Rennick & Gaynor Mortgages Ltd v Cossar

BP Refinery (Westernport) Pty Limited v Shire of Hastings (1977) 180 CLR 266 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 CASES CITED : Perpetual Trustee Company Ltd v Albert and Rose Khoshaba [2006] NSWCA 41 Pukallus v Cameron (1982) 180 CLR 447 Thompson v Palmer (1933) 49 CLR 507

Rennick & Gaynor Mortgages Ltd (Plaintiff) PARTIES : Dallas Allan Cossar (First defendant) Alma Janine Cossar (Second defendant)

COUNSEL : MW Young (Plaintiff) J Hubbard (Solicitor) (Defendants)

SOLICITORS : Bransgroves Lawyers (Plaintiff) McLachlan Chilton Solicitors (Defendants)

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION CIVIL LIST

2007/12315 RENNICK & GAYNOR MORTGAGES LTD v DALLAS ALLAN COSSAR & ANOR

1 HER HONOUR: By an amended statement of claim filed on 30 May 2008, Rennick and Gaynor Mortgages Ltd ("the plaintiff corporation") seeks an order for possession of land situated at Barham in the south west of New South Wales ("the Gracelands property") and a judgment against the first and second defendants in the sum of $3,525 932.35, plus interest until the date of judgment at the rate of $33,750 a month. Costs are sought on an indemnity basis. 2 The plaintiff corporation is a public company and the responsible entity for a managed investment trust. On 22 September 2006 it advanced loan funds in the amount of $3 M secured against the Gracelands property. The first and second defendants are the registered proprietors of the Gracelands property from which they currently operate a mixed farming enterprise.

The claim by the plaintiff corporation 3 The plaintiff corporation relies upon what is described in its submissions as a "strange contract" comprised of a number of documents - a letter of offer dated 13 June 2006, a registered mortgage dated 22 September 2006 and a document entitled "Deed of Settlement - Cossar" also dated 22 September 2006 ("the Deed of Settlement"). 4 In summary, the mortgage provided that in consideration for the provision of finance the defendants agreed that the principal would be repaid on or before 1 June 2010, that interest would be paid on a monthly basis at a specified rate (which reduced on a per annum basis if paid on time), and that the plaintiff's costs would be paid on an indemnity basis in the event of any default. The agreement also provided for both immediate repayment of the principal and any other monies owing under the mortgage, together with an entitlement to possession of the Gracelands property as the secured property in the event of default.

5 Under the Deed of Settlement the defendants undertook to immediately market the Gracelands property for sale and use their best endeavours to sell it within six months. The precise terms in which the obligation to market and sell the Gracelands property are expressed are as follows: "Sale of the Gracelands Property

4. In consideration of RGML providing the Mortgage Loan to the Cossars, the Cossars agree to place the Gracelands Property on the market for sale forthwith after settlement of the Mortgage Loan by: (a) proposing to RGML for approval a licensed real estate agent to market the Gracelands Property immediately after settlement;

(b) obtaining a proposed marketing plan from the real estate agent for approval by RGML prior to executing a real estate agency agreement;

(c) upon approval of the preceding items by RGML, executing a real estate agency agreement to sell the Gracelands Property in the manner set out in the approved marketing plan;

(d) ensuring that the real estate agent provides a copy of all correspondence, offers and information that it is required to provide to the Cossars to RGML in the same manner.

5. The Cossars will use their best endeavours to sell Gracelands within six (6) months of the settlement of the Mortgage Loan." 6 The plaintiff corporation submitted that the Deed of Settlement supplanted the contractual arrangement under the mortgage pursuant to which finance was provided for a five-year term.

7 The apparent tension between the rights and obligations of the plaintiff corporation as mortgagee and the defendants as mortgagors on the one hand, and their relative position as parties to the Deed of Settlement on the other, does not necessarily fall to me to resolve. The plaintiff corporation does not allege that the defendants breached any obligation under the deed, despite the fact that the deed expressly provides that any breach will be deemed a breach of the mortgage and constitute an event of default under the mortgage. The documents do however serve to shed some light on the intention of the parties at the time of contract and, to that end, reference to their terms may have a bearing on resolution of the factual matters that are in contest. 8 It would appear that the defendants first approached the plaintiff corporation in May 2006 with a view to securing finance in order to discharge an existing mortgage also secured over the Gracelands property. After the loan approval process was underway receivers were appointed to a corporation controlled by the defendants through which they operated the farming enterprise. The receivers entered into possession of the Gracelands property soon thereafter. It was common ground that the defendants' dispute with the previous mortgagee was not due to default on their part but as a direct result of a change of management and corporate direction of the previous mortgagee at a time when the defendants were in a process of developing the Gracelands property under persisting and severe drought conditions. 9 Although the loan funds were not ultimately advanced until September 2006, a mortgage was executed but not registered in July 2006 at what was described in the proceedings as "Stage 1" in the loan approval process. At that time the funding under consideration was to enable the defendants to regain possession of the Gracelands property and to reinstate the farming enterprise on an ongoing basis.

10 The loan was not approved in Stage 1 but was approved in what was described in the proceedings as "Stage 2" of the loan approval process. At that time the Deed of Settlement was executed together with a fresh mortgage in like, if not identical, terms to the mortgage executed in June 2006. The first interest instalment was due on 10 October 2006 in the amount of $6,916.41. It was not paid. No interest instalments have been paid since that time. Accordingly, so it is submitted, the defendants are in default. The defence

11 The defendants filed a defence to the amended statement of claim and a cross claim. In the defence they admit that the various documents constituting the agreement under which the finance was advanced were both received and executed by them but deny that the documents constitute the whole of the agreement. They claim that there was a further agreement, which was partly oral and partly implied, pursuant to which the plaintiff corporation promised that on or immediately after settlement they would execute a document (referred to throughout the proceedings as a "Lenders Certificate") enabling them to apply for an Exceptional Circumstances Grant ("an ECG") from the Commonwealth of Australia under a scheme designed to provide financial assistance in the form of an interest subsidy to support farmers in designated drought affected areas ("the ECG Scheme"). The ECG Scheme is administered by the New South Wales Rural Assistance Authority ("RAA").

12 The Lenders Certificate is a pro forma document entitled "Exceptional Circumstances Assistance Lenders Certificate". On its face it states that it is required by the RAA to assist them in determining an application for financial support under the ECG Scheme. The certificate makes provision for the lender's details and relevant details concerning the applicant's loan account. It also makes provision for the certificate to be executed by the lender in the following terms: "Unless default occurs, for the purpose of this enterprise obtaining Exceptional Circumstances assistance, we agree to continue to support this enterprise for 12 months, to at least to the limit of the facilities above and not increase the risk margins in this period."

13 The defendants submitted that through its officers the plaintiff corporation was aware at all times leading up to the date of settlement that the farming enterprise on the Gracelands property was their sole source of income and that securing financial assistance from the ECG Scheme was essential if they were to be in a position to resume farming operations and to have access to sufficient funds to meet the interest instalments under the mortgage until such time as the property could be successfully marketed for sale as a going concern. They also submitted that through its officers the plaintiff corporation was made aware that the provision of a signed Lenders Certificate was essential in order for them to qualify for assistance under the Scheme and that they were given to understand that a signed certificate would be provided on or after settlement.

14 The defendants claim that the plaintiff corporation's failure to provide the Lenders Certificate effectively constituted a breach of a condition precedent thereby relieving them of their obligation to make the monthly interest instalments under the mortgage. The plaintiff corporation's claim to immediate repayment of principal and its entitlement to take possession of the Gracelands property for the purposes of sale is also resisted on the basis that the defendants deny they are in default.

15 In the alternative, the defendants rely upon the general law as to unconscionability in circumstances where they claim they were entitled to assume, and did in fact assume, that the plaintiff corporation would provide the Lenders Certificate and that it would not seek to enforce its rights under the mortgage until a signed Lenders Certificate was delivered. 16 Relief under the Contracts Review Act 1980 is also relied upon. The defendants claim there was a material inequality of bargaining power as between themselves and the plaintiff corporation at the time of entry into the mortgage as they had no choice but to contract with the plaintiff in circumstances where a prior mortgagee was in possession of the Gracelands property and threatening to realise its security. In those circumstances the defendants claim that they had no opportunity to alter or reject the terms of the agreement and that the plaintiff imposed upon them terms and conditions which were unreasonably difficult to comply with and not reasonably necessary to protect their interests. 17 Although the defendants pleaded reliance on s 12 of the Australian Securities and Investments Commission Act 2001 (Cth), during the course of final submissions I indicated that having regard to the definition of "financial investment" and "financial services" under the Act I did not consider the Act had any application in the present case. The defendants' representative did not seek to persuade me to the contrary. The cross claim 18 By way of cross claim the defendants seek rectification of the agreement, a declaration that they are not in default and an order that the plaintiff/cross-defendant deliver a signed Lenders Certificate in the form acceptable to the RAA so as to enable it to advance the grant monies. They also seek an order that until the Lenders Certificate is supplied and considered by the RAA, the plaintiff/cross-defendant be restrained from enforcing, or seeking to enforce, any or all of its claimed entitlements under the mortgage and such further or other relief as the nature of the case may require. The issues 19 Representatives of the plaintiff corporation gave evidence in the proceedings by affidavit upon which they were cross-examined. The defendants also gave evidence by way of affidavit upon which they were cross-examined. Whilst there emerged some agreed chronology of relevant events preceding settlement, at settlement and since that time there remained considerable conflict in the accounts given by the officers of the plaintiff corporation of their dealings with the defendants and the defendants' account of those same dealings in relation to the central issue in dispute, namely whether in the course of Stages 1 and 2 of the loan approval process the Lenders Certificate was discussed and whether officers of the plaintiff corporation undertook to provide a signed certificate on the plaintiff's behalf at or immediately after settlement. 20 Were I to be satisfied that it was an implied term of the agreement that the plaintiff corporation would provide a signed Lenders Certificate after the mortgage documents were executed and the loan monies advanced (as distinct from the provision of a certificate being a condition precedent to any enforceable agreement coming into existence) and that in breach of that term the plaintiff failed or refused to provide the certificate, a question arises as to whether the defendants can resist the relief sought having regard to the way the defence is pleaded and the relief sought in the cross claim. The plaintiff's counsel emphasised that the defendants do not seek variation of the agreement or an order setting it aside, and importantly, that there is no claim in damages for breach of an implied term which might be set off against the debt owing under the mortgage. 21 On the other hand, the plaintiff corporation conceded that were I satisfied that there was a collateral oral promise that they would supply a signed Lenders Certificate after settlement, and that on its proper construction that promise operated by way of a condition precedent to any obligation the defendants may have under the mortgage, then the grounds for relief are not made out. 22 The defendants concede that subject to the availability of a statutory remedy or remedies under the general law if unconscionable conduct is established, if I am merely satisfied that whatever their expectations may have been about the extent to which the plaintiff corporation would or might be prepared to assist them to obtain grant monies by furnishing a Lenders Certificate, it was not the subject of any binding promise operating as a precondition to contract, then there is no impediment to the relief the plaintiff seeks. 23 The plaintiff corporation submitted that rectification of the agreement is not available when the defendants have neither alleged nor established that the documentation comprising the agreement failed to reflect the common intention of the parties at the time of contract that the plaintiff would supply a signed Lenders Certificate as part of its contractual obligations (see Pukallus v Cameron (1982) 180 CLR 447). 24 There was no evidence led in support of the proposition that there was a common intention that there be an express written term that the Lenders Certificate would be provided on or after settlement. In particular, despite the fact that the Deed of Settlement was drafted by the defendants' lawyers, there is no reference in that document to the provision of any Lenders Certificate much less any evidence to the effect that the failure to refer to it was through oversight. In the circumstances, I am satisfied that the defendants' claim for relief by way of rectification must fail regardless of whether the plaintiff corporation's or the defendants' version of events is ultimately accepted. 25 It is necessary to set out the facts in some detail in order to resolve the conflict inherent in the diametrically opposed versions of the pre-contractual negotiations as they relate to discussions about the ECG Scheme in general and the provision of a signed Lenders Certificate in particular. Negotiations at Stage 1 of the loan approval process

26 Correspondence from the plaintiff corporation in May and June 2006 reflects the fact that at that time the defendants' application for loan finance was receiving serious consideration. On 15 May 2006 the plaintiff corporation advised that although they were unable to provide unconditional approval, the defendants' application for loan finance was conditionally approved on the basis that an active review of the application was continuing as part of the plaintiff's due diligence process. It is also clear from that course of correspondence that the valuers retained by the plaintiff corporation had provided a sworn valuation of the Gracelands property at $6 M on the basis of which they were considering an advance of $3 M as the amount required to discharge the defendants' indebtedness to the outgoing mortgagee.

27 The application for finance was supported by documentation of various kinds (supplied both by the defendants directly and through a mortgage broker) including, importantly for present purposes, a series of progressively updated cash flow projections prepared by Mr Cossar, the first defendant, where the anticipated receipt of $100,000 in two aliquots over a twelve month period was recorded against the words "exceptional circumstances". 28 Mr Geofery Rowles, the managing director of the plaintiff corporation and its mortgage manager, was directly involved in the loan approval process and in that capacity reviewed the documentation furnished in support of the loan application. Mr Rush, a director of the plaintiff corporation and employed by the plaintiff corporation as a solicitor experienced in dealing with mortgage transactions, also considered the cash flow projections as part of his review of the loan application from time to time.

29 The extent to which either Mr Rowles or Mr Rush were aware of the defendants' dependence on grant monies under the ECG Scheme, (whether from their own review of the cash flow projections or from conversations with the defendants) was a matter hotly contested at the hearing as was the related question of whether the Lenders Certificate was discussed and representations made that a signed certificate would be supplied. Discussions concerning the Lenders Certificate in Stage 1

30 In her affidavit of 29 February 2008, Mrs Cossar, the second defendant, set out the terms of a conversation she had with Mr Rowles in June 2006 which was to the following effect: "Mrs Cossar: Geoff will you sign the Lender's Certificate for the EC grant to allow us to meet the budget? Mr Rowles: I will do this as soon as the loan settles. Mrs Cossar: That will be great. I have the application ready to go but it needs your lenders certificate to be approved." 31 In his affidavit of 20 March 2008, Mr Rowles denied that he had any conversation in these terms or any similar terms, whether that be in June 2006 or at any other time up to and including settlement. Furthermore, he claimed that he was not aware of the need for a Lenders Certificate to be provided by the plaintiff corporation to facilitate the defendants' application for grant monies under the ECG Scheme until 9 October 2006 (approximately three weeks after settlement) when he received a faxed copy of a Lenders Certificate from the first defendant accompanied by a request that it be executed by the plaintiff corporation.

32 In a further affidavit, prepared after service of Mr Rowles' affidavit of 20 March 2008, the second defendant said she was surprised to learn that Mr Rowles denied knowing anything of the need to provide a Lenders Certificate, or that she had spoken with him about it. She gave evidence that she was familiar with the ECG Scheme and was well aware that if grant monies were to be made available a Lenders Certificate in the approved form would need to be supplied to the RAA. She said that at the beginning of June 2006 she prepared the necessary documentation, including an unexecuted Lenders Certificate, for submission to the RAA on the basis that the plaintiff corporation had given conditional approval for the loan. She said at this time she had a further conversation with Mr Rowles as follows: "Mrs Cossar: I have got a lenders certificate that needs to be signed by you for us to be able to get the exceptional circumstances to meet our interest commitments. Could I fax this into you for you to sign?

Mrs Cossar: I have the documents ready to go to the Rural Assistance Authority I just need that lenders certificate signed and then I will send it off. We need this to meet our cash flow budget.

Mr Rowles: I will sign that later once we have settled." The significance of the ECG Scheme in Stage 1 33 Messrs Rush and Rowles were both cross-examined at length about the extent to which they were on notice of the defendants' dependence on ECG monies for their cash flow in Stage 1 of the loan approval process and, if so, the enquires they made, independently of the defendants, as to the operation of the ECG Scheme as part of the due diligence process. 34 In my view, even the most cursory review of the cash flow projections furnished in Stage 1 (together with those that were furnished later) revealed the defendants' wholesale dependence on the receipt of ECG monies for their cash flow over successive months until such time as income was generated from the harvest and sale of lucerne as a cash crop.

35 In different ways Mr Rush and Mr Rowles both sought to distance themselves from an appreciation of the significance of the receipt of grant monies in the cash flow projections. They both disclaimed any interest in the way the ECG Scheme operated. I am satisfied that they took that position in their evidence well knowing that were they to have made their own enquiries of the RAA they would have been informed of the requirement for the provision of a Lenders Certificate in the approved form as part of the process by which grant monies were made available under the Scheme.

36 Mr Rush's position was that in Stage 1 his focus was on the defendants' debt position and that the question of cash flow was Mr Rowles' responsibility. 37 Mr Rowles accepted that in Stage 1 he needed to be satisfied that once the defendants had regained possession of the Gracelands property and the farming enterprise was rendered operational that sufficient cash flow could be generated to justify the extension of loan finance over a five-year term. He also accepted that the cash flow projections made it plain that access to the ECG monies was essential to achieve the defendants' objective in the short term. However, despite having no independent knowledge of the way the ECG Scheme operated, he gave evidence that he made no enquiries of anyone, including the defendants, to gain any understanding of the Scheme or any potential impact its operation might have had on the commercial viability of the loan under consideration.

38 Irrespective of the criticism that might be levelled at Mr Rowles for his lack of diligence in protecting the position of the plaintiff corporation as lender in these circumstances, (whether or not that is wholly or partly explained by his admitted inexperience in the rural market), I accept his evidence that he made no relevant enquiries of the RAA or any other person or agency who had knowledge of the ECG Scheme and, accordingly, that he was not on notice as to what a prospective lender was actually required to provide in order for an application for loan funds to be considered. That said, and for reasons which I will elaborate upon when coming to consider the course of negotiations in Stage 2 of the loan approval process, I do not accept Mr Rowles' evidence denying the conversation with Mrs Cossar in June 2006. Furthermore, for reasons which I will elaborate upon in due course, I do not accept his claim, or that of Mr Rush, that the Lenders Certificate was not the subject of discussion in Stage 2, in particular in the week immediately prior to settlement on 22 September 2006. 39 The plaintiff sought to persuade me that at Stage 1 the Lenders Certificate was no more than another piece of paperwork that neither of the defendants had any particular reason to discuss. After having heard from both defendants I do not accept that to be the case. The defendants were experienced in making applications under the ECG Scheme and well appreciated that a signed Lenders Certificate was essential to their application of assistance being processed. I am satisfied that in the face of adversity, and whilst under considerable financial pressure, they were determined to attempt to return the Gracelands property to an operational state and that they were in no doubt that a successful application under the ECG Scheme was fundamental to them having any prospect of making the farming enterprise productive. 40 For this reason, in my view, the high probabilities favour a finding that the provision of a signed Lenders Certificate was in fact raised by Mrs Cossar in her dealings with Mr Rowles and that she openly requested that one be supplied. I am also satisfied that Mr Rowles agreed to provide a signed certificate but deferred its provision until after settlement. Negotiations at Stage 2 of the loan approval process

41 On 17 July 2006 the plaintiff corporation withdrew the conditional offer of finance made in May 2006.

42 In late August/September 2006 the defendants asked the plaintiff corporation to reconsider extending finance on the basis that finance would be advanced under the mortgage with the immediate objective of discharging the existing mortgagee (as was the proposal in Stage 1) but on their undertaking to immediately market the Gracelands property with a view to selling it within six months and discharging the mortgage to the plaintiff corporation at that time. The Deed of Settlement, the relevant parts of which are summarised at [5] above, was apparently drafted by the defendants' lawyers and provided to the plaintiff corporation for their consideration.

43 Mr Rowles claimed that in Stage 2 of the loan approval process there was no need for him to focus on the capacity of the farming operation to generate cash flow because a sale of the property was contemplated and, that for this reason, he was unconcerned about the defendants' reliance on ECG monies as reflected in the cash flow projections.

44 This evidence is difficult to accept in light of the fact that Mr Rowles' handwriting appears on a cash flow projection of 5 September 2006 signifying that the document was reviewed by him within weeks of settlement. It is also difficult to accept in light of his concession under cross-examination that part of his role in reviewing the loan application at Stage 2 was to satisfy himself that the defendants would have funds available to meet their commitment to pay interest instalments under the mortgage even if that proved to be only in the short-term. 45 Mr Rowles claimed that on settlement he had the expectation that the defendants would be able to meet both the first interest payment due on 1 October 2006 and the monthly interest instalments that fell due thereafter until the property was successfully sold and that he relied upon the defendants' assurances to that end. He invited the Court to accept that he did nothing to test those assurances against the objective evidence. Under cross-examination he was unable to explain on any rational basis why he held these expectations since it was clear from the structure of the loan that after the plaintiff corporation retained six months' interest as a security deposit, and after the remaining loan finds were dispersed at the point of settlement to discharge the existing mortgage, that there was no residue available to the defendants to draw upon to meet their obligations to pay interest. 46 Mr Rush also maintained that by September 2006 he gave only limited consideration to the capacity of the defendants to meet the mortgage on an ongoing basis. As with Mr Rowles he also claimed under cross-examination that he accepted the defendants' assurances that they would meet the first mortgage instalment nine days after settlement without making any enquiries as to their capacity to do so. He maintained the position that since due diligence had been satisfied as a result of enquiries by others (principally Mr Rowles) it was not for him to ensure that the defendants could meet their mortgage commitments. 47 Again the question arises as to whether a reasonably diligent lender in Mr Rush's position in the plaintiff corporation, concerned about the prospect of a borrower being able to meet their obligations under a mortgage providing for a five-year term, irrespective of the extent to which that obligation was qualified by an undertaking that the borrowers would use their best endeavours to sell the mortgaged property within a six-month period, would make no enquiries at all of the body administering a grant scheme in circumstances where the borrower had made it plain that they were dependant on grant monies to meet their obligations under the mortgage on an ongoing basis, to say nothing of their dependence on the funds to resume a viable farming enterprise.

48 The plaintiff's counsel suggested to both defendants that since they were able to provide $46,479 as part of the loan structure on settlement that they in fact had access to other funds from which to make the first interest payment and to inject capital into the farming enterprise. Mr Cossar gave evidence that the funds provided at settlement were borrowed from private lenders in Sydney. He said: "…that must have been where it came from because I can't think of anywhere else because I know we didn't have any". 49 When it was suggested to him that he could have drawn on that same source to meet the first interest payment due on 1 October 2006 he said that he was unable to do that for the following reasons: "Because we were probably borrowing. We would have been, we would have done everything in our power to get enough money to cover it and I remember going back there not having any money. We didn't even have enough money for food the first week. We were flat out covering ourselves to do that and we … would've been desperately waiting for the Exceptional Circumstance (sic). Desperately waiting." 50 I accept this evidence as truthful and an accurate reflection of the importance, as the defendants saw it, in securing grant monies in Stage 2 of the loan approval process. 51 Mr Rowles was ultimately forced to concede that on any view of the cash flow projections supplied at Stage 2 (equally as was the case at Stage 1) the defendants were entirely dependent upon ECG monies if they were to contemplate resuming farming operations. In addition, until such time as the cash crop of lucerne was harvested and sold to provide working capital, the budgeted receipt of $100,000 of grant monies in September 2006 and a further $100,000 forecast for receipt in February 2007 was the only direct source of funds from which the monthly mortgage instalments could be made. 52 After being cross-examined on phone records, Mr Rowles conceded that he had a number of conversations with the defendants prior to settlement where the ECG was discussed. While he claimed no specific memory of those conversations, and was unable to recall them even in the most general terms, he maintained the position that he had personally given no assurance that a Lenders Certificate would be provided. He denied that he said to Mrs Cossar that it was unnecessary for a copy of the certificate to be supplied by her because he already had one. 53 Although Mr Rowles maintained the position that he was unaware (and accordingly the plaintiff corporation was unaware) that to facilitate the defendants' application for assistance they were required as lenders to provide a Lenders Certificate, after having been taken to an explanatory note to the ECG on a cash flow projection of 5 September 2006, which read: "due for last year within 30 days after signed by new lender and another one due in February 07" (emphasis added), he conceded that by reference to the explanatory note the plaintiff corporation was on notice that they needed to do something as lender in order for the application for grant monies to be processed. He also conceded that the plaintiff corporation had been provided with all the evidence, information and material it needed to appreciate the significance of the need to sign the Lenders Certificate if the defendants were to be able to fund their commitments under the mortgage. Although he made the concession that in hindsight he should have given the plaintiff corporation's obligation as a lender under the Scheme closer attention, he nevertheless maintained that at the time of settlement he had not done so despite the fact that the defendants' mortgage brokers had specifically drawn his attention to the need for the certificate in the explanatory note. He claimed not to have noticed the note and that if he did, it did not register with him as referable to any conversation with the defendants about the need for the plaintiff corporation to sign a Lenders Certificate.

54 In contrast to the inherently improbable evidence given by Mr Rowles of his approach to processing the loan application at Stages 1 and 2, I regard the defendants' evidence generally as compelling a conclusion that they were dependent on receipt of grant monies and that they made this plain throughout their dealings with Mr Rowles. 55 I also regard the defendants' evidence as to what occurred in the three or four days prior to settlement on 22 September 2006 as persuasive. In particular, I find it improbable that the defendants did not ensure that the plaintiff corporation was fully aware of the role that they were required to play in the provision of an executed Lenders Certificate. 56 On 18 September 2006 they travelled to the plaintiff corporation's offices in Melbourne to collect the loan documentation, including the Deed of Settlement which was apparently waiting their collection for execution. As it was late in the evening when the documents were executed they stayed overnight in Melbourne and returned to the plaintiff corporation's offices the following morning with the documentation. Apparently they were not content with simply leaving the executed documents with administrative staff but insisted that the documents be checked to make sure that everything was in place before they left Melbourne as time was of the essence. It was that morning that they met Mr Rush for the first time. That is conceded however the account Mr Rowles and Mr Rush gave of what was said in the course of the meeting is at direct variance with the defendants' evidence. 57 The defendants claim that in the course of a general discussion they told Mr Rush and Mr Rowles that there were 400 acres of lucerne under centre pivot irrigators (in respect of which they had secured forward orders for sale) and that they had budgeted to buy the water that was needed to irrigate the crop as there were people in the region who had carried water over from previous years. 58 Mrs Cossar confirmed her husband's evidence that they spoke about the difficulties they had encountered with the Murray River irrigation system, the limitations on water allocation in persisting drought conditions and that the pivot irrigation system had been embraced by them as a means of generating income since each pivot covered 200 acres of sown lucerne. She said that both Mr Rowles and Mr Rush appeared genuinely interested in what her husband was telling them and it was then that they moved on to consider the mortgage documentation itself. According to Mrs Cossar's evidence, a conversation to the following effect took place: "Mr Rowles: We are going to hold the sum of $140,000.00 in a trust account deposit. Interest payments each month are not going to be drawn down from that account, you have to pay the interest from other means.

Mr Rush: Do you think you will be able to meet your commitments? There is an interest component due at the end of the month, how do you think you will go meeting that?

Mr Cossar: I certainly hope so. We will do everything we can to do it. We have the exceptional circumstances documents ready to be sent, we are just waiting on the lenders certificate to be signed by you.

Mrs Cossar: Mr. Rowles do you need another copy of the lenders certificate?

Mrs Cossar: Yes I thought so I was just making sure."

59 Neither Mr Rush nor Mr Rowles referred to this conversation in their affidavits. In the course of cross-examination while they both conceded there was general conversation about farming, they both endeavoured to downplay the import of the conversation as it concerned the prospective acquisition of water for the purposes of irrigating the cash crop of lucerne. I am satisfied they did this in order to maintain the position that they were unconcerned about the future profitability of any farming operations at the Gracelands property so as to distance themselves from what they knew to be a promise Mr Rowles had made to provide a signed Lenders Certificate, a promise that the plaintiff corporation unilaterally decided to dishonour.

60 It is appropriate to emphasise that Mr Rush's affidavit evidence was filed in reply and that since it was unclear whether or not a case in reply would be called Mr Rush remained in the court while the defendants were cross-examined. When Mr Rush was called to give evidence I formed the distinct impression that he crafted some of his answers to meet what he assessed to be the probative force of the defendants' evidence where they both emphasised their reliance on grant monies to purchase water if the cash crop of lucerne was to be viable and the fact that this was discussed with him personally by telephone and at the September meeting. 61 Under cross-examination Mr Rush said that Mr Cossar had informed him that water was to be made available gratuitously by a neighbour which was consistent, so he claimed, with evidence Mr Cossar had given in the proceedings. In fact Mr Cossar's evidence was to the clear effect that when he was referring to accessing a neighbour's water he was referring to the predicament he faced when no grant monies were available after settlement and not prior to settlement when grant monies were anticipated. When Mr Rush was confronted with Mr Cossar's evidence he sought to revise his earlier evidence in a way that was utterly disingenuous. 62 Mr Rush was also taken to a telephone conversation he had with either Mr Cossar or his brother the day before the meeting in the plaintiff corporation's offices on 19 September 2006. After being taken to his file note he conceded in cross-examination that he knew then that there was an urgent need to "get the water on the Lucerne a.s.a.p." since in the file note the word "lucerne" is underlined and the acronym "a.s.a.p". is also underlined. When Mr Rush's attention was drawn to the note and the emphasis he gave in recording it he was unable to offer any explanation for it otherwise than him simply recording what he was told in the telephone conversation without it being a matter of any interest or importance. 63 Mr Rush also ultimately conceded an appreciation that the defendants had no surplus or working capital from the proceeds of settlement and that he had no knowledge of any funds to which they might have recourse in order to obtain water urgently. When he was shown the cash flow projection of 5 September 2006 he accepted that he had not only seen the document before but that the receipt of $100,000 of ECG monies was a significant payment expected to be received as income in the month of October. He also agreed that within the expenses column relating to that forecast, provision was made for the projected cost of water and for fertiliser and that these expenses, together with the ongoing commitment to meet the mortgage instalments, was budgeted as coming from no source other than the injection of grant monies. 64 Despite this concession Mr Rush also trenchantly maintained the position that he had no notice of the fact that a Lenders Certificate was an essential step in the application for loan funds and denied being party to any conversation concerning the Lenders Certificate. He said that he understood obtaining the grant monies to be something that the defendants were responsible for and that there was no requirement on the part of the plaintiff corporation to be associated with that process in any way. He also maintained the position that despite the defendants' wholesale dependence on the grant monies he made no enquiry of any kind as to whether the administering authority had any expectations of a lender's ongoing support. He denied that the defendants raised the Lenders Certificate with him personally in the pre-settlement communications. When he was shown the explanatory note to the ECG, he conceded that it was important information and that the "new lender" would necessarily be the plaintiff corporation in the circumstances however he claimed no recall of the document and also claimed, somewhat opaquely, that he did not recall the matter being brought to his attention by Mr Rowles in his capacity as the person responsible for processing the application for loan funds. He also maintained the position that if the defendants had informed him of the requirement for a lender to execute the Lenders Certificate he would have followed it up with further enquiries.

65 In so far as the Deed of Settlement contemplated a sale within six months it would appear that the parties had different expectations as to whether the property would in fact be sold. Mrs Cossar said that whilst she and her husband were prepared to put the property on the market in accordance with their undertakings under the deed, they did not expect the property would be sold because of the drought. It was not in issue that the defendants made genuine endeavours to market the property. The plaintiff corporation were in receipt of documents reflecting that fact. 66 Although the plaintiff corporation did not seek to persuade me that under the deed it had a right to insist on the sale of the property within six months irrespective of the state of the market, it did seek to persuade me that in these circumstances the defendants were well aware that the plaintiff corporation was not committed to supporting the farming enterprise on the Gracelands property on an ongoing basis and that they knew it would not have executed the Lenders Certificate if they were asked. 67 Irrespective of whether or not the deed had the effect of varying the term of the mortgage, (as distinct from it being an expression of a commitment on the part of the defendants to market the property with a view to sale in the event that the farming enterprise was able to be regenerated and in the event of the drought conditions lifting), I am compelled to the view that the plaintiff corporation did not generally consider that at settlement the mortgage was in fact overtaken by the deed and that they in fact contemplated the prospect of the mortgage continuing over its term. Since the overwhelming evidence is that Mr Rush and Mr Rowles were well aware of the defendants' reliance on grant monies their evidence must be viewed with some suspicion where they have endeavoured to deflect any concern about or awareness of that fact in Stage 2 of the loan approval process up to and including the date of settlement. 68 In seeking to persuade me that the Lenders Certificate was not a document of the fundamental importance for which the defendants contend, the plaintiff's counsel emphasised that there is no correspondence, file note or documentation of any kind confirming that a certificate had been asked for or agreed to, and nothing to explain why it was not incorporated into the loan documentation as a contractual or a pre-contractual term. It was also submitted that the letter to the plaintiff corporation on 9 October 2006, where Mrs Cossar attaches the Lenders Certificate and requests that it be signed, does not convey any of the irritation, impatience or indignation that would be expected in the circumstances. Counsel submitted that the letter has all the hallmarks of a letter which attached a Lenders Certificate for the first time. In her evidence Mrs Cossar said that she waited until the 9 October 2006 to forward the letter requesting execution of a certificate because of her reliance upon the bona fides of the plaintiff corporation. She said: "…I was just waiting every day, thinking, "Oh, is it going to come, is it going to come?", and it didn't. And in the end I decided, well, I will just send them another one, just to jolt their memory, because ... I just thought, well, perhaps they have forgotten or something." 69 It was put to Mrs Cossar in cross-examination that she deliberately made no mention of the Lenders Certificate in her dealings with Mr Rowles, and deliberately did not provide a copy of the Lenders Certificate prior to settlement because she knew that once the deed was executed the plaintiff corporation could not sign the certificate because to do so would be to misrepresent its position to the RAA. She disagreed with that proposition. She said that she and her husband would not have proceeded with the loan at all if they did not have the security of knowing that they would be the recipients of grant monies in circumstances where those monies were essential to the farming enterprise being productive in the short to medium term. I accept her evidence. 70 When Mr Cossar was asked as to his belief regarding the attitude of the plaintiff corporation to supporting the farming enterprise beyond the six-month time frame, he said that he was hopeful of refinancing after the expiration of the six-month period. He emphasised that the marketing of the property and attracting another lender was dependant upon the farm being productive and that the receipt of grant monies was essential from that perspective. Moreover, as Mr Cossar emphasised, while they were going to attempt to sell the property within six months there was no guarantee that that would prove to be possible. He also noted, what is undoubtedly correct, namely that as it turned out the Gracelands property would not have been marketable in any event because of persisting drought conditions in an already depressed rural market. He said: "Q. … prior to executing the deed in September had you and your wife made your own independent enquiries of the likelihood of attracting a purchaser to acquire Gracelands given the circumstances that presented at the time, namely, a depleted market and in very tight drought conditions? A. Yeah… We had made some enquiries to see what was out there, but there wasn't much out there then and it just got worse." Mr Cossar further stated: "At the time of signing those deeds we thought there was still a market out there. We knew it would be very tough. But it got, after that, that's when it got tougher and after that when the water shut off and water was taken, taken off everybody in the whole area, the government just shut down everything and said; "We haven't got water in our system". That's when it got real tough." 71 He denied that the Lenders Certificate was deliberately withheld from the plaintiff corporation. 72 There was one aspect of Mr Cossar's evidence which I found had all the hallmarks of a truthful account on this question. When it was put to him that it was only after the loan from the plaintiff corporation had been secured that the Lenders Certificate was sent he volunteered the following: "The day we went in and … met up with Mr Rush, my wife asked Mr Rowles if he had a lender's certificate. And she had one in, a spare one in her handbag filled out… She reached - now, I can see her today - she reached down to get it and he said; "No, I'm right". That was before we signed, before the, we brought the documents back."

73 In seeking to persuade me that the defendants' account of their dealings with Mr Rush and Mr Rowles in relation to the Lenders Certificate should be rejected as untrue the plaintiff's counsel drew attention to Mr Rowles' evidence to the effect that had the defendants informed him of the requirement for the plaintiff corporation to execute a Lenders Certificate he would have made enquiries of the authority administering the scheme so as to ensure that it was appropriate for the plaintiff corporation to execute it given its corporate responsibilities. Were the issue to have simply been a conflict between the defendants' evidence and the evidence of Mr Rowles and Mr Rush, without any basis for an adverse finding on the issue of credit, what Mr Rowles would have done may have carried weight. However, as I have already made clear, in all the circumstances I do not accept Mr Rowles' evidence denying the conversations where assurances were given by him concerning the Lenders Certificate (whether that be in June or in September 2006 or both) and I have grave doubts about Mr Rush's honesty where it is in conflict with the evidence of the defendants. 74 The only conceivable explanation then for Mr Rowles' lack of attention to the precise terms of the obligation of the plaintiff corporation in providing a Lenders Certificate must have been a misplaced belief that its execution and provision was a mere formality and that it would not involve any commitment to support the enterprise on an ongoing basis. When he was asked whether it was possible that when the defendants had spoken of the need for the Lenders Certificate he had in fact represented that the plaintiff corporation would sign the document but failed to appreciate the full implications of what was required of the plaintiff corporation as lender he rejected that as a possibility. 75 Contrary to his denial, I am satisfied that when the first interest instalment was not paid on October 1 2006, and the Lenders Certificate arrived by fax on October 9 2006, the probabilities favour a finding that what Mr Rowles earlier believed to be a mere formality became a commercial impediment for the plaintiff corporation since the Deed of Settlement envisaged sale within six months and not ongoing support in an unqualified fashion over a twelve-month period. Whether he was forced under pressure from the plaintiff corporation (and perhaps other directors) to renege on the agreement with the defendants to provide the certificate is not necessary to decide. Suffice to say that I am satisfied on the probabilities that is what occurred. Resolution of the issues raised by the pleadings 76 Although I am satisfied that Mr Rowles led the defendants to believe that the plaintiff corporation would provide a signed Lenders Certificate after settlement, it by no means follows that it was intended to operate as a condition precedent, in the sense that non-fulfilment of the promise or undertaking would relieve the defendants of their obligations under the mortgage. Were it intended that the provision of a signed certificate would operate in this way I am confident that there would have been reference to it either in the Deed of Settlement, the mortgage itself or in the course of correspondence between the parties in the negotiating phase. Moreover, since the mortgage and the Deed of Settlement are comprehensive documents, which on any view express the intentions of the parties as borrower and lender, I am not satisfied that a condition precedent, operating the way that the defendants contend for, ought to be implied (see generally BP Refinery (Westernport) Pty Limited v Shire of Hastings (1977) 180 CLR 266). 77 In addition, even if the promise or undertaking to provide a signed Lenders Certificate was a contractual term, albeit not operating as a condition precedent, breach of such a term would only sound in damages. As the plaintiff's counsel points out relief of this kind is not pleaded in the cross claim and is, in any event, without any evidential foundation. 78 The question that survives that analysis is whether the plaintiff corporation had a right not to honour the promise made by Mr Rowles on its behalf even if it is not enforceable as a contractual term. 79 While the defendants did not use the language of estoppel, they have argued that the plaintiff corporation ought to be precluded from changing its position in respect of its previous promise as to permit them to do otherwise would be unconscionable. It is the concept of unconscionability that is the touchstone for the use of the principle of estoppel as a means of enforcing promises where a person has relied upon a promise to their detriment. In Thompson v Palmer (1933) 49 CLR 507, Dixon J said at 547: "Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct, as in Yorkshire Insurance Co. v. Craine [101] , at pp. 546-547; cp. Cave v. Mills [102] , at pp. 746-747; Smith v. Baker [103] , at p. 357; Verschures Creameries Ltd. v. Hull and Netherlands Steamship Co. [104] , at p. 612; and Ambu Nair v. Kelu Nair [105] , at p. 271; or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party's adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption. But, in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted." 80 I am satisfied that the promise relied upon by the defendants was both unequivocal and unambiguous. I am also satisfied that the plaintiff corporation induced the defendants to proceed to settlement on the assumption or expectation that the Lenders Certificate would be provided, that the defendants acted to their detriment in reliance on that expectation and that the plaintiff corporation knew or intended that that would be the case. 81 Accordingly, since the plaintiff corporation failed to avoid the detriment suffered by the defendants by fulfilling its promise to execute the Lenders Certificate in its stipulated terms, relief should be granted so as to relieve the defendants of the unconscionable consequence of the plaintiff corporation reneging on its promise. I propose to order relief that is proportionate to the detriment suffered by the defendants in reliance on that promise. 82 I am conscious that relief on the ground of unconscionable conduct as a matter of general law and in the sense in which Mason J referred to it in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461 may not be satisfied in the present case. I am also of the settled view that relief under the Contracts Review Act has not been made out (see Perpetual Trustee Company Ltd v Albert and Rose Khoshaba [2006] NSWCA 41). However, despite the fact that it cannot be said that the plaintiff corporation took an unfair advantage of the defendants (it not having been suggested much less established that the defendants were not adequately and professionally advised throughout the loan approval processes), and that it cannot be said that the plaintiff corporation unconscionably exploited a special disadvantage in the defendants, I am nevertheless satisfied that they acted unconscionably in the sense that they acted unilaterally and in their own commercial interests when they refused to supply a Lenders Certificate in its given terms. 83 I am satisfied that the appropriate relief is to preclude the plaintiff corporation from recovering the unpaid interest under the mortgage but to otherwise permit it to recover the principal as monies had and received. I am resolved to this view being satisfied that it was well understood by the plaintiff corporation that without access to the grant monies the defendants had no capacity in the immediate to short term to meet their obligations to make progressive interest instalments. 84 In so far as the remaining relief sought by way of cross claim is concerned, I am not persuaded that any order requiring the plaintiff corporation to deliver a signed Lenders Certificate ought be made if for no other reason than there was insufficient evidence as to the current operation of the ECG Scheme or the entitlement of the defendants to assistance. In these circumstances and with the effluxion of two years, it would be inequitable to require the plaintiff corporation to honour its promise. Findings

85 Accordingly, I find as follows:

1. The plaintiff corporation has acted unconscionably by its refusal to provide an executed Lenders Certificate after 22 September 2006 in the form provided by the New South Wales Rural Assistance Authority as the authority administering the Exceptional Circumstances Grant Scheme.
2. The defendants have suffered a detriment to the extent of their liability to pay interest as stipulated in the mortgage. 86 Orders
3. Judgment against the first and second defendants in the amount of $3,000,000.00 representing the sum advanced by the plaintiff corporation.
4. In respect of interest payable under s 100 of the Civil Procedure Act 2005 and Rule 36.7 of the Uniform Civil Procedure Rules 2005 the parties are to agree as to the applicable rate and if agreement cannot be reached I direct the parties to file written submissions within 21 days.
5. Since I did not receive any submissions as to the effect on the security of findings such as those I have made in this case, this necessarily impinges on the question whether leave should be granted to issue a writ of possession. Before deciding that question, and the question of costs, I direct that the parties file written submissions within 21 days.

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