looked anything like the documents that you have got there before you [risk disclosure statement]? A. He was not required to.

Q. You mean not required by law? A. Correct.

Q. Do you agree that it would have been prudent to have provided a statement of this type to him? A. No, because he wasn't entering into OTC commodity transactions. … Q. The foreign currency contracts involved the agreement whereby Mr Simmons agreed to exchange with Colly a particular number of dollars at a particular rate at a point in time later; that's correct, isn't it? A. No, he - Mr Simmons delivered us cotton for which we sold and received US dollar proceeds. We would deliver those US dollar - and those - we would independently deliver those US dollar proceeds to our bank and we were trying to match the currency rate with our bank to be the same as the currency rate we had agreed to price his cotton at. Q. Can I put it this way: Part of that transaction involved as part of the calculation of the proceeds an exchange of currency at a future time at a particular rate, that was part of the calculation for that transaction, wasn't it? A. The calculation was setting a rate at which we would convert the estimated US future proceeds we were to receive when he fixed his price. Q. And in substance, that is a currency forward contract, isn't it? A. It's a currency forward contract with our external bankers. Q. And a forward transaction is an OTC commodity transaction, isn't that correct? A. No, I don't believe it is.

172 From this evidence it appears that the original transaction between Mr Simmons and Colly Farms was an agreement that Colly Farms would deliver to Mr Simmons on a particular future date an amount of USD currency at a particular exchange rate. Such agreement did not involve any third party by way of banker or the like. That, it seems, is why Mr Butler took the view that this was not the purchase of an OTC, but rather an agreement between two contracting parties that did not involve any taking out of currency. Colly Farms then contracted with its "external bankers", as Mr Butler put it, to hedge against this agreement with Mr Simmons. When Mr Starling wrote to Mr Simmons in October 2001 it was in the language of futures trading, selling Call Options with possible exposure to the market requiring a premium amount at the inception of "the trade". There was also the reference to the option premium debt of $20,500. 173 In final submissions, when dealing with the allegation that Colly had breached the Banking (Foreign Exchange) Regulations Mr Cashion SC adopted Mr Butler's approach in the following submission (tr 416): We submit that when one looks at the evidence and the context in which foreign currency was referred to, to use a neutral expression, what was going on was a mechanism by which a leg of an on call contract was to be set. Namely the rate of conversion of the proceeds in US dollars from a cotton crop into Australian dollars because the grower was to be paid in Australian dollars. It was not, we submit, on true analysis, a situation in which there was ever to be any delivery of US currency to Mr Simmons or to Colly for that matter and we submit that that's the kind of conduct to which the regulation is directed. And because it was just a mechanism towards setting a price in Australian dollars for the grower, and it was never really an arrangement where there was going to be a delivery, an actual delivery dealing with US dollars, we submit that the regulation doesn't apply

174 These letters from Colly Farms to Mr Simmons in December 1997 and January 1998, in so far as they evidence a currency transaction, were written at a time when there was no proper basis or contractual context within which these "positions" could exist. There were no OCCs in which currency could be hedged at that time, and there was not an equivalent number of Committed Bales "matched off" against the currency position. 175 I am of the view that the conversations between Mr Simmons and Mr McKay in December 1997 and the letters referring to foreign exchange orders and deals in December 1997 and January 1998 in the context of the surrounding circumstances evidence an agreement between Colly and Mr Simmons that: (1) the Company would sell to Colly whatever cotton it could grow for each of the following five cotton seasons; (2) there would be a currency arrangement entered into that would allow Mr Simmons or the Company to "enhance the Australian dollar price" of the cotton; and (3) Mr Simmons would be able to roll the currency at his discretion. This Agreement is not the same as the Marketing Agreement pleaded by Colly. Colly has failed to prove the Marketing Agreement as pleaded.

The 1998/1999 season 176 The first season referred to in the letter of 16 January 1998 was the 1999 season, meaning the 1998/1999 season. There was the Commitment Contract for approx 1500 bales that was dated 30th June 1998. It required the choice of the plan for those 1500 committed bales to be made by July 1999 or such later date if agreed. If the grower did not make the decision to allocate the committed bales to a Plan, then the additional bales that had not been committed, were deemed to have been allocated to the Fixed Bale/Cash Price Plan. 177 The Company entered into two contracts for that season. The first was a Fixed Bale/Cash Price Contract no 995033-01 dated 16th June 1998 for 400 Specified Bales at $508 per Specified Bale. The second Contract was an OCC no 995147-02 dated 18th August 1998 for 300 Specified Bales. Although there was reference to the relevant Standard Conditions there was nothing in that Contract referring to any currency position of the Company. This was the first Contract after December 1997 pursuant to which the Company was able to fix the various legs of futures, basis and currency for the purpose of determining the price of the cotton at the time for delivery pursuant to the formula in the Contract. 178 During the period 18 August 1998 to the end of June 1999, Colly Farms wrote two letters to Mr Simmons trading as J & D Simmons. The first letter was on 6 January 1999, advising Mr Simmons that the sale of USD $2,500,000 originally at spot .6500 had been rolled to 6 January 1999 at an outright forward rate of .6562 and had been "rolled to mature 30 June 1999 at an outright forward rate of 0.6588". The second letter was dated 7 May 1999 and was in the following terms: We confirm having executed the following FX deal on your behalf: Details: You Buy USD 260,000.00 against AUD at spot of 0.6650. This has been rolled to mature on 30th June 1999 at a forward rate of 0.6650. This position will be used to partially offset the existing position outlined below: You Sell USD 2,500,000.00 against AUD at a rate of 0.6588 to mature on 30th June 1999. Net profit of this partial close out is $A3,679.51. Please note that currency remaining is: You sell USD 2,240,000.00 against AUD at a rate of 0.6588 to mature on 30th June 1999. 179 The only Specified Bales that could be the subject of a hedging notice under clause 12 of the Standard Conditions were the 300 Specified Bales in the OCC dated 18th August 1998. These letters from Colly Farms made no reference to that OCC nor to any Specified Bales. Although the OCC included a formula for the establishment of the Base Price, being a = [(b+c) x 500] - f, the relevant schedule in relation to the price of the cotton for that year does not specifically refer to that formula. It refers to the US$2,240,000, the "required" US$106,500 and to "Excess Currency" of US$2,133,500". Although there was a Commitment for 1500 Bales in the 1998/1999 season only 700 Bales were sold to Colly in the 1998/1999 season. 180 The only reason there was the so called excess currency was because Colly Farms had entered into a "deal" in 1997 that had no correlation to or connection with any Contract between Colly and Mr Simmons or the Company at that time. It purportedly carried that currency forward extending, rolling and selling without any real connection to the Specified Bales as required in Clause 12 of the Standard Conditions or to Committed bales as required in Clause 35.1 of the Standard Conditions. The die was cast as at December 1997 when it appears an assessment was made about the future on the basis of 1,500 bales at the equivalent of approximately AUD500 being USD333 to reach the rounded total of USD 2,500,000 for 7500 bales over 5 years. There was no agreement in place at that time to produce 1,500 bales per year and Colly or Colly Farms, even if it was acting on Colly's behalf, was not entitled to hedge that amount of currency under the Contracts that were in place, or take an order without the committed bales being matched off.

181 It is very difficult to know what was really going on with these so-called "FX deals". The analysis carried out in May 1999 by Mr Morison sheds just a little light on the transactions. Although Colly had agreed with the Growers that they could "roll" any currency, that position had changed. The sensitivity of the change was recognised by Mr Morison who, it appears, was trying to develop a strategy to deal with the change in position without causing the growers to abandon Colly. In his memo of 13 May 1999 to the Chief Executive, he wrote: Grower Services clearly understand that as of September 1998 no client currency positions will be rolled forward. Since that time the team has worked hard to communicate this policy change and to ensure growers honour their existing commitments (or if not, liquidate their position). None of the positions under consideration for rolling to 2000 or 2001 were put in place post-September 1998. All positions were in place prior to the rule change. Most of the outstanding positions result from zero-cost two-for-one options strategies implemented during 1997 that resulted in growers finding themselves long twice as much AUD/USD as they required. While growers executed these option deals fully aware of their obligations, the trades were executed under the guidance of the Colly Farms Risk Management Team. Colly's Grower Services and Risk Management Team now feel a strong obligation to assist these growers to utilise these positions in their marketing programs, rather than take a cash loss on out-of-the-money position. In the absence of any unequivocal post-merger announcements by the Kahlbetzer Group, growers are presently somewhat uncertain as to their go-forward relationship with Colly Cotton Marketing. Although Grower Services has assured their clients that the focus of the marketing division remains consistent with the pre-merger operation, any significant departure from previous policies has the potential to disenfranchise growers and may have significant negative impact in the marketplace. It must also be stressed that the majority of growers requiring a currency position to be rolled are long term loyal Colly clients. Our Grower Services team is confident that with some assistance to work through their positions, they will remain so. 182 It appears there was a merger that may have impacted upon Colly's approach to permitting growers to "roll currency". This memo suggests that notwithstanding the change in policy, the growers were being "assured" that things were not to change because if there were to be a communication of any significant departure from "pre-merger" or "previous policies" growers would leave Colly.

The 1999/2000 season 183 In the 1999/2000 season the Company entered into three OCCs. The first two were No. 006504-04 and No. 006505-04, each recording the date of the transaction as 14 March 2000. The first was for 1200 Specified Bales and the second was for 300 Specified Bales. Neither contract referred to any currency position. The third OCC was no 6822-04 and recorded the date of the transaction as "29/5/2000". It was for 200 Specified Bales and was signed on 15 June 2000 as a result of the letter received by Mr Simmons on 6 June 2000 referred to earlier. Each contract entitled the Company to give a hedge notice to Colly in respect of the currency leg. None of the OCCs mentioned any currency position. 184 There were four letters from Colly Farms to Mr Simmons trading as the Company during the period 1 July 1999 to 30 June 2000. The first letter was dated 1 July 1999 and included the following: We confirm having extended the following FX deal on your behalf: Details You Sell USD 1,000,000 against AUD at spot of 0.6500 that matured on 30 June 1999 at a forward rate of 0.6588. This has been extended to 30 June 2000 at an outright forward rate of 0.6623.

185 The second letter was also dated 1 July 1999 and included the following: We confirm having extended the following FX deal on your behalf: Details You Sell USD 1,000,000 against AUD at spot of 0.6500 that matured on 30 June 1999 at a forward rate of 0.6588. This has been extended to 29th June 2001 at an outright forward rate of 0.6640. 186 The third letter was dated 11 May 2000 and included the following: In response to the order placed with Bob Mckay on May 10, we confirm having dealt the following FX transactions, dated May 11, on your behalf. You sold USD 500,000 against AUD at a spot rate of .5785. This has been rolled to the 16th of June, 2003 at an all-in rate of .5920. This deal will be rolled to 2004 at a later date. You sold USD 500,000 against AUD at a spot rate of .5815. This has been rolled to the 9th of May 2003 at an all-in rate of .5950. This deal will be rolled to 2005 at a later date. 187 This is the only letter in evidence from Colly Farms over the period 1997 to 2002 that refers to an order having been placed to "deal". All other letters were really advisory or confirmatory, without mention of any specific order having been placed with Colly Farms. 188 The final letter was dated 29 June 2000 and included the following: We confirm having rolled the following FX transaction on your behalf: You sold USD 168,500 against AUD at a spot rate of .6500. This was rolled to the 30th of June, 2000 at an all-in rate of .6623, and has been extended to the 22nd of November at an all-in rate of .6668. You sold USD 500,000 against AUD at a spot rate of .6500. This was rolled to the 30th of June, 2000 at an all-in rate of .6623, and has been extended to the 15th of July, 2002 at an all-in rate of .6797. 189 These letters were inconsistent with Colly's new policy that currency positions could no longer be rolled, evidenced in Mr Morison's memo of May 1999. 190 As I have said, there was no mention of any currency position in the OCCs for the 1999/2000 season and none of these letters from Colly Farms referred to any cotton contracts. The documents entitled "Grower On-Call Contract Price Determination" in respect of the three OCCs, which are internal documents not sighted by the Company at the time, record "grower currency hedges applied to this contract". In respect of OCC no 6504-04, the determination was dated 1 June 2000 and in the section on grower currency hedges there was recorded: "Deal-ref CT 115211; Mat date 30-Jun-00; Adjust to spot -0.0003; Grower rate 0.6620; USD Amount $283,250". This seems to relate to the rate in the Colly Farms letter dated 1 July 1999 of .6623 in respect of the US$1,000,000, but adjusted by the spot rate to .6620. 191 In respect of OCC 6505-04 the Determination was dated 11 August 2000 and in the section on grower currency hedges there was recorded: "Deal ref-CT 22-Nov-00; Mat date 22-Nov-00; Grower Rate 0.6668 USD Amount $56,028". It is not clear where this rate comes from, it may have been the rate in the letter of 1 July 1999. The letter of 29 June 2000, although mentioning the date 22 November, refers to a different rate. 192 In respect of OCC no 6822-04 the Determination was dated 23 June 2000 and in the section on grower currency hedges there was recorded: "deal ref-CT 118149; Mat date 30-Jun-00; Grower rate 0.6623; USD Amount $48,750.00". It appears the rate applied may have come from the Colly Farms letter of 1 July 1999.

193 None of these Price Determinations referred to any "excess currency", albeit that there was a section for recording it. The 2000/2001 season 194 In 2000/2001, the third season mentioned in the 16 January 1998 letter, there was no Contract entered into between the Company and Colly. If there was a Contract it has not been produced in evidence. All that is in evidence is the Commitment Contract signed by Mr Dalglish and Mr Morison with the date 2/5/01 and signed by Mr Simmons, whose signature is undated and unwitnessed. If the Plan is not selected, then, pursuant to clause 5.2 of the Standard Conditions, the Committed Bales are deemed allocated to the Fixed Bale/Cash Price Plan. The Standard Conditions do not permit currency hedging in respect of such a contract. 195 Colly Farms wrote two letters to Mr Simmons during this season. The first was dated 23 November 2000 and there is no copy in evidence that is signed by Mr Simmons. It included the following: We confirm having offset the following FX transaction on your behalf: Opening Deal, dealt 29/06/00 You sold USD 112,471.50 against AUD at a spot rate of .6623. This was rolled to the 22nd of November at an all-in rate of .6668. Offsetting Deal, dealt 22/11/00 You Bought USD 112,471.50 against AUD at a spot rate of .5085. This was predelivered to the 2nd of November, 2000 at an all-in rate of .5085 and offsets the above position. The resulting loss is A$52,509.37 196 The second letter, to which I have referred earlier, was dated 29 June 2001 and included the following: We confirm having rolled the following FX transactions on your behalf: Opening Deal, dealt 2/1/98 You sold USD 500,000 against AUD at an all-in rate of .6640 for maturity the 29th of June, 2001. This deal has been extended to the 30th of June, 2003 at an all-in rate of .6794. Opening Deal, dealt 2/1/98 You sold USD 500,000 against AUD at an all-in rate of .6640 for maturity the 29th of June, 2001. This deal has been extended to the 24th of December, 2001 at an all-in rate of .6655. 197 On 23 August 2001, Colly wrote to Mr Simmons, with reference to the Company, on the subject identified as "Unsigned Confirmations". It is not clear from the evidence which of the confirmations were unsigned because they were not attached to the letter in evidence, which was in the following terms: Please find following copies of FX confirmations for transactions which Colly have executed on your behalf. Colly Sydney advise that to date signed copies have not been received. If you could please sign and fax directly to me on (02) 6847 3363 upon receipt of this fax it would be appreciated. If you have any queries please do not hesitate to call.

198 What happened between the end of the 1999/2000 season and the end of the 2000/2001 season in respect of contractual documents is most unclear. As I have said there is no contract in evidence for this season other than the Commitment Contract no 15579-05. However as I have said earlier, Colly treated the arrangement as an OCC and Mr Simmons did sign the letter 19 October 2001 that acknowledged the fixation of the futures leg.

199 There is no Price Determination made in respect of the 2000/2001 crop until 6 December 2001. This document referred to Contract No 15579-04. No such contract is in evidence. The section on Grower Currency Hedges recorded: "Deal ref-CT 145475; Mat date 24 Dec 01; Grower rate 0.6655; Adj Spot 0.6660; USD Amount $161,637.50". This Determination referred "USD excess to be liquidated: Excess currency to be liquidated" at "Grower rate" of "0.6660" with the total amount of US$338,362.50. It appears that the bale price achieved was, after adjustments, $67.07.

The 2001/2002 season 200 One aspect of this case that is a little clearer, by reason of Colly's admissions in its pleadings, is the contractual position for the 2001/2002 crop season. Those contracts were OCC-Fixed Bale No. 026815-04/2 signed on 15 February 2002 and OCC-Yield Risk No. 210355-04/02 dated 30 April 2002. The first contract included the special condition as follows: This contract incorporates the following existing currency position: Sold USD 500,000 against AUD @ an all in rate of 0.6797, value date 15-Jul-02. 201 Thus the only currency position relevant to the Specified Bales in that contract was an allegedly "existing currency position" as referred to above. That currency position was contained in Colly Farm's letter to the Company dated 29 June 2000. Colly confirmed having rolled an "FX transaction" in which the Company sold US$500,000 against AUD at a spot rate of .6500 which was rolled to 30 June 2001 at an all in rate of .6623 and was extended to 15 July 2002 at an all in rate of .6797. This OCC was signed by Mr Simmons on the Company's behalf and I am satisfied that it was a contract both for cotton and the currency position between Colly and the Company. The other OCCs "Yield Risk" dated 14 February 2002 and 30 April 2002, were between Colly and the Company and did not "incorporate" any currency position. 202 The other OCCs - Yield Risk for that season did not have any Special Condition and did not refer to any currency position. They too were between the Company and Colly. 203 It was submitted by Colly that the contracts of February 2002 and April 2002 were amendments to the OCC signed on 6 June 2000. The Bank and Mr Simmons and the Company submitted that these contracts amounted to a novation of the earlier OCC signed 6 June 2000. Mr Russell SC submitted that from the terms of the contracts it can be seen that the parties clearly agreed to replace the OCC signed on 6 June 2000 with the OCCs of 14 February 2002 and 30 April 2002. 204 The OCC signed on 6 June 2000, no 026815-04, was for 1,500 bales with no reference at all to any currency position. It contained a formula for the calculation of the Base Price that was "A$ price, Basis quoted C F Japan; a=[ (b+c) x 500] - F". The OCC, no 026815-04/2, of 14 February 2002 was for 1,400 bales with no mention of "C F Japan" and a different formula for calculating the base price being; "A=[(B + C) x 500] /[D x 100] - E". It also included the special condition "incorporating" the currency position. The other OCCs were Yield Risk contracts with a delivery tolerance of 247 to 303 with a formula "A=B-C". 205 In Olsson v Dyson (1969) 120 CLR 365, Windeyer J aid at 388: Novation is the making of a new contract between a creditor and his debtor in consideration of the extinguishment of the obligations of the old contract; 206 It seems to me that there were clearly new contracts, with new rights and obligations, and in respect of the OCC for 1,400 bales, the incorporation of the currency position. I am of the view that these new OCCs amount to a novation of the OCC signed on 6 June 2000. Close out 207 Colly claimed it was entitled to close out all the currency positions held on the Company's behalf as at June 2002. Colly advised the Company that it had taken that action pursuant to clause 35.2 of the Standard Conditions. There are two aspects to the closing out of the currency at this point. The first is the close out of the currency referred to as having been incorporated into the OCC for 1,400 bales. The second is the close of the currency maturing in 2003, 2004 and 2005, to which I will refer in this section as the "future years currency". 208 It was submitted on behalf of the Company and Mr Simmons that, taken in context, the right to close out positions under clause 35.2 is referable to the positions taken out by a grower under clause 35.1. The future years currency was not taken out under clause 35.1 because the currency preceded the relevant cotton contracts by some years; no currency was taken out on Colly's "standard placement and cancellation forms"; and no SFE (or any) risk disclosure statement was signed until February 2000. It was submitted that Colly had no right to close out the currency at all or was only able to close out currency in relation to the cotton deliverable in the 2002 season. 209 It was submitted that the term "Committed Bales" in clause 35.1(a) is defined as the number of bales specified in the confirmation (clause 2.1). This provides a link between the currency and the cotton the subject of the particular contract, and a limitation on the ability of Colly to close out currency positions. That limitation is reinforced by clause 12, which provides machinery for the taking out of currency against cotton. Under clause 12.1, Colly pays sale proceeds in A$, except to the extent directed by the grower, using a "Currency Selection Notice" and a "Hedge Notice" (clauses 12.2 and 12.3). Importantly, clause 12.3(a) provides such notices "may only be given in relation to so much of the estimated Net Sale Proceeds as is attributable to Cotton Futures Contracts expiring in May or July of the Season". The currency in this case was not taken out using a Currency Selection Notice or Hedge Notice. More importantly, clause 12.3(a) reinforces the view that the right to close out positions is a right which, in context, is limited to positions maturing in that growing season against the cotton to be delivered. 210 It seems to me that Colly and the Company agreed that the currency leg in the OCC for the 2001/2002 season would be hedged in the manner specified in the signed contract, notwithstanding the very unsatisfactory documentary position as between Colly Farms and Mr Simmons in respect of the so called FX deals. Once that "position" was incorporated into the OCC for that season the Standard Conditions applied to that Contract, including clause 35. Under clause 34 of the Standard Conditions Colly was obliged to calculate the Nett Sale Proceeds of the specified bales in the OCC within 7 days after classing of the specified bales. Classing of the specified bales occurred in late April or early May 2002 (tr 265). The Nett Proceeds of Sale calculated pursuant to clause 34 is the price of the specified bales less certain deductions such as ginning charges and according to clause 34.2(h) "any amount owing by the grower to Colly, whether under a Loan Agreement or otherwise". 211 Mr Russell SC submitted that the close of the currency position did not occur until June 2002, well after the 7 day period mentioned in clause 34.2 and therefore, at the date of the calculation there was no amount then "owing" to permit Colly to deduct the loss on the 2002 currency position. Although that analysis has some attraction, it seems to me that the term incorporating the currency position into the OCC allowed Colly to include within the Nett Proceeds of Sale calculation the loss incurred in respect of that position, irrespective of whether the calculation occurred within the 7 day period. Any losses incurred as a result of hedges under clause 12 were to be to the grower's account.

212 However the future years currency was not matched off by an equivalent number of Committed Bales and the discretion in clause 35.2 was not available to Colly. Colly was not entitled to close out the future years currency.

The Bank's case against Colly 213 The Bank seeks a declaration that the sale proceeds for the 2001/2002 cotton crop delivered by the Company to Colly are subject to the Bank's Crop Lien dated 30 November 2001, registered number 840430, for the amount outstanding for the seasonal crop facility dated 30 November 2001 provided by the Bank to the Company and secured by the Crop Lien. The Bank also seeks a declaration that it is entitled to be paid those sale proceeds in priority to any set-off or claim between Colly and the Company. There is also a claim for a declaration that Colly holds the sale proceeds on trust for the Bank and a claim for an order that Colly pay the Bank the sum of $390,571.10 together with interest on that sum at the rate of 8.35% per annum from 19 June 2003 until the date of payment. 214 Colly's defence pleaded that: (1) the Bank's interest in the crop pursuant to the Crop Lien expired on 30 November 2002 (par. 16 of the Amended Defence (AD)); (2) Colly had a right of set-off under clause 35.2 of its Contract with the grower and that such amounted to a charge which defeated the Bank's interest in the crop (par. 17 to 19 of the AD); (3) that a purported assignment pursuant to clause 4(B) of the Crop Lien had not taken place and, even if it had occurred the book debt is to be reduced by Colly's set-off pursuant to clause 35.2 of the Contract (par. 20(a) & (c) of the AD); and (4) Colly had a contractual entitlement as between it and the Bank to a set-off (par 29 to 31 of the AD). On the second last day of the trial, 18 April 2005, Colly abandoned these defences. 215 Colly argued only two defences. The first is a defence that as a matter of construction of the Crop Lien, the proceeds the subject of the purported assignment pursuant to clause 4(B) of the Crop Lien, are the proceeds of sale after deducting, inter alia, the amount of the set-off pursuant to clause 35.2 of the Contract (Construction of the Crop Lien). 216 The second is a claim that the Bank is estopped from denying that Colly is entitled to the set-off prior to any amount being paid to the Bank. It is alleged that the Bank encouraged in Colly an assumption that the Bank would allow it to exercise a right of set-off in respect of the proceeds of sale and that the Bank would not enforce its rights in respect of such proceeds in a way inconsistent with Colly's right of set-off. Colly grounds the alleged assumption firstly in the Bank's conduct in 2001, when Colly alleges the bank allowed Colly to exercise a right of set-off before paying outstanding amounts to the Bank. Secondly the assumption is said to arise from the sending of the Notice to Marketor and the return of the amended Acknowledgement. Colly alleges that in reliance upon the assumption, and induced thereby, it acted to its detriment by liquidating the grower's currency positions in June 2002 and refrained from taking other steps (Estoppel Defence). 217 The relevant Crop Lien was dated 30 November 2001 between the Bank as Lienee and the Company as Lienor and Borrower. The "Advance" was recorded as "$350,000 plus any further advances for the 2001-2002 season cotton crop" which the Bank "may in its sole discretion agree to make at the request of the Lienor". "Property" was identified as "Lands upon which the Crops are growing or are about to be grown: 'Charlievale' at Warren" with reference to "attached" plans for the location of the cotton fields. The "crops" were recorded as cotton. The Facility Agreement was identified as the agreement between the Lienee and the borrower dated 30 November 2001. 218 The Crop Lien included the following: 4. LIEN ON CROPS In consideration of: (a) the Advance and any monies paid by the Lienee to the Lienor or to the Borrower pursuant to the Facility Agreement; (b) any money now owing by the Lienor or the Borrower to PIBA, and the forbearance of PIBA to take immediate legal proceedings to recover that amount; and (c) any further financial accommodation which may at any time be provided by PIBA to the Lienor or the Borrower on any account whatever; the Lienor as beneficial owner of the Crops hereby: (A) gives PIBA a preferable lien on the Crops; and (B) assigns to PIBA the proceeds of sale of the Crops and all book debts now or subsequently to become due in respect of the proceeds of sale of the Crops; to the extent of the Loan Balance together with interest at the Rate of Interest. 5. DEFAULT It is agreed that if the Lienor does not pay the Loan Balance to the Lienee together with interest at the Rate of Interest on or before the expiration of the Loan Period or the Lienor or Borrower is in default of the Facility Agreement: (a) the Crop shall be gathered carried away and made marketable by the Lienee or at the expense of the Lienor and shall be delivered to the gin at the location stipulated by the Lienee or stipulated in a ginning agreement approved by the Lienee or to the Lienee in which event the Lienee may sell the Crop by any of the means stipulated in the Facility Agreement, and from the proceeds may deduct all amounts owing under the Facility Agreement and shall pay to the Lienor the balance (if any), or if there be any deficiency may recover the same against the Lienor at law as any debt or otherwise in accordance with the Facility Agreement; (b) The Lienee may appoint in writing any person or any two or more persons jointly and/or severally to be receiver, manager, receiver and manager, or agent of Lienee of the whole or any part of the Crops whether or not a receiver has been previously appointed, which persons shall have those rights stipulated in the Facility Agreement; and (c) The Lienee may exercise any of its rights under the Facility Agreement. 6. PIBA'S PRIORITY (a) This Crop Lien confers on PIBA priority over any subsequent security over the Crops for the Loan Balance even though the whole or any part of the money may be advanced, re-advanced, or made available after the date of this Crop Lien or after the date of any subsequent security. (b) This Crop Lien is, and will remain in force as, a continuing security even though any amount at any time is paid so that the Borrower's account with PIBA is or appears to be in credit and despite any statement of account or anything else in the same manner as if the maximum amount of the Advance had been advanced or made available to the Borrower or the Borrower by PIBA before the date of any subsequent security. (c) PIBA in its discretion may decline to execute a release of this Crop Lien if payment made is satisfaction of the Advance remains liable to be avoided under any law relating to insolvency. 7. PRIORITY AMOUNT For the purpose only of fixing priorities between this Crop Lien and any other security interest given by Lienor and without affecting any obligation of the Lienor under this Crop Lien, the maximum prospective liability secured by this Crop Lien is the amount specified in any Corporations Law form relating to this Crop Lien. 8. INCONSISTENCEY Where there is any inconsistency between the terms of this Crop Lien and the Facility Document, the Facility Document shall prevail. 219 Under the Facility Agreement the Company represented and warranted to the Bank that it had "good right and title to the crops" and that the crops were "free from all other liens, encumbrances and security interests" (cl H1(i) and (j)). The Facility Agreement also gave the Bank certain rights upon an Event of Default including the right to enter upon the property and harvest, gather, carry away, store and make marketable the crops or deliver them to the relevant gin or both (cl J2(c)). 220 Peter James Anderson, Branch Manager of the Dubbo Branch of the Bank, gave evidence that in 2002 the Company delivered 1,683 bales from the cotton crop to Colly and that the price payable by Colly to the Company was the Australian dollar equivalent sum of US$502,239. Mr Anderson's evidence was that in June 2002, when the foreign exchange contracts were closed out, a foreign exchange loss of $382,745.29 was realised. That was made up as follows: $44,355.48 in respect of the 2002 year; $155,138.15 in respect of the 2003 year; $83,726.19 in respect of the 2004; and $99,525.46 in respect of the 2005 year. 221 On 19 July 2002 Colly paid only $72,651.41 to the Bank and, notwithstanding the Bank's demand, Colly has refused to pay the balance alleged to be outstanding under the Crop Lien being $390,571.10. 222 Section 4 of the Liens on Crops and Wool and Stock Mortgages Act 1898 provides: 4. Lien on yearly crops In all cases where any person makes any bona fide advance of money or goods to any holder of land on condition of receiving as security for the same the growing of crop or crops of agricultural or horticultural produce on any such land, and where the agreement relating to such security is made in the form or to the effect of the Second Schedule hereto, and purports on the face of it to have been made as security for such advance, and is duly registered within thirty days after its date in the General Register of Deeds, the person making such advance, whether before, at, or after the date of such agreement, shall have a preferable lien upon, and be entitled to the whole of such crop and the whole produce thereof, and possession thereof by the lienor shall be to all intents and purposes in the law the possession of the lienee, and when such advance is repaid with interest specified in such agreement the possession and property of such crop shall revert to and vest in the lienor. 223 "Agricultural produce" includes cotton (s 3). The "General Register of Deeds" is defined as "the General Register of Deeds maintained under Part 23 of the Conveyancing Act 1919: (s 3). Section 184C(2) in Part 23 of the Conveyancing Act, provides that the General Register of Deeds shall be comprised of, inter alia, (g) instruments registered under the Liens on Crops and Wool and Stock Mortgages Act 1898 after the commencement of the Liens on Crops and Wool and Stock Mortgages (Amendment) Act 1992". The method of registration is dealt with in s 184E, which provides that registration is "effected by the Registrar-General allocating a distinctive reference to the instrument in accordance with the regulations in order to signify registration of the instrument". 224 In Attorney General for NSW v Hill & Halls Limited (1923) 32 CLR 112, the plaintiff and the defendant had each entered into agreements with Walter Patrick Evans to secure the advances to him with security over crops. The agreement with the plaintiff was made on 2 May 1921 and registered on 10 May 1921. The agreement with the defendant was made on 7 May 1921, but was registered on 7 May 1921 before the registration of the plaintiff's Lien. The Supreme Court had ordered that judgment be entered for the defendant and, on appeal, the High Court unanimously, for varying reasons, upheld the appeal. Knox CJ described the "short point" before the Court as follows at 118: The short point may be stated thus: the defendants contend that the registration of any agreement is a condition precedent to the acquisition of the rights conferred by the Act; the plaintiff contends that immediately an agreement is made in the form and for the purposes of the Act, all the rights by the Act conferred come into existence but may be lost if registration of such agreement does not take place within thirty days after the date of that agreement. Knox CJ also said at 119-120: The true meaning of the Act seems to be that, on registration of a proper agreement within thirty days after its execution, the lienee is to be regarded as having had a valid security as from the date of the execution of the lien. 225 Isaacs and Rich JJ said at 125 that the effect of the Act was: (1) to enable the "holder of land" to give, even before crops come into existence, a lien on those crops after they come into existence and are severed; (2) to make that lien "preferable", that is, a preference lien (just as shares are preference shares), over every other claim, including bankruptcy, that might otherwise exist in respect of the crops; and (3) to leave the landholder in actual possession of the crops until the time comes for enforcing the lien. 226 Their Honours also said at 130 that "preferable" means taking precedence over all other rights. Finally their Honours said at 126-127: A new legal interest with new rights and obligations and new consequences was therefore devised, primarily for the relief of the property owners, with appropriate protection to the lenders. The course prescribed by the Legislature for the relief of the property owner and the assured security of the lender is:- (1) Advance to be on condition of "receiving as security" only for such advance a lien on the crop. That looks ahead to the time of the severance of the crop from the land , and is a present fictional separation of the two for the purposes of the Act. (2) An agreement in the statutory form. The agreement carries out the same idea. (3) Registration within thirty days; which, of course, means at any time within the thirty days. Obviously, taking that Act alone, once the landholder has done all he can do to invest the lender with the statutory right, he cannot be supposed to derogate from that, and, provided the lender follows the only requirements demanded of him by the Legislature, he would be protected by the legislative declaration of consequences. 227 Registration is pivotal to the effectiveness or validity of the Crop Lien. Under the Act the Crop Lien was to be registered in the General Register of Deeds kept pursuant to Part 23 of the Conveyancing Act 1919. However, Part 2K.2 of the Corporations Act 2001 was in force at the time the Crop Lien was given on 30 November 2001. The Crop Lien was not registered in the General Register of Deeds under the Conveyancing Act 1919. It was registered under Part 2K.2 of the Corporations Act 2001. Section 273A deals with how particular State laws apply to a charge if notice of the charge must be lodged under Part 2K.2. The Liens on Crops and Wool and Stock Mortgages Act 1898 (the State Act) is a "specified law" for the purposes of Part 2K.2 (s 273A). Section 273A(2) provides that, "a failure to register the charge under a specified law does not affect the validity, or limit the effect, of the charge". 228 The Corporations Act 2001 also provides relevantly: Application of Specified State and Territory Laws to crop liens, wool liens and stock mortgages registered under this Part 273C (1) [Specified laws and applicable registration laws] This section deals with how particular State and Territory laws apply to a crop lien, wool lien or stock mortgage given by a company that is registrable under those laws if: (a) notice in relation to the lien or stock mortgage is required to be lodged under this Part; and (b) the lien or mortgage is registered under this Part. The laws are called specified laws and are identified in subsections (3) and (4). The particular specified law under which the lien or mortgage is registrable is called the applicable registration law . Note : section 273E provides that this section does not apply to certain joint charges. 273C (2) [Effect of Lien or Mortgage] The lien or mortgage is, subject to subsection 273A (3), as valid and effectual as if it had been duly registered under the applicable registration law. 229 The reference in the Note to s 273E seems to be an error as there is no s 273E. It seems the Note was intended to refer to s 273D which provides that a charge given by a company jointly with another person who is not a company is not governed by Part 2K.2. That is not relevant in this case because the Lien was given by the Company alone. The question of priorities of charges referred to in s 273A(3) is also not of any relevance because no other charge has been registered or relied upon in this case. Thus the effect of s 273E(2) is that the registration of the Lien under the Corporations Act is as valid and effectual as if the Lien had been "duly registered" under the State law. The fact that the Lien was not registered within 30 days, as required under the State law, but was registered within 45 days, applicable under the Corporations Act 2001, does not affect its validity. It is as valid and effectual as if it had been registered under the State Act within 30 days. 230 In cross-examination Mr Anderson agreed that Mr Simmons contacted the Bank in December 2001 and advised him that no proceeds were due to the Company or the Bank in respect of the crop for the 2000/2001 season "due to the closing out of the currency positions" (tr 20). Mr Simmons informed Mr Anderson that it was because "certain sums were going to be deducted from the proceeds of sale of that crop" (tr 21). Mr Anderson assumed that the deductions were being made by Colly and that it was likely that the deductions would be made pursuant to the marketing agreement between Colly and the grower (tr 21). Mr Anderson said that he had no knowledge of the amounts that Colly was entitled to deduct, the amounts that Colly in fact deducted, or the basis on which any amounts were deducted. He agreed that he knew that if a grower made a loss, Colly would seek to recoup that loss from the grower, "if the Contracts were expiring that year" (tr 24). 231 Mr Anderson gave evidence that in February 2002 he did not look at the Acknowledgment from Colly at the time it was received. He did not read it and it was not brought to his attention. He first became aware of the contents of that Acknowledgment in late June or early July 2002. He gave the following evidence in cross-examination (tr 28-30): Q. And as at late 2001/early 2002, you were aware that recipients of these acknowledgments might alter them in some way before returning them? A. Yes. Q. And there are a number of ways in which a recipient could alter an acknowledgment, weren't there? A. Obviously, yes. Q. As at late 2001/early 2002 you realised that an alteration, depending of course on what it was, might affect what, if indeed anything, the recipient was acknowledging; correct? A. Yes. Q. As at late 2001/early 2002 it was your understanding that the recipient of an acknowledgment form might regard it as being of importance what it had told you in the acknowledgment form? A. No. I mean many merchants didn't return them. Some were returned without any reference to any of the stuff above, so potentially not … Q. I am suggesting to you that in late 2001/early 2002 it was your understanding that a recipient might regard what it had told you in the acknowledgment form as being of importance. Was that your understanding or not? A. It might. Q. And as at that time you understood that a recipient might regard it as being of importance that it had told you what it had said in the altered acknowledgment? A. The importance of that document, historically when they are being returned some have just been crossed out all together, some have been altered, some haven't been touched, so the issue is is that important if they have all been crossed out. Obviously the merchant wasn't prepared to give that information. Whether that's important to them or not, I mean my understanding is it isn't because in many cases they weren't returned and at that stage I was aware of this, they weren't returned or they were crossed out or, you know, not completed. So did I think they thought it was important? No. Q. Some of them altered the document and returned it in an altered form correct? A. Yes. Q. Did it not occur to you in late 2001/early 2002 that some of the merchants who took the trouble to do that might regard what they were telling you as being of some importance? A. No, because, as I said, some of the merchants crossed out the whole page. Q. Did it occur to you in late 2001/early 2002 that a recipient of an acknowledgment might alter his course of conduct depending upon the information that he had provided to PIBA in the acknowledgment. A. No. Q. Did it occur to you in late 2001/early 2002 that the recipient of an acknowledgment might alter his conduct depending upon whether PIBA responded or did not respond to the altered acknowledgment which he had sent to PIBA? A. No. 232 Mr Butler has worked in the cotton industry for approximately 35 years and holds a diploma in accounting that he obtained in 1975. Mr Butler acknowledged in his evidence that Colly received the Notice to Marketor in respect of the Crop Lien granted to the Bank by the Company in October 2000. Colly's records show that the gross Australian dollar proceeds for the 2001 crop were $242,698.95. From that amount Colly deducted an amount of $145,915.15 for losses incurred in trading out of excess currency for the 2001 season, leaving net proceeds of $96,783.80. Colly made further deductions from the net proceeds for quality discount, ginning charges and for part-payment of a grower debt that had been carried forward from previous seasons. Mr Butler claimed that Mr Simmons ultimately received $9,262.56 for his 2001 crop representing the amount payable by Colly for GST liability.

233 Mr Butler gave evidence that he was not prepared to provide the acknowledgments to the Bank in the sections that were crossed out in the Acknowledgment of receipt of the Bank's 2001 Crop Lien. Mr Butler instructed Peter Candy, the group accountant for Colly, to delete those statements in the Acknowledgment that he did not agree with and to sign it and return it to the Bank. Mr Candy followed Mr Butler's instructions and returned the amended Acknowledgment to the Bank. 234 Mr Butler gave evidence that when he instructed Mr Candy to make the amendments to the Acknowledgment he was aware that Colly was owed money by Mr Simmons and that he was likely to have excess forward currency for the 2002 crop that would need to be traded out at a loss. It was Mr Butler's understanding that Colly was entitled to set-off those debts and currency losses from the proceeds of Mr Simmons' 2002 crop. Mr Butler's affidavit evidence also referred to the fact that after returning the acknowledgment to the Bank in February 2002 Colly did not receive any further communication from the Bank regarding the Acknowledgment or the alterations to it. In June 2002 he authorised Mr Morison, Colly's then Marketing Manager, to close out Mr Simmons' forward currency positions for the 2003, 2004 and 2005 seasons and any excess currency relating to the 2002 crop following the pricing of that crop. 235 The gross Australian dollar proceeds from the 2002 crop total $533,187.89. From that amount Colly deducted $429,588.43 (comprising $382,745.29 currency loss and $46,843.14 grower debt carried forward from previous seasons) and an amount of $30,948.05 for ginning charges. After paying Mr Simmons the GST amount of $53,318.70, Colly paid the balance of $72,651.41 to the Bank allegedly pursuant to its Crop Lien. 236 Mr Butler gave evidence that at the time he authorised Colly to close out Mr Simmons' currency positions in June 2002, he assumed that Colly was entitled to set-off the foreign exchange losses incurred against the proceeds of the 2002 crop prior to distributing any proceeds to the Bank under its Crop Lien. In forming that assumption he said he relied upon: (1) the fact that Colly had set-off its losses against the proceeds of Mr Simmons' crop for the 2001 season without objection from the Bank; and (2) the fact that Colly had sent the amended Acknowledgment to the Bank without receiving any response. 237 Mr Butler also gave evidence that if he had been informed that Colly would not be entitled to set-off the foreign exchange losses against the proceeds of sale of the 2002 crop, he would not have made the decision to close out the currency positions. He said he would have examined Colly's options in relation to those currency positions as he had done with other growers in Mr Simmons' position. Those options included continuing with efforts to negotiate an arrangement with Mr Simmons to trade out his losses over a period of time and waiting until the currency position had matured before closing out. Mr Butler said that, if it was not possible to reach an arrangement with Mr Simmons to trade out the losses, there were a number of currency derivative options that Colly could have considered to minimise its risk if it allowed the currency positions to mature. 238 In cross-examination Mr Butler accepted that when he received the Notice from the Bank in respect of its 2000 Crop Lien and noted that the grower was described as the Company he would have assumed that Colly had a contract with the "Simmons group". He could not recall whether he necessarily differentiated between the Simmons Company or Mr Simmons and gave the following evidence (tr 42-43): Q. But wasn't it an important matter to you at the time to identify the grower who was selling to Colly hundreds of thousands of dollars worth of cotton? A. I would accept that. Q. Do you have a memory now of asking someone in your office to make an inquiry to check out that Colly had contracts with the Simmons Company? A. I do not recall that I asked someone specifically to see whether we had a contract with a company called ACN with those numbers. … Q. You would not have authorised this document [the Acknowledgment] to be signed and sent back unless you had satisfied yourself that your company had a cotton purchase contract with the Simmons Company, would you? A. I accept that. Q. Do you now accept that for the 2001 crop Colly did have a purchase contract with the Simmons Company? A. I accept that we had a contract with the Simmons group. As I didn't match the actual contract and the lien together myself I can't categorically say they were one and the same, but I accept that this document had been signed on the basis of that being so. … Q. You would have not authorised Leonie Hutchison to sign this unless you were satisfied by an inquiry made by someone below you in the Company that you did have a contract with the Simmons Company; isn't that right? A. I accept that's a reasonable assumption. 239 In further cross-examination Mr Butler accepted that the Notice to Marketor received by the Bank contained the statement that the Crop Lien gave to the Bank the first right over the proceeds of the crop. He also accepted that he did not inform Ms Hutchinson to write on the Acknowledgment that Colly did not accept that the Bank had such first right (tr 44). He said that it was not a deliberate or conscious decision not to provide the details of any "positions" of the Company or Mr Simmons in the Acknowledgment returned to the Bank in respect of the 2000 Crop Lien, but accepted that there were a number of positions that were relevant. He said that he could not explain why these positions were not included or stated in that Acknowledgment (tr 46). He said, "we probably should have ensured that the information on the foreign exchange positions and contracts was noted". Mr Butler gave the following further evidence in cross-examination (tr 50-51): Q. When that 2001 crop was paid for Colly deducted $145,000 approximately for losses incurred by Simmons, do you see that? A. Correct. Q. Those losses related only to trading out excess currency due to expire in mid 2001, correct? A. Correct. Q. You didn't close out future years at that time and debit any loss incurred against money owing to Simmons or his Company, did you? A. No. Q. Indeed, just in the same way that ginning costs are a cost of obtaining a finished product, being the cotton crop, any excess currency that is not used is an expense attributable to growing, harvesting, ginning and selling that year's cotton crop, isn't it? A. That's correct, any excess other any shortage. … Q. But if there is a loss or you have excess currency and you have to close it out, that too is an expense just like buying the seed in the first place? A. That's correct. … Q. And thinking now of the position in 2001 on no occasion did Colly ever inform PIBA that it was paying itself first for these currency losses and then second that it was paying whatever was left over to PIBA under its crop lien, correct? A. I am not aware of any other advice. 240 Mr Butler accepted that, in respect of the money the Bank received into its account from Colly, it had no way of knowing how the amount was calculated or whether Colly had paid itself debts said to be owing to Colly before the monies were paid pursuant to the Crop Lien (tr 52). 241 Mr Butler agreed that when he received the Notice to Marketor in respect of the Bank's Crop Lien over the 2002 crop, he did not instruct Mr Candy to write anything on the Acknowledgment in disagreement with the Bank's assertion that it had first right over the proceeds of the crop. When the first paragraph of the Acknowledgment was struck out, Mr Butler only had in mind that when the time came to pay the grower for the 2002 crop, Colly would first be repaying ginning costs, any grower advance and any shortfall on that year's currency contract. It was his intention, in having that paragraph struck out to advise the Bank that Colly did have a right of set-off for expenses that related to that current year's crop (tr 57). He said he was not sure whether it was correct to say that at that time he did not have in mind any rights under clause 35.2 of the Standard Conditions. However he did agree that all that he had in mind was the previous year's $60,000 debt, the ginning costs for the 2002 crop and the prospect that there might be a shortfall or loss to be taken on the 2002 foreign exchange contract. Mr Butler did not contact the Bank and advise it of the amount potentially owing on those aspects. 242 Mr Butler accepted that by acknowledging receipt of the Crop Lien Colly had acknowledged to the grower that it was "alright" for the grower to have granted someone else an interest in the crop by way of the Crop Lien. Mr Butler also accepted that the fact that Colly was owed money was not communicated at all to the Bank by the alteration and sending of the Acknowledgment to the Bank. Further he accepted that the Acknowledgment did not alert the Bank to any assertion as to who had priority over the proceeds of sale of the crop. Construction of the Crop Lien 243 Clause 4(B) of the Crop Lien included an assignment by the Company, as beneficial owner of the "Crops", to the Bank of "the proceeds of sale of the Crops" and all book debts in respect of the proceeds of sale of the Crops. Colly submitted that the term "proceeds of sale of the Crops" means net proceeds of the sale of the Crops after deduction of the "kinds of expenses associated with the production of the crop which were, in fact, deducted by Colly (tr 350)". 244 It was submitted that such a construction ought be adopted because of the context in which the Crop Lien is entered into and the way in which the cotton industry, in fact, operates. In this latter regard it was submitted that costs are obviously incurred in the harvesting and processing of the cotton crop and in that context the intention of the parties to the Crop Lien must have been that the grower was entitled to discharge the costs of production, harvesting and processing, prior to the payment to the Bank under its security. It was submitted that this was the commercially practical and sensible construction of the Crop Lien. 245 The Bank and Colly seem not to be at issue in respect of the construction of the Crop Lien. Mr Russell SC submitted that as a matter of industry practice the Bank's practice is that ginning costs, harvesting costs, and any foreign exchange losses for the particular year are deducted, thus leaving the net proceeds of sale payable to the Bank. The only issue in respect of the construction of the Crop Lien is whether the losses incurred by Colly in closing out or liquidating the future years currency are amounts that may be deducted from the proceeds of sale of the 2002 crop prior to the payment to the Bank. 246 I have found that Colly did not have an entitlement under the OCCs to close out the foreign exchange positions maturing later than 2002 in respect of the particular Crop Lien the subject of the OCCs. Those future years currency positions were not matched off by any Committed Bales and there was no contract to which they were attached in respect of any Specified Bales. Those transactions were independent of any contract dealing with cotton. Thus the standard conditions of the OCCs for the crop year 2001/2002 did not apply to those currency positions. 247 The currency positions were letters or arrangements between Mr Simmons and Colly Farms with the later reference to the Company. I have found that the OCC No. 26815-04/2 for 1400 bales incorporated what was described as "an existing currency position". Although the arrangements as between Mr Simmons and Colly Farms were in my view separate arrangements, in 2002 Colly and the Company agreed that the currency position "sold USD 500,000 against AUD @ an all in rate of 0.6797, value date 15-Jul-02" was part of the OCC. I am satisfied that the parties intended that such a currency position was part of the OCC. 248 The Company assigned to the Bank the proceeds of sale of the 2002 crop. The net proceeds in respect of that crop included the ginning costs, the harvesting costs and any loss on the currency position that was included in that contract, and that contract alone. Colly was not entitled to deduct any losses in respect of the closing out or liquidation of the currency positions for the years 2003, 2004 and 2005. 249 Although there had been a claim in respect of an equitable set off and a right of priority over the Crop Lien, that claim was abandoned at trial. In any event it seems to me there was no basis to claim any preference over the Crop Lien. The original contract for the 2002 crop No. 26815-04 was for 1500 specified bales. I agree with Mr Russell SC's submissions that the parties clearly intended by their contracts signed in February 2002 to no longer be bound by the original contract and to be bound by the later contract dated 14 February 2002 and 30 April 2002, No. 26815-04/2 and No. 210355-04/2 respectively. Estoppel Defence 250 The first course of conduct relied upon by Colly was in respect of the 2000 Crop Lien in respect of which no monies were paid to the Bank. Colly submitted that the failure of the Bank to enquire of Colly as to the proceeds of sale of that crop led Mr Butler, of Colly, to the assumption that Colly was entitled to deduct from the proceeds of sale the expenses referred to above. There is no issue between the parties that such deductions were made and that Colly was entitled to make such deductions pertinent to the crop for the particular year. 251 The second course of conduct relied were the communications contained in the Notice to Marketor and the amended Acknowledgment returned to the Bank in respect of the 2001 Crop Lien. The Acknowledgment included reference to the "FX" positions maturing in 2002, 2003, 2004 and 2005. It was submitted by Colly that such Acknowledgment, without demur from the Bank, led it to the assumption that it was entitled to deduct from the proceeds of sale any losses in respect of those "FX" positions. 252 There is nothing within the Acknowledgment that would ground a reasonable assumption that Colly was entitled to close out currency positions for years that were not covered by the cotton contract for the 2002 crop adversely to the Bank's entitlement under its Crop Lien. Indeed when Mr Butler instructed Mr Candy to complete the Acknowledgment and return it to the Bank, Mr Butler did not assume that such an entitlement was available to Colly. 253 I am not satisfied that the Bank is estopped from relying upon its Crop Lien in respect of the sale proceeds of the crop for the 2002 year requiring Colly to pay to the Bank the net proceeds excluding any losses incurred on the liquidation or closeout of the currency positions for 2003, 2004, 2005. The Bank is entitled to the declarations and orders it seeks in respect of its 2001 Crop Lien. Colly's Cross Claim 254 Colly claims it is entitled to indemnity from Mr Simmons, or alternatively the Company, in respect of the alleged loss or damage it incurred by reason of the requirement to pay to the Bank the amount owing pursuant to the Crop Lien. 255 The basis of the claim for indemnity is clauses 37 and 38 of the Standard Conditions which are included in the OCC for the 2001/2002 crop year. Those clauses provide as follows: 37. Warranties The Grower represents and warrants to Colly each as a material term of this Agreement, that (a) at the time of delivery of any Cotton to Colly in accordance with this Agreement (except to the extent otherwise specified in this Agreement or agreed in writing by Colly) the Grower has or will have full legal and beneficial title to such Cotton; (b) the Grower has made a full and proper disclosure of all persons having an Interest, and the nature of their Interest; (c) all Cotton delivered by the Grower to Colly pursuant to this Agreement will be of good and merchantable quality, and free of contamination. 38. Indemnity The Grower agrees to and does hereby indemnify Colly from and against all damages, losses, costs and expenses incurred by Colly as a result of the failure by the Grower for any reason to comply with any of its obligations under this Agreement. 256 Although not pleaded in the Cross Claim, clause 36 of the Standard Conditions prohibited the grower from granting any new Interest or varying any existing Interest without the prior written consent of Colly which would not be unreasonably withheld.

257 It was submitted that Colly was advised that the Company had granted to the Bank the relevant "Interest" in the 2002 Cotton Crop. That advice was given in the form of the Notice to Marketor. That Notice was a joint Notice from the Bank and the Company. At that stage Colly could have objected but did not do so. No indication was given to the Company that Colly objected to the grant of Interest to the Bank. Indeed Mr Butler gave the following evidence (tr 59): Q. And, indeed, the fact that your growers get finance from other people secured by Crop Liens helps Colly, doesn't it, in that it means there is a viable network of growers out there who have the funds to grow this very valuable crop year after year; correct? A. We would accept that in the industry the provision of rural finance to growers is helpful to them. Q. And helpful to you, Colly? A. Yes, helpful to the business. 258 It was submitted that Colly's conduct in completing the Acknowledgment was a consent in writing to the grant of the Interest in the crop to the Bank. It was submitted that in those circumstances there was no breach of warranty upon which any indemnity should be ordered and that the Cross Claim brought by Colly against Mr Simmons and/or the Company should be dismissed. Clause 36 requires prior written consent, but that clause must be read with clause 37. Clause 37 (a) refers only to Colly otherwise agreeing in writing with no express temporal requirement. I am satisfied that the Acknowledgment is a recognition, without objection to the Bank's interest in the crop and is a consent, but it was not prior to the grant of the Interest. 259 The Acknowledgment was only returned to the Bank and, in my view, that document would not be sufficient to satisfy the term "otherwise agree in writing" in clause 37(a) of the Crop Lien. Thus prior to February 2002, but before delivery of the crop, there was no consent within the meaning of that term in clause 36 and there was no "agreement in writing" as referred to in clause 37 (a) of the Standard Conditions. 260 It was also submitted that Colly knew of the interest the Bank had in the crop by no later than early February 2002 and, with that knowledge, entered into the two new contracts on 14 February 2002 and the further contract on 30 April 2002. It was submitted that the entering into of those new contracts after return of the Acknowledgment should be treated as Colly having "agreed in writing" to the granting of the Interest. It was finally submitted that the execution of the new contracts is a clear and objective indication of Colly's consent and agreement to the grant of Interest in the crop to the Bank in the context of the Notice to Marketor and Acknowledgment.

261 I am satisfied that Colly agreed in writing to the Bank's interest in the Crop, by the entry into the contracts in February 2002 and April 2002 knowing of the Bank's Crop Lien. In those circumstances the Cross Claim against the Company must fail. Colly's Cross Claim will therefore be dismissed. 262 There was a defence of estoppel claimed in respect of the Cross Claim based on the same facts and circumstances claimed to have encouraged in the Company an assumption that it was entitled to grant the interest to the Bank pursuant to the Crop Lien. It is not necessary to decide this question, but it seems to me that once Colly was given the Notice by the Bank and the Company of the Bank's interest and did not suggest that it did not consent and once it entered into the contracts in February 2002 and April 2002 it would be a estopped from claiming that the Company had breached the warranty in clause 37 of the Standard Conditions. 263 Colly's claim against the Bank for inducing a breach of warranty also fails in the circumstances of my findings above.

Cross Claims by Mr Simmons and the Company 264 The basis of the claims in the Further Amended Second Cross Claim is set out in paragraph 4 of that pleading as follows: 4. This second cross claim is relied upon as a set-off to Colly's cross-claim in the event that: 4.1 Colly was entitled to withhold some or all of the monies from Rabobank as it claims in its defence; and/or 4.2 Simmons and/or Retro are found liable to indemnify Colly in whole or in part in relation to any sums Colly is liable to pay to Rabobank.

265 I have found that Colly was entitled to deduct the 2002 currency losses in the calculation of the Nett Proceeds of Sale for the 2001/2002 crop. I have found that Colly was not entitled to bring to account the losses on the closing out or liquidation of the currency positions for the 2003, 2004 and 2005 years in the determination of the Nett Proceeds of Sale of the 2001/2002 crop. To the extent that such were included in the determination of the Nett Sale Proceeds for the 2002 crop, those amounts should have been excluded. I have found that neither the Company nor Mr Simmons is required to indemnify Colly for the amount Colly has to pay the Bank. Colly's claim against Mr Simmons and the Company for indemnity for the amount it has to pay the Bank is limited to a breach of warranty claim (determined against Colly). 266 There is no other claim by Colly or Colly Farms against Mr Simmons or the Company for recovery of the losses. However there was an issue joined in the Further Amended Second Cross-Claim and the Defence to it filed by Colly and Colly Farms. Paragraph 4(a) of the Cross Claim is a claim that Colly was not entitled to deduct from the Nett Proceeds of Sale, any of the amounts that Colly claimed in its defence that it was entitled to deduct. That included the losses on the closing out of the foreign exchange positions. Colly and Colly Farms defend this Cross Claim on the basis that they were entitled under the Marketing Agreement as pleaded in the Cross Claim to close out the currency positions. I have found that Colly did not prove a Marketing Agreement as pleaded. 267 There were never any "Committed Bales" that were "matched off" against the currency positions for the years 2003, 2004 and 2005. There were no conditions in place similar to clause 35.2 in respect of those currency positions.

268 Mr Simmons and the Company claim that Colly was not entitled to close the positions out, and that claim is maintained notwithstanding that neither Mr Simmons nor the Company are liable to Colly on its Cross-Claim. The "currency position" was "incorporated into" the OCC for 2002. I have found that such was a term of the OCC and that its purpose was to fix the currency leg of the 2002 OCC. The OCC was between the Company and Colly and notwithstanding the unsatisfactory and loose arrangements between Colly Farms and Mr Simmons evidenced in the currency letters, the Company and Colly incorporated a currency position into their OCC. I am conscious that the term "existing currency position" was used in the OCC and I am satisfied that any "existing currency position" was between Mr Simmons and Colly Farms, but the Company and Colly agreed that, at least for the 2002 OCC, the currency leg was to be fixed on the basis of such a position. On the basis of that finding Colly was entitled to deduct any loss on that position from the Nett Proceeds of Sale. 269 The result of my various findings mean that the Bank is entitled to the relief it seeks against Colly. Colly is not entitled to any relief against Mr Simmons, the Company or the Bank as claimed in its Cross-Claim. Mr Simmons and the Company make claims for breach of contract, the TPA Claim, the Negligence Claim and the CRA claim against Colly and Colly Farms. Breach of Contract 270 It was submitted that the closing out of the future years currency was a breach of the agreement entered into in 1997. I have found that a term of the agreement was that Mr Simmons was able to roll the currency at his discretion. I am satisfied that the closing out of the future years currency in June 2002 was in breach of that term.

The TPA Claim 271 The claims under s 52 of the TPA, and s 51A, principally rely upon the allegation that Colly represented, through Mr McKay, that Mr Simmons would profit from taking out currency and that there would be little or no risk involved. It is also alleged that Colly represented that currency positions would be rolled if they were out of the money. It is alleged that Mr Simmons relied upon those representations and that they were misleading or deceptive. 272 Mr Simmons gave evidence that Mr McKay encouraged him to take out currency and that he said it was a "good idea" and that there was "easy money to made". Mr McKay denies that he made those statements to Mr Simmons. Mr McKay claimed in his evidence that Mr Simmons said to him that he had "spoken to other growers in this area and they said there is good money to be made". Dr Greinke submitted that even on his own evidence, Mr McKay did not contradict Mr Simmons' statement that there was "good money to be made". Importantly, Mr McKay volunteered in evidence that he had advised Mr Simmons that, "by taking a position in currency, you can enhance your Australian dollar price for cotton" (tr 193). 273 It was submitted that Mr McKay's silence in respect of Mr Simmons' statement that others had told him there was good money to be made combined with the advice that he gave Mr Simmons that he could enhance his Australian dollar price, amounted to a direct representation regarding the profits to be made from taking out currency. Mr Simmons gave affidavit evidence that Mr McKay advised him that he could always "roll out" if the currency was "out of the money". In his affidavit, Mr McKay denied that he said this to Mr Simmons. However in cross-examination by Dr Grienke, Mr McKay gave the following evidence (tr 192-193): Q. And you had told growers that if the currency was out of the money that you could roll the positions forward, isn't that right? A. What I told, what was the, what I told growers was that we had been able to roll the currency forward and that was the practice at the time. 274 Colly Farms' letter of 23 December 1997 to Mr Simmons stated that the currency could be "rolled at your discretion". Notwithstanding Mr McKay's denial in his affidavit that he advised Mr Simmons that he could always roll out if the currency was out of the money, I am of the view that Mr McKay did make that representation to Mr Simmons in the conversation in December 1997. 275 It was submitted that the effect of the unqualified representations of Mr McKay in relation to enhancing the Australian dollar price and in relation to rolling the currency was that Mr Simmons understood that there would be profit to be made from taking out currency with little or no risk. Mr McKay agreed that he did not warn Mr Simmons of the risk of involvement in currency other than saying to Mr Simmons that if he did not utilise the currency in the particular year he would be responsible for profits or losses associated with utilising or trading out of the unused currency (tr 193). It was submitted that in this case the failure to disclose or warn of risks was relevant and material to Mr Simmons in deciding to take out currency, rendering the positive statements misleading: Fraser v NRMA Holdings Ltd (1995) 127 ALR 543. 276 Certainly there was a great deal left unsaid by Mr McKay about the risks of currency. There was never any explanation given to Mr Simmons that to make an "order" on Colly, there needed to be certain documentation signed as referred to earlier in clause 35 of the Standard Conditions. The reference to needing things signed to keep "Head Office" happy, which I accept was said, and the suggestion that Mr Simmons would not be held to the number of bales in the Commitment Contracts are all matters to be taken into account in deciding whether the representations were made. Mr McKay did not mention clause 35.2. 277 Colly submitted that, if the representations are found to have been made, there was no reliance by Mr Simmons on those representations. It was submitted that Mr Simmons relied on the other growers in the area to whom he referred in the conversation with Mr McKay in December 1997. Mr Simmons gave evidence of his reliance upon Mr McKay. In this regard he said that in agreeing to the currency contract he relied on what Mr McKay had told him and in particular his reassurance that the currency could always be rolled. He understood that to mean that there was little or no risk with the currency. It is quite clear that Mr Simmons relied upon Mr McKay. He had no experience with currency, and it appears to me he left everything to do with currency up to Mr McKay. Any strategies adopted in 1997 and 1998 were those adopted by Mr McKay. Certainly Mr Simmons signed the Colly Farms letters, but I have no doubt that he was heavily reliant upon Mr McKay. 278 It was submitted that this case is distinguishable from Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84. In Mehta the Bank had provided an explanation of the risks involved in a foreign currency loan, but had omitted material particulars. The Court of Appeal held that Dr Mehta did not rely upon the adequacy of the explanation by the bank officer and had superior knowledge to the bank officer in relation to foreign currency, such that he could not have believed that he was being furnished with a complete explanation (at 90 per Samuels JA). It was submitted that in this case there is no suggestion that Mr Simmons had any experience or understanding in respect of currency transactions and his reliance upon Mr McKay was reasonable. Colly was a company that claimed on the front page of its Standard Conditions "People, Partnerships, Performance". It had a "Growers Services" division and claimed that it provided "advice" to growers. It is different from a bank. I agree that this case is distinguishable from Mehta. 279 I am not satisfied that there was a representation made that there was no risk in currency. I am satisfied that what was said by Mr McKay amounted to a representation that there was little risk in "currency". I am satisfied that a representation was made that Mr Simmons would always be able to roll the currency if it was out of the money. I am satisfied that Mr Simmons relied upon those representations when he signed the various currency letters from Colly Farms. It has not been suggested that Mr McKay was not authorised to make the representations on behalf of Colly or Colly farms. Indeed Mr Cottle authorised Mr McKay to "do" $2.5 million. The representations were as to future matters and there was no evidence called to establish that there was any reasonable basis for making them. The representations were totally inconsistent with the discretion in clause 35.2 of the Standard Conditions and totally at odds with the overwhelming evidence that entry into currency transactions in such a volatile industry had very serious risks. These representations were false and misleading or deceptive.

280 Mr Simmons gave general evidence that he would not have entered into the currency positions if he had known what he now knows about the currency transactions. This evidence was not cross examined upon and I accept that if Mr Simmons had been advised of the serious risks and that he would not be able to roll out of the currency positions he would not have taken out the currency in the amount it was taken out. As I have said the die was cast in 1997. 281 I am satisfied that Colly made the representations on its own behalf and that of Colly Farms and that they were misleading and deceptive.

The Negligence Claim 282 Colly operates a department known as "Grower Services" that provides advice to cotton growers. 283 Mr Butler gave the following evidence (tr 95): Q. And Grower Services, amongst other things, gives advice to growers which helps Colly have an advantage in the market place, isn't that correct? A. At least to remain competitive in the market place. Q. So by offering services and advice, Colly obtains closer relationships with its potential and actual growers? A. Correct. Q. Now, as part of that advice, it includes advice about marketing their crops; that's correct, isn't it? A. Correct. Q. And that advice would include things like how On-Call Contracts work, isn't that right? A. That would be correct. Q. And how foreign exchange contracts work? A. In relation to On-Call Contracts, that's correct. 284 Colly provides advice to the grower in respect of currency. The advice is given in order to obtain competitive advantages as against other merchants, to be more competitive in the market. Indeed reliance was placed on Colly's internal document that provided as follows: The Colly Group of Companies (Colly) operates in a highly competitive environment where cotton merchants strive to increase their market share in a volatile Australian domestic market. The majority of Colly's competitors use the price offered to Growers as their main marketing tool. While offering competitive prices, Colly aims to gain a competitive advantage by also offering additional services such as Grower Finance Facilities. The Colly Group views these facilities as an important marketing tool which can be utilised to increase market share through: · securing bales which may otherwise been sold to other merchants; · fostering long term grower relations and hence grower loyalty; · furthering Colly's image as an industry leader.

285 Mr Butler also gave the following evidence (tr 96): Q. Isn't it of advantage to Colly to offer foreign exchange contracts to growers? A. We offer On-Call Contracts which allows the grower to effectively set his own exchange rate in relation to his pricing. Q. Isn't it the case that if you sell currency to a grower, that in substance is selling the grower an On-Call Contract with the currency leg fixed; that is really the effect of doing that, isn't it? A. If a grower wishes to take advantage of a currency rate and sell cotton to us and utilise that rate, then we will require him to enter into an On-Call Contract. Q. But he really has no choice if he signs up to a Currency Contract, does he? A. That's correct. If he wishes to - if he wishes to set his currency leg, he needs it to have an On-Call Contract for it to go with. Q. Once he is involved in an On-Call Contract then the other two legs, namely futures and basis, are set by the market place; that's correct, isn't it. A. The same way - the basis is set by the market place. The - price is set by in relation to futures market. 286 Mr Morison claimed in his evidence that Colly regularly communicates information on futures prices and foreign exchange rates to growers (tr 158). He also gave evidence that when marketing with growers Colly will from time to time advise growers on times that they should fix the futures or fix the basis of an On-Call Contract (tr 159). He agreed that the futures price is difficult and that the market is volatile. He gave the following evidence (tr 160): Q. Would you agree with the view that Colly takes an active role in monitoring the position of growers it has contracts with? A. Yes. Q. And in doing that it assists the grower in managing their future risk? A. Yes. Q. In doing so Colly has a closer relationship to the growers as a result, that's right, isn't it. A. Yes. 287 Mr Morison agreed that one can only "speculate" on where the dollar will end up on any particular day (tr 171), and that failure to fix legs appropriately is "risky" (tr 172). There is little doubt that Colly held itself out as a marketing company from whom growers should seek advice. Mr Morison agreed that growers sought advice from Colly (tr 181). There is no issue that Colly is one of the largest producers and marketers of cotton in the world and from its perspective Mr Simmons was a small grower. There is also no issue that prior to the currency letter of 23 December 1997 Mr Simmons had no experience in foreign currency or fixing currency legs in an OCC.

288 The view Colly took throughout its relationship with Mr Simmons, at least up to February 2000, was that it did not have to provide to Mr Simmons a Risk Disclosure Statement. As I have said earlier that position changed somewhat in February 2000 when Colly Farms provided such a statement to Mr Simmons and the Company. 289 The reference in clause 35 to an SFE Disclosure Statement was a condition of the acceptance of a currency order by Colly. Mr Simmons had never received such a disclosure statement prior to February 2000. None of the currency transactions prior to February 2000 in relation to "committed bales", which I have found were not matched off as against the amount of currency, were the subject of any Risk Disclosure Statement. Colly's internal Policy and Procedures Manual in respect of OCCs required the Growers Services Representative, in this case Mr McKay, to explain the nature of the currency commitment and the fixed number of bales it represented. That Manual included the following: The amount of currency hedged is limited to volume of bales committed under the On Call Contract. … If the underlying USD price of cotton changes, this will change the amount of AUD/USD coverage the position represents, but the number of bales committed On-Call Contract will not change. … Once a currency position has been allocated to a specific number of bales it will not be allowed to roll forward under any circumstances.

290 The Policy Manual is dated December 1999, two years after the first currency letter form Colly Farms to Mr Simmons. This was quite the opposite to what Mr McKay had informed Mr Simmons he could do with the currency. As I have said Mr Morison recognised that growers had been advised that they could roll their currency in his analysis in May 1999, in the memorandum to the Chief Executive that is extracted earlier. 291 The evidence is clear that Colly was in fact promoting currency to growers either by acquiescing in suggestions that it was a good idea or claiming that growers, in particular Mr Simmons, could enhance the Australian dollar price of cotton by taking out currency. Not only had it promoted currency but it had involved itself with growers more closely than an arms length arrangement for the sale of foreign currency. The evidence in this case establishes that Mr Simmons had little contact with Colly Farms in respect of the currency positions. Colly Farms would do the so-called "deal" and then seek from Mr Simmons his agreement in respect of it. Mr Simmons did not have the day-to-day management of the currency. It appears more probably than not that this was done internally at Colly Farms with little advice to Mr Simmons as to how he should manage his risks. The way the "risks" were managed was by Colly Farms entering into transactions of the kind referred to in the letters as it saw fit and then seeking Mr Simmons' consent to those transactions. The different position was adopted in October 2001 after the exchange rate declined and Mr Starling wrote the three letters referred to earlier in this judgment. It was only then that Colly, as opposed to Colly Farms, started to communicate a "strategy" for Mr Simmons and the Company. Prior to that Colly Farms simply adopted the strategy for and "on behalf" of Mr Simmons. 292 Colly and Colly Farm's owed a duty of care to Mr Simmons. The scope of that duty is to be assessed having regard to the volatility of the legs of the OCC and foreign exchange itself in the futures market to which Mr Simmons was exposed. There is evidence that these transactions were inherently speculative. 293 It was submitted on Mr Simmons' behalf that he was entitled to an explanation of the nature and effect of the transaction which was adequate in all the circumstances: Chiarabaglio v Westpac Banking Corporation (1989) ATPR 40-971. In particular it was submitted that Mr Simmons ought to have received an explanation of the magnitude of the risk in taking out that amount of currency in December 1997 should things go wrong, and the nature and difficulty of the decisions that he would need to make to deal with the risk. It was submitted that this case may be distinguished from cases where a bank, for example, provides advice to an experienced businessmen. I agree with that.

294 I do not accept that Mr Simmons advised Mr McKay that he could commit to 1500 bales. It is clear that Mr Cottle thought that Mr McKay had informed him that Mr Simmons could produce up to 2000 bales per season. This communication was relied upon to suggest that Mr McKay was "talking up" the likely output in order to lock in more bales, upon which he would receive a commission. The size of the transaction, US$2.5 million, was very significant both in terms of Mr Simmons being a small grower, but also in respect of him having no experience in currency and being effectively locked in for so long, beyond even the New York Board of Trade listing in respect of futures. The evidence is that Mr Simmons' exposure was unusually high relative to the other farmers in the area. 295 It is true that the approval of Mr Simmons currency was not matched off in the way required under the Standard Conditions. The five years of currency was well beyond what even Colly was offered by its own bankers. It was unusual and so unusual that it had to be discussed between Mr Cottle and Mr Moore from Colly's Treasury Department before Mr McKay was given approval to go ahead with the currency arrangement. It was also inconsistent with Colly's own arrangements with its bankers which required a reducing exposure over time (tr 102). 296 Mr McKay knew that Mr Simmons was very fearful of signing any document that committed him or the Company to the production of 1500 bales per season. Not withstanding that knowledge Mr McKay placed Mr Simmons in a currency arrangement that was dependant upon the production of 1500 bales in a market that was at that time strong, but subsequently collapsed. Mr Simmons should have received advice that, should the cotton price collapse, he would be at a risk of losing a great deal of money. 297 I am satisfied that Colly and Colly Farms owed Mr Simmons (and later the Company) a duty of care in respect of the currency transactions, which required explanations to be given as to the nature of the risks involved, the discretion given to Colly in clause 35.2, the nature of the relationship between OCCs and currency and the need to fix the various legs of the OCC, and the dangers and risks associated with failing to fix those legs in a timely and appropriate manner.

298 I am satisfied that Colly and Colly Farms breached their duties of care.

The CRA Claim 299 It was submitted that as a result of entering the foreign currency positions, Mr Simmons was exposed to the consequence of considerable losses due to changes in the exchange rate in circumstances where there was no contractual mechanism to protect against the cotton price risk until OCCs were taken out. The fact that there was no matching off of bales against the currency until many months later, and indeed in respect of the latter years currency no matching off at all, did not allow the fixation of the other legs, futures and basis, to protect Mr Simmons' position. 300 It was submitted that Mr Simmons was not in a position to negotiate any alteration or reject any provisions of a currency position. It is unknown what the provisions of that arrangement were, as there were only the currency letters sent to Mr Simmons. 301 I am satisfied that Mr Simmons did receive copies of the Standard Conditions in 2000. I do not accept that he was provided with a copy by Mr McKay at any time prior to that. Even if that be wrong there is no suggestion by Mr McKay that he took Mr Simmons through the Standard Conditions or explained any of those conditions to him in a general way. Mr Simmons was not in a position to negotiate any changes because they were not brought to his attention, particularly in respect of the way in which currency could be hedged under clause 12 of the Standard Conditions or ordered under clause 35 of the Standard Conditions. 302 The relative economic circumstances and educational background of Mr Simmons are not in issue. He was educated to year 10 and described himself as "not a great scholar". Mr Simmons found reading difficult and gave evidence that he was unable to "motor through" complex documents (tr 270). His evidence that he did not read the documents, and would not have read the documents, is not evidence upon which I would find that he was in some way recalcitrant. He was cross-examined by Mr Cashion SC in respect of each contract as to whether he had read various parts of it. He indicated, I believe truthfully, that he read those parts that were in bold and were referring to the number of bales that he had to produce, but otherwise did not read the material. 303 It was submitted that this conduct, knowing the documents contained important contractual provisions in the commercial and legal relationship between the parties, was irresponsible. I am satisfied that Colly Farms and Colly knew that Mr Simmons was not a reader of the Standard Conditions. They knew that he had not signed an SFE Statement prior to 2000. Even what that was signed there was no proper, or any, explanation of that document. 304 A corporation may not be granted relief under the Contracts Review Act 1980: s 6(1). Thus the only claim to be considered under the Act is the contract between Colly Farms and Mr Simmons personally. It is clear that Mr Simmons did not obtain any independent legal or financial advice and that he relied upon what Mr McKay told him. In contrast when Colly entered into syndicated banking facilities to offer foreign exchange contracts, it took legal advice. Mr Butler agreed that legal advice was needed as the transaction was complex (tr 94). I am of the view that there was no accurate explanation of the legal and practical affects of currency transactions and any exposure that may result from the various risks being adverse to Mr Simmons. 305 It was submitted that Colly Farms acted in breach of the Banking (Foreign Exchange) Regulations (the Regulations). Regulation 5 provided that except with the authority of the Reserve Bank, "a person shall not, either on his own behalf or on behalf of another person, buy, borrow, sell, lend or exchange in Australia, or otherwise deal in Australia with, foreign currency". It was admitted on the pleadings that Colly Farms did not have authority from the Reserve Bank to so act. It is further submitted that the foreign currency positions or contracts were prohibited by the Regulations. 306 As I have said earlier in this judgment Mr Butler gave evidence that the foreign currency was merely a pricing mechanism for cotton. This position does seem to be contrary to the statements made in the Colly Farms letters confirming "FX deals" for certain amounts of currency. Additionally the letters from Mr Starling to Mr Simmons in October 2001 seem to be far more than simply a fixation of cotton price. It does appear that those letters referred to actual transactions or trades.

307 All that flows from such a finding, if it were to be made, in this case is a submission by Mr Simmons that such a breach should be taken into account in deciding whether to exercise a discretion in his favour in the CRA Claim. I do not intend to decide this question without a proper expert analysis of all the documents upon which it is claimed such a breach occurred. Such an analysis has not been made in this case and in any event this is not a necessary matter for me to decide on this aspect of the Cross-Claim. 308 Mr Morison informed Mr Simmons that he was no longer allowed to roll any currency because "the banks had stopped Colly rolling their currency". It appears that the Bank had changed its policy and prevented Colly or Colly Farms from rolling the currency. The fact that Colly or Colly Farms had been prevented by the banks from rolling their currency, did not mean that Mr Simmons was unable to roll his currency positions. Rather that was a commercial decision made by Colly and Colly Farms to ensure that they would not be disadvantaged by Mr Simmons being able to roll his currency positions against which Colly/Colly Farms were not able to roll their contracts. 309 Colly recouped all its losses by embedding rollover rates into Mr Simmons' currency reflecting its own losses, with interest; using currency to price cotton; closing out positions and financing the resulting losses; and in 2002 recouping the closeout losses and grower finance from cotton proceeds. It was submitted that Colly acted in self-interest to set-off the proceeds of the cotton against Mr Simmons' positions, whilst still putting forward a suggestion that they were in a negotiating mode. It was submitted that Mr Morison well knew that Mr D McKay and Mr Simmons were gathering information as requested by him. 310 There has not been proved in any evidence the existence of any provision that would entitle Colly Farms or Colly to close out the future years currency positions. Having regard to the above, it is clear that if such a provision existed, it would in my view be appropriately the subject of relief under s 7 of the Act, declaring that provision unjust and void. 311 Clause 35.2 was a clause in an OCC between the Company and Colly and did not apply to the future years currency positions. It is not amenable to a claim under the Act.

Quantum 312 The calculation of the quantum of damages payable to Mr Simmons and/or the Company is the subject of evidence from two experts, Professor Stephen F Gray, Professor of Finance at the University of Queensland called by Mr Simmons and the Company and Stephen Wyatt who is presently the China correspondent with the Australian Financial Review, who holds a Master of Economics from the University of Sydney and has had previous experience in risk management and in the cotton industry for merchants, called by Colly. 313 Mr Simmons gave evidence admissible in relation to each of the claims in the cross-claim, other than the negligence claim: s 5D 3 Civil Liability Act 2002; that, had he been advised or as he put it, given what he now knows about marketing and currency, he would have entered into cash contracts only and would not have entered into any contracts involving currency or foreign exchange. 314 Mr Simmons gave evidence that he generally does not consider selling cotton at less than A$500 per bale and refers to it as a "trigger price". He said that if the price is rising quickly he would often hold off marketing, or selling, until it seemed to him that the price had peaked and he would then sell off a future crop. He believed that he would have tried to market all of the 2000 production at a price of A$550 per bale, having regard to the Australian dollar cash price of cotton that had reached A$600 per bale in that period. He also gave evidence that he believed he would have been quite prepared to sign a fixed price contract for 1,000 bales at $550, with a balance of crop contract at the same price. 315 Mr Simmons calculated that, but for his dealings with Colly, he would have marketed the 1406 bales he grew in the 1999/2000 season by a balance of crop contract of 1406 bales at $550 or 1000 bale at $550 per bale and a balance of crop contract of 406 bales at $550. He did similar calculations for the seasons 2000/2001 and 2001/2002. Professor Gray analysed this approach in his report and calculated the resulting net loss incurred by Mr Simmons by having the currency in place as the difference between what his net income would have been as per the assumed marketing scheme just referred to and what he actually received for the various years.

316 Mr Wyatt on the other hand was rather critical of the assumptions made by Professor Gray on the basis of Mr Simmons' evidence. He agreed in his report that Mr Simmons' evidence disclosed "very good marketing" because $550 plus was historically a very high cotton price. There is of course an element of retrospectivity in all of this, but Mr Wyatt said in his report: To be blunt, given that, in reality, Simmons did such a poor job marketing his cotton, it is a stretch to assume he would have marketed near perfectly in different circumstances. 317 Mr Wyatt suggested that Professor Gray's assessment, that Mr Simmons would be assumed to have sold in cotton rallies, is not a valid one and gives to Mr Simmons a more generous assessment of the quantification of any damage than that to which Mr Wyatt suggested he was entitled. Mr Wyatt also suggested that there was no need to make any assumptions about the prices with which Mr Simmons would sell for this quantification process, because there is an actual record of the amounts at which Mr Simmons sold the cotton. Mr Wyatt took Mr Simmons actual US dollar cotton sales and converted them into AUD at the actual spot exchange rates that existed on the day that Mr Simmons made most of the sales. 318 Mr Wyatt was also critical of Mr Simmons not fixing the futures leg in his contracts. Mr Wyatt referred to this as a "simple procedure". There is no correspondence other than in late 2001 giving Mr Simmons any advice in respect of fixing legs or otherwise. Mr Starling seems to have been the first person to write to Mr Simmons in any professional way in October 2001 advising that the futures leg had been fixed in respect of that crop. It does not seem to me a valid criticism of Mr Simmons, when he had not been given advice, either orally or in writing, in respect of fixing those legs. Of course Mr Morison gave some evidence relating to some advice given to Mr Simmons for a strategy, once Colly refused to let Mr Simmons roll his currency any further. That strategy is one that does not seem to me have been explained carefully or simply to Mr Simmons in the circumstances. Mr Wyatt reached the conclusion that Mr Simmons' financial position may have been improved by $294,762 if he adopted the similar assumptions as adopted by Professor Gray. He then concluded that the loss of $294,762 is the futures profit forgone by Mr Simmons because of his inaction to price his futures leg. 319 Mr Wyatt also assumed that Mr Simmons sold cotton futures each year at 10% below the high. That is a less aggressive assumption than Professor Gray's $A550/bale forward sales into the two price windows. Mr Wyatt also assumed that Mr Simmons sold forward 1500 bales of futures each year, allegedly the same quantity that he hedged on the foreign exchange market. In conclusion Mr Wyatt claimed that there were no damages because Mr Simpson's losses were as a result of his failure to sell cotton futures. 320 The parties have not approached the quantum question on the basis of what may have been the case if the 2003, 2004 and 2005 currency positions had not been closed out, in other words, what the position may have been if the contract had not been breached. There is no such assessment. 321 The assessment of damages should be made on the basis of what the Company did earn in the years referred to below being 1999/2000, 2000/2001 and 2001/2002, taking into account the losses on the close out of the future years. The assessment should be made using the method adopted by Professor Gray on Mr Simmons' evidence, but with the adjustments to the bale prices that I have concluded are appropriate to take into account some of the caution expressed by Mr Wyatt in relation to the luxury of hindsight. 322 It seems to me that the bale prices assessed by Mr Simmons and Professor Gray are too generous in the circumstances of this case. I am satisfied that had Mr Simmons been provided with the appropriate advice in the form that he best understood he would not have agreed to taking currency of $2.5 million in December 1997. 323 I am satisfied that had Colly or Colly Farms advised Mr Simmons of the risks of currency, it is reasonable to conclude on all the evidence that Mr Simmons would have taken a far more cautious approach to the currency positions than was taken in December 1997. I am satisfied that for the years 1999/2000 and following the Company would have only sold cotton pursuant to a Fixed Bale/Cash Price Contract. I am of the view that in all the circumstances of this case, and taking into account the inherent risks in the industry, both environmental and financial, including a subsequent decline in the exchange rate, a reasonable figure for the bales for the crop year 1999/2000 is $510 per bale, for the crop year 2000/2001 $490 per bale and for the crop year 2001/2002 $475 per bale. Otherwise, I am satisfied that the method of calculation used by Professor Gray is to be adopted. Interest should also be calculated at the rates suggested by Professor Gray. Although I was provided with an excel document on CD to assist with the quantification of the damages, I am satisfied that the preferable course is to have the parties make this calculation to be included in the Short Minutes to be brought in. Orders 324 The Bank is entitled to the relief it seeks. Colly's Cross-Claim is dismissed. Mr Simmons and the Company are entitled to declarations that Colly's conduct in closing out the currency positions maturing in 2003, 2004 and 2005 was in breach of contract; that Colly and Colly Farms are in breach of s 52 of the TPA; that Colly and Colly Farms owed to Mr Simmons and the Company a duty of care and that such duties were breached. The Company and Mr Simmons are entitled to damages as assessed in accordance with the calculations performed by Professor Gray with the adjustment to the bale price referred to in this judgment. 325 The parties are to bring in Short Minutes of Order, including an agreed costs order, at 9.30 am on 1 August 2005. If the parties are unable to agree on a costs order I will hear argument on that day. ***********************

27/07/2005 - Typographical error - Paragraph(s) 324

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