Wily & Anor v Endeavour Health Care Services Pty Ltd & Anor

CATCHWORDS : MORTGAGES - Remedies of the Mortgagor - Clog on the equity of redemption - Collateral advantage - Option to purchase - Whether transaction, in substance, a mortgage - Whether clog rule binding on single judge - Whether unconscionability the only basis for unenforceability of collateral advantage Trade Practices Act 1974 (Cth) LEGISLATION CITED : Real Property Act 1900 Privy Council (Appeals from the High Court) Act 1975 (Cth) Jones v Dunkel (1959) 101 CLR 298 G & C Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 Jones v Morgan [2001] EWCA Civ 995 Noakes & Co Ltd v Rice [1902] AC 24 Reeve v Lisle [1902] AC 461 Samuel v Jarrah Timber and Wood Paving Corp Ltd [1904] AC 323 Westfield Holdings Ltd v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194 Re Modular Design Group Pty Ltd (in liq) (1994) 35 NSWLR 96 Epic Feast Pty Ltd v Mawson KLM Holdings Pty Ltd (in liq) (1998) 71 SASR 161 Baker v Biddle (1923) 33 CLR 188 CASES CITED : Jacobs v London County Council [1950] AC 361 Toohey v Gunther (1928) 41 CLR 181 Lord Strathcona Steamship Co Ltd v Dominion Coal Co Ltd [1926] AC 108 Fairclough v Swan Brewery Co Ltd [1912] AC 565 Viro v The Queen (1976-1978) 141 CLR 88 Blomley v Ryan (1956) 99 CLR 362 Commercial Bank of Australia Ltd v Amadio (1982-1983) 151 CLR 447 Louth v Diprose (1992) 175 CLR 621 Fisher and Lightwood's Law of Mortgage, Australian ed, Butterworths, 1995 Sykes and Walker: The Law of Securities, 5th ed, Law Book Co, 1993 Meagher, Gummow and Lehanes' Equity Doctrines and Remedies, 4th ed, Butterworths Lexis Nexis, Australia, 2002 Peter Butt: Land Law, 4th ed, Law Book Co, 2001 Andrew Hugh Jenner Wily (in his capacity as Administrator of Macquarie Medical Holdings Pty Ltd) - 1st Plaintiff PARTIES : Macquarie Medical Holdings Pty Ltd - 2nd Plaintiff Endeavour Health Care Services Pty Ltd - 1st Defendant Maxwell William Prentice and Mark Julian Robinson (in their capacity as Receivers & Managers of Macquarie Medical Holdings Pty Ltd) - 2nd Defendants FILE NUMBER(S) : SC 2560/03 Mr T Hale SC/ Mr J K Chippindall - Plaintiffs COUNSEL : Mr A Bannon SC/ Mr B Katekar - 1st Defendant Mr J E Thomson/ Ms A Gruzman - 2nd Defendant M D Nikolaidis & Co Solicitors - Plaintiffs SOLICITORS : Gilbert and Tobin Lawyers - 1st Defendant Gray & Perkins Lawyers - 2nd Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2560/03 ANDREW HUGH JENNER WILY IN HIS CAPACITY AS ADMINISTRATOR OF MAQUARIE MEDICAL HOLDINGS PTY LTD AND ANOR v ENDEAVOUR HEALTH CARE SERVICES PTY LTD AND ANOR (NO 5) JUDGMENT 1 The first plaintiff, Andrew Hugh Jenner Wily ("Administrator"), is the administrator of the second plaintiff, Macquarie Medical Holdings Pty Ltd ("Macquarie"). Macquarie and the first defendant, Endeavour Health Care Services Pty Ltd ("Endeavour"), entered into inter-related agreements on 2 July 2001. They contained an option, exercisable by Endeavour, to acquire all the assets of the Macquarie Medical Centre business conducted by Macquarie at the Macquarie Centre in Macquarie Park, New South Wales. 2 The plaintiffs sought a declaration that the option to purchase was void and unenforceable, a declaration that any sale agreement entered into on exercise of the option was unenforceable and an injunction restraining Endeavour and the second defendants, Maxwell William Prentice and Mark Julian Robinson ("Receivers"), the receivers and managers of the business, from completing the sale agreement. 3 An alternative claim for a declaration that on the proper construction of the sale agreement and in the events that had happened the purchase price payable was a specified amount, fell when I struck out a portion of the amended statement of claim. The plaintiffs also claimed relief under the Trade Practices Act, 1974 (Cth). I was informed by Mr Hale SC, who with Mr Chippindall appeared for the plaintiffs, that this relief was not pressed. 4 The agreements of 2 July 2001 comprised a loan agreement, a fixed and floating charge, an option to purchase and an asset sale and purchase agreement. The loan agreement enabled Macquarie to request an advance of $300,000 from Endeavour. The advance was to be used to develop Macquarie's business. It was a condition precedent that Macquarie had executed the option agreement. Interest was at 20%. The loan was repayable at the expiration of the option period if Endeavour did not exercise it. If it did, the loan was repayable on the date of exercise of the option but Endeavour was entitled to utilise it in part satisfaction of the purchase price under the asset sale and purchase agreement. 5 Under the fixed and floating charge, Macquarie charged its interest in all its property including its uncalled capital and its called but unpaid capital in favour of Endeavour to secure the punctual payment of all moneys owing or payable to Endeavour on any account at any time and the performance of Macquarie's obligations under the option agreement. It was under this charge that the Receivers were appointed. 6 Under the option agreement, in consideration of Endeavour agreeing to advance Macquarie the loan under the loan agreement, Macquarie granted Endeavour an irrevocable option to purchase the assets of its business and Macquarie granted Endeavour a first ranking registrable charge over the assets. The option could be exercised at any time within 18 months from the date on which Endeavour advanced moneys to Macquarie under the loan agreement. 7 The asset sale and purchase agreement provided for the sale and purchase of assets with effect from the start of business on the 65th day after execution of the agreement or such earlier date as might be agreed. The assets comprised the stock, plant and equipment, records, systems, goodwill and Macquarie's interest in plant and equipment leases and property leases of Macquarie's business of operating a medical centre at the Macquarie Centre. The purchase price for the assets was defined to mean an amount equal to three times the EBITDA of the business for the 12 month period prior to the completion date. EBITDA means earnings before interest, tax, depreciation and amortisation. 8 Endeavour gave notice to the Receivers that it proposed to exercise the option. On 6 March 2003, the asset sale and purchase agreement was executed on behalf of Macquarie and Endeavour. On 9 May 2003, Endeavour and the Receivers were restrained by this Court from completing the agreement and that injunction was extended until further order. 9 The plaintiffs' case is that the agreements should be characterised as a secured loan with option to purchase. The collateral advantage of the option is claimed to be a clog on the equity of redemption and the option is claimed to be unenforceable. If a Court of equity will only strike down a clog on the equity of redemption if it is unconscionable, the plaintiffs argue that Macquarie was a necessitous borrower to the knowledge of Endeavour which took advantage of a purchase at an under-value and the option is unenforceable. 10 The defendants' case is that the fixed and floating charge was collateral to the option, Endeavour being in the business of acquiring medical centres and not in business as a financier. The loan was incidental to the option. If contrary to this submission the option was a collateral advantage to the fixed and floating charge, it was submitted that a Court of equity would not strike down a clog on the equity of redemption unless unconscionable conduct exists. Macquarie had not established that it was a necessitous borrower. It was claimed that far from it lacking the ability to make a judgment in its own best interests, Paul Anthony Jones, its sole director and shareholder and John Edward Roberts, his mentor, had considerable experience in the development of medical centres in New South Wales and Macquarie entered into the agreements in knowledge of their terms. 11 Mr Jones was a plumber by trade. He met Mr Roberts in 1989 when Mr Roberts was building a medical centre and commenced work for him as a supervisor of tradesmen working in the construction and development of medical centres for Mr Roberts. His role was to perform the day to day setting up and establishing of medical centres for Mr Roberts. 12 He said his job was to get patient numbers up and he had no involvement in financial management. However, an affidavit in other proceedings was admitted as an exhibit. In it Mr Jones swore that he was the group development manager for the Roberts group of companies. He had general oversight of the medical centre businesses. He would liase with the managers and attend the respective premises from time to time. He would obtain income and expense figures daily. He was responsible for active marketing of the businesses. He was familiar with the trading of each of the businesses throughout the 1999/2000 financial year. When confronted with this conflict, Mr Jones asserted that the figures he sought were patient numbers, turnover of the medical centre as a whole and turnover of the individual doctors. That assertion is inconsistent with the exhibit. 13 Mr Jones is far from naïve about financial matters. He was prepared to express views about the valuation of medical centres, about their profit figures and about appropriate multiples to be applied to profits in valuing medical centres. On the failure of Mr Roberts' medical centres, it was Mr Jones who attended creditors' meetings and who moved the only significant motions. I reject Mr Jones' evidence that the liquidator, in attributing matters to him in the minutes of the meetings, had got it wrong. 14 Mr Jones had established approximately ten companies of his own to carry on various businesses. He had undertaken property developments and one of his companies had taken a charge over one of the companies in the Roberts group. 15 The Macquarie Medical Centre was Mr Jones' first venture on his own account. He located the site on the car park roof of the Macquarie Centre. His negotiations extended over approximately three months without the assistance of legal advice. He formed Macquarie for the purpose of operating the medical centre business. He negotiated a lease for the centre without the assistance of legal advice. He formulated a budget for the establishment of start up costs, borrowed funds and expended them in constructing the medical centre and, again, without the assistance of legal advice, he drew up contracts with the doctors using a standard form. 16 Mr Roberts had considerable experience in developing medical centres. He treated Mr Jones like a son. He was his adviser. Mr Jones was in charge of the general oversight of his medical centre businesses although Mr Roberts said financial matters were dealt with by the accountant. 17 Mr Jones needed an additional $300,000 to complete the construction of the Macquarie Medical Centre. He approached Mr Roberts. Mr Roberts said he would inquire of Bevyn White and if he could not assist, Mr Roberts would provide the funds as a fall back but he would want to take an interest in the medical centre. Mr Roberts said he approached Mr White after he unsuccessfully sought to raise the funds himself. He told Mr White that Mr Jones had approached him for funds but he was unable to provide them. When this conflict was raised with Mr Roberts, he said he had both conversations. He was hoping to provide Mr Jones with funds by getting them from Mr White. 18 Mr Roberts informed Mr White that Mr Jones needed a further $300,000. Mr White said he would have a Mr Aitken contact him. Mr Roberts said he telephoned Mr White again on that day to thank him. Mr Roberts said Mr White said it would be five times EBITDA. He had not deposed to this second conversation with Mr White in his first affidavit. 19 Mr Roberts was cross-examined about this issue. If he had approached Mr White for a loan of $300,000 why would five times EBITDA be raised in the second conversation? Mr Roberts changed his evidence. He said in his first conversation with Mr White when he requested a loan, Mr White said it would put Macquarie in a position where Endeavour would buy the business at any time at five times EBITDA. 20 I do not accept this evidence of Mr Roberts. If he had had the conversation with Mr White it had vital significance for the plaintiffs' case. It was not mentioned in his first affidavit and was attributed to a second conversation with Mr White in evidence in chief. When the implausibility of this evidence was pointed out in cross-examination, Mr Roberts said he recollected it was mentioned in the first conversation. 21 On 4 May 2001, Nicholas John Aitken, the national director of the primary care division of Endeavour in Western Australia and Russell John Lee, whose company was responsible for Endeavour's New South Wales operations, toured the site of the Macquarie Medical Centre with Mr Jones and Mr Roberts and a meeting then took place. 22 Mr Jones said he left it to Mr Roberts to do the negotiation and Mr Roberts said Mr Jones required a loan of $300,000 to which Mr Aitken responded that it was possible. Mr Roberts said he asked for $300,000 and volunteered that Mr Jones would pay up to $5,000 a month interest. According to Mr Roberts, Mr Aitken said he would recommend a loan in that amount to the board of Endeavour. 23 Mr Aitken confirmed that Mr Roberts asked for $300,000 and said Macquarie was prepared to pay Endeavour $5,000 per month in interest. Mr Aitken said the sort of deal Endeavour might be able to do would involve it taking an option to purchase the business later for a fee of $300,000 with a return to Endeavour as they had suggested and security over the business. The price he said Endeavour would want for the option would be three times EBITDA, which is really the cash profit of the business, for the 12 months before the option was exercised. He said Endeavour could probably also offer a performance incentive by way of an "earn-up" of two times incremental EBITDA for the 12 months after exercise of the option and a further one times incremental EBITDA for the 12 months after that. He said the board might approve something like that but they had to understand that Endeavour was not a banker. If it was prepared to be involved, it would be on the basis that Endeavour had an opportunity down the track to buy into the business. 24 Mr Jones originally said that 20% interest was a figure Mr White required. He subsequently said it was Mr Aitken who required it. That evidence does not accord with that of Mr Roberts. He supports Mr Aitken's version that it was Mr Roberts who volunteered the 20% rate. 25 Mr Jones and Mr Roberts denied Mr Aitken's version of the conversation. Mr Lee had no detailed recollection of the conversation beyond that they needed funds to finish the medical centre and needed them fairly quickly. 26 A second meeting took place on 15 May 2001 between Mr Jones, Mr Roberts and Mr Aitken. Mr Jones said Mr Aitken said Endeavour could lend $300,000 but it would have to be at 20%. Mr Jones agreed and asked when they could have the moneys to which Mr Aitken responded that he should be able to push it through quite quickly as it was not a huge deal. 27 Mr Jones said discussion took place about an option. His understanding was that he would receive three times the profit on sale which could take place between 18 months and three years after commencement of business but if he stayed on for up to a further two years to operate and build up the business, he could receive a total of five times the profit. He said Mr Roberts said the medical centre should reach the estimated figures in a short period of time. That was what was good about the option which he presumed was at "Paul's call". Mr Jones said that Mr Aitken replied in the affirmative and said it was a great site. 28 Mr Roberts' version of the conversation was that Mr Aitken said he would recommend that Endeavour lend $300,000 with a return of 20% per annum with security over the business and, upon Mr Jones indicating that the money was needed within a fortnight, Mr Aitken said he could not do it within two weeks as it had to go to the finance committee but he would push it. Mr Roberts recalled a discussion about an option and then deposed to an exchange between him and Mr Aitken about "Paul's call" and it being a great site in identical terms to that to which Mr Jones had deposed. Mr Jones conceded that he and Mr Roberts had discussed their evidence with a view to getting meeting dates correct. 29 Mr Aitken said he informed Mr Jones and Mr Roberts that if they agreed he would recommend to the board of Endeavour that it pay $300,000 to purchase an option to buy the medical centre exercisable between 18 months and 30 months from start up. He said Endeavour would want a return of 20% per annum and security over the business. The option purchase price would be three times EBITDA for the 12 months before the option was exercised. He said he also planned to suggest to the board that it offer a performance incentive by way of an "earn-up" of two times incremental EBITDA for the 12 months after exercise of the option and a further one times incremental EBITDA for the 12 months after that if Mr Jones was prepared to stay on managing the business. 30 Mr Aitken said Mr Jones responded they really needed this money within a fortnight, and asked how quickly could it be done. He replied it would not be done in two weeks as he would need to discuss the matter with Endeavour personnel. He would try to push it through within 30 days but the approval process would involve him putting the deal to the acquisition sub-committee of the board for approval and then having the matter go before the full board. Mr Aitken said Mr Roberts stated that beyond the initial $300,000, they would be interested in taking a significant part, if not all, of the purchase price in Endeavour shares. 31 On 22 May 2001, Mr Aitken sent an email to John Mooney, Endeavour's finance director and to Garry Garside, Endeavour's managing director. The email contained the following: "They claim to have 11 local doctors on the hook ready to move in for an opening by 30 June 2001, but they are in need of $300k to finish off what they have started. Beyond the $300k they are more interested in Endeavour shares. The deal that can be done: v Take an option over the practice for $300k for the purchase of the practice on the terms below. They will offer security against the practice and will pay interest or return on the option at 20% per annum on a monthly basis in arrears. v Purchase the practice after 18 months based on the month 7 to month 18 actual results at 3 x EBITDA. v Offer incremental earn-up of 2 x EBITDA for the next 12 months actual results and a further incremental earn-up of 1 x EBITDA for the following 12 months actual results."

The reference to the deal that could be done was Mr Aitken's understanding of what Mr Jones and Mr Roberts had agreed at the meeting of 15 May 2001. 32 Mr Aitken concluded the email by saying the key to concluding the deal was being able to move quickly. He indicated he would like to be able to make an offer in writing that week and conclude the deal the following week. 33 Mr Aitken agreed that the deal was likely to be one of the best ever done by Endeavour. But he denied he was seeking to do the best deal he could possibly do for Endeavour. He said, given the circumstances, he could have done better. Both Mr Jones and Mr Roberts said that the statements in the email attributed to them were untrue. 34 The email is an almost contemporaneous document totally consistent with Mr Aitken's evidence and inconsistent with the evidence of Mr Jones and Mr Roberts. It, together with the inconsistencies in the testimonies of both Mr Jones and Mr Roberts to which reference has already been made and which appear hereunder lead me to prefer the evidence of Mr Aitken where it conflicts with that of Mr Jones and Mr Roberts. 35 Mr White was not called as a witness. During the trial, when an endeavour was made to contact him, he was on a skiing holiday and not prepared to return at short notice to give evidence. What was not explained was why an affidavit was not taken from him before the trial began. I was invited to draw the inference that his testimony would not have assisted the plaintiffs (Jones v Dunkel (1959) 101 CLR 298). While the drawing of such an inference would strengthen my view of the plaintiffs' evidence, I prefer to base my decision on my analysis of the evidence given at the trial. 36 A letter dated 30 May 2001 addressed to Mr Roberts contained Endeavour's offer. Mr Roberts said he was informed by Macquarie Medical Centre staff that the letter had been delivered addressed to him. He telephoned Mr Aitken and said the business was in Mr Jones' name and any letters should be addressed to him. He denied having any other conversation with Mr Aitken and denied having seen the letter. 37 Mr Aitken said he received a telephone call from Mr Roberts on 30 May 2001 in which Mr Roberts said he had received the letter of offer: "It looks OK. We can live with it". Mr Roberts said the business was in Mr Jones' name and he requested that the offer letter be re-addressed to him. Mr Aitken kept notes of telephone calls. He has an entry on 30 May 2001: "Jack Roberts - ok. ? can live with it. ? business is in Paul Jones name." 38 In my view, the man who was advising the person he regarded like a son would have been keen to check the terms of the letter of the offer. I reject Mr Roberts' evidence that he did not read it. Mr Aitken's notebook entry, in my view, confirms his evidence. Not only did Mr Roberts read the letter, he confirmed to Mr Aitken that its terms were acceptable. 39 Following his telephone conversation with Mr Roberts, Mr Aitken had a letter dated 31 May 2001 in identical terms addressed to Mr Jones who was requested to sign it and return it. Mr Jones said that to the best of his recollection he did. He may have been mistaken. The signed document was not found. 40 In any event, Mr Jones received the letter. It commenced: "Following our recent meetings and discussions I am pleased to outline below the basis upon which Endeavour HealthCare (EHC) will purchase your medical practice being established in the Macquarie Centre in North Ryde." 41 Mr Jones said that he had only "breezed through" the letter. He read it quickly. He did not read the first part very clearly. He accepted that the first paragraph was inconsistent with his testimony of the discussions that had taken place about a loan rather than a purchase. He did not complain because he did not understand the letter at the time. 42 The letter included the following: "We will take an option over the purchase of the practice for the amount of $300,000. The option is exercisable at Endeavour's sole discretion at any time between 18 to 30 months from the date of payment of the option fee (the 'Option Period'). You will pay EHC during the Option Period an annualised return of 20% on this amount, payable at $5,000 per month in arrears. You will, offer as security against this option fee a charge over the business and assets of the practice."

Mr Jones said he understood this to refer to an option exercisable by him. That assertion stands in stark contrast to the terms of the letter. 43 The letter provided that the purchase price was three times EBITDA for the prior 12 months of practice trading. Mr Jones said it was always supposed to be five times EBITDA and he did not notice the reference to "three" when he read the letter. The letter went on to refer to an "earn-up" of two times average incremental EBITDA for the first year following the exercise of the option. Mr Jones was confident that he had noticed the "two". He said: "well the three and the two make five". I regarded this as an opportunistic remark that reflected badly on his credit. 44 Mr Jones was aware of appropriate multiples of profit in the sense of what was left at the end of a day that governed what was being paid in the market place for medical centre businesses. I find it inconceivable that he would not have checked the offered purchase price. 45 I do not accept the evidence of Mr Jones that he did not read and understand the letter of 31 May 2001. Its terms were clear. It was not an offer of a loan but an offer of a $300,000 option fee at a return rate of 20% during the option period exercisable at Endeavour's sole discretion with purchase price of three times EBITDA and "earn-up" rates of two times incremental EBITDA and one time incremental EBITDA over a further two year period. 46 The letter stated the offer was subject to limited due diligence: "(lease, business plan and doctor contracts/negotiations) formal contract negotiations and EHC board approval". On 3 June 2001, Mr Jones wrote to Mr Aitken enclosing a business plan, a stamped lease, an executed contract with a doctor who had been appointed medical director of the Macquarie Medical Centre and his CV. The letter raised no complaint that the offer differed from Mr Jones' understanding of the transaction. 47 Mr Jones said his letter might have been a response to the due diligence request in the letter of 31 May 2001. The clear inference is that it was and Mr Jones was sufficiently familiar with the contents of that letter to have responded expeditiously to the request for documentation. 48 The plaintiffs point to the fact that the enclosed business plan was entitled an application for finance. It contained the statement that what was required was a $100,000 overdraft to meet working capital needs of the business and a $200,000 leasing facility to purchase medical equipment and computers. The document was not specifically addressed to the Endeavour request for a business plan. The evidence does not reveal to whom it was originally addressed. Mr Jones said he took no part in its preparation. It was prepared by an accountant. It cannot alter the nature of the offer by Endeavour. Nor does it suggest that Mr Jones was under the impression that Macquarie was being offered a loan and an option to purchase at its discretion. 49 Shortly after the letter of offer of 31 May 2001 was sent to Mr Jones, the structure of the agreement was revised by Mr Aitken to provide for a loan of $300,000 rather than an option fee. One consideration that led Mr Aitken to take this course was the problem that if Endeavour decided not to exercise the option, there needed to be some provision for the repayment of the $300,000. Mr Aitken instructed Endeavour's solicitors to draw up the documents on this basis. 50 On 13 June 2001, the solicitors for Endeavour sent a facsimile to Mr Jones attaching drafts of the option agreement, asset sale and purchase agreement, loan agreement and fixed and floating charge together with a covering letter seeking information. The documents were complex. Mr Jones did not have a solicitor advising him. His attention was not drawn to the fact that the $300,000 was treated as a loan rather than an option fee. 51 Mr Jones responded to the request for information in the covering letter by facsimile of 15 June 2001. Notwithstanding his lack of legal advice, he was able to comprehend the information sought by the solicitors and able to respond. He responded not only to requests for information in the covering letter but also to missing information in some of the documents themselves. 52 Mr Jones concluded his email by requesting the documents be emailed to him that day in order that he might immediately sign and return them by facsimile. 53 The solicitors sent a copy of Mr Jones' email to Mr Aitken saying they would telephone Mr Jones and explain his misunderstanding regarding the Endeavour transaction approval process. It was submitted that this displayed embarrassment on the part of the solicitors that Mr Jones had no legal advice and did not appreciate how transactions such as this took place. 54 All that evidence demonstrates is that Mr Jones was unaware of the procedures within Endeavour that had to be followed before the documents could be executed. It did not demonstrate a lack of understanding of their contents. On the contrary, Mr Jones' provision of missing information from the documents themselves demonstrated that he had read them. 55 Mr Aitken accepted that it was unusual for a party presented with documents as complex as the drafts not to take legal advice. He accepted that Mr Jones' conduct in wishing to sign the documents that day was consistent with the expressed desire of Macquarie to conclude the transaction as quickly as possible. 56 The business plan provided by Macquarie contained cash flow projections. On 20 June 2001, Mr Aitken asked some additional questions including some relating to the cash flow projections. Mr Jones provided a response on the same day. 57 On 26 June 2001, the solicitors for Endeavour emailed second drafts of the documents to Mr Jones. Mr Aitken sent an email to Endeavour's internal legal officer saying that Mr Jones was really anxious to get the matter finalised and requesting her speedy attention to it. Mr Jones said that he did not read the second drafts. 58 On 28 June 2001, Mr Aitken sent an email to Mr Jones suggesting that he and Mr Roberts come to Endeavour's office that day when printed copies of the contracts would be available. The email raised a number of questions with respect to the lease of the Macquarie Medical Centre from AMP. Mr Aitken raised the question how it could be ensured that if Endeavour exercised the option to purchase, AMP would agree to the assignment of the lease. He concluded his email: "The bottom line here is that we can't put ourselves in a position where we run the risk of not having a Lease at the time we exercise the option". 59 Mr Jones denied that this meant the option was to be exercised by Endeavour. He said he read the word "we" as referring to Endeavour and Macquarie if he decided to sell to Endeavour. The words do not say so and I reject Mr Jones' evidence that he was still under the impression that the documents provided an option exercisable at his discretion. 60 During this period, Mr Jones was under stress for personal reasons. His aunt died on 11 June 2001 and he was involved in organising her funeral on 14 June 2001. His mother was hospitalised on 22 June 2001. Richard Anthony Licardy, a solicitor who had acted for Mr Jones and Mr Roberts for some time, spoke with Mr Jones in early to mid June 2001. He formed the view that Mr Jones seemed to be anxious, confused and suffering from stress and an apparent lack of sleep. 61 A meeting took place on 28 June 2001. Notwithstanding the terms of Mr Aitken's email to Mr Jones that day, Mr Jones denied that he understood the purpose of the meeting was to receive printed copies of the contracts. He denied that printed copies were available at the meeting and he denied that there was any discussion of them. Mr Roberts said the discussion was confined to the lease and contracts with the doctors. Mr Aitken and Mr Lee said the documents were available at the meeting and Mr Aitken referred to the conditions precedent. Mr Lee said Mr Jones and Mr Roberts left the meeting together and their copies of the contracts were not there after they left. Mr Roberts said they took no documents with them. In light of my earlier findings with respect to the evidence of Mr Jones and Mr Roberts, I prefer the evidence of Mr Aitken and Mr Lee. 62 Mr Jones executed the documents some time after Mr Roberts did. On 2 July 2001 he was at the hospital visiting his mother and received a telephone call from, he said, Mr Lee before the doctor had seen his mother that morning. He said Mr Lee informed him the documents were ready for signing. When Mr Jones indicated he needed a few days because of his mother's health, he said Mr Lee responded that the documents were there and the facility would not remain available forever and if he wanted the money he should sign the documents that day. Mr Jones said he told Mr Lee he had not had a chance to take legal advice. The documents were complex and he would really like another week. He said Mr Lee responded that he could not guarantee that the facility would be available in a week's time and it would not take more than a couple of seconds to sign the documents. He said Mr Lee responded that he had had ample time to get legal advice. Mr Jones said he asked whether the documents were as they had discussed and Mr Lee replied in the affirmative. 63 Mr Jones said Mr Lee replied in the affirmative to his specific questions whether there was a loan for $300,000 with security over the medical centre until the loan was repaid, whether the interest was at 20%, whether the option gave Mr Jones the right to sell the medical centre to Endeavour if he ran into difficulties, whether the loan allowed Mr Jones to pay it out at any time without penalty because he intended to re-finance with a bank at a much lower interest rate when the medical centre was up and running. Mr Jones said that having received affirmative answers to these questions he said he guessed he would come in and sign the documents. 64 Mr Jones said he received a telephone call from the hospital whilst signing the documents. The doctor had seen his mother and transferred her to intensive care. She was not expected to live 24 hours. He broke down and told Mr Lee that his mother was dying. He said he hastily finished signing the rest of the documents. He did not read any part of them. He said he had never read any drafts of the documents. He did not take a copy. He went back to the hospital and remained there until his mother passed away on 4 July 2001. 65 Mr Lee said he did not call Mr Jones. He had his personal assistant do that. When told that a family member was unwell, Mr Lee said he asked Mr Jones if he wanted to take the documents away and sign them later. Mr Jones responded that he had read them before. Mr Lee denied any conversation with Mr Jones about the contents of the documents. 66 I do not accept Mr Jones' evidence on this matter where it conflicts with that of Mr Lee. Mr Jones had read the first draft of the documents. He volunteered some information missing from them. A man who was so distressed by his bereavement is unlikely to have had the presence of mind to ask the specific questions he said he raised with Mr Lee. Mr Lee, whose involvement was limited to having the documents executed, is unlikely to have given positive answers to the specific questions. 67 Mr Jones' evidence of the telephone conversation with Mr Lee struck me as an opportunistic attempt to bolster the plaintiffs' case. No doubt Mr Jones was deeply distressed by the death of his mother but he still had the presence of mind the day before her funeral on 9 July 2001, to write to Mr Aitken informing him that the final requirement of the solicitors had been completed and seeking an urgent transfer of the funds. 68 The plaintiffs relied upon the equitable rule against clogging or fettering the equity of redemption. It was described by Lord Parker of Waddington in his seminal speech in G and C Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 at 48: "The rule may be stated thus: The equity which arises on failure to exercise the contractual right cannot be fettered or clogged by any stipulation contained in the mortgage or entered into as part of the mortgage transaction."

The plaintiffs argued that the option to purchase was part of the mortgage transaction, constituted a clog on the equity of redemption and is unenforceable. 69 It is not every combination of mortgage and option to purchase that offends the rule. In Kreglinger at 61 Lord Parker said: "… there is now no rule in equity which precludes a mortgagee, whether the mortgage be made upon the occasion of a loan or otherwise, from stipulating for any collateral advantage, provided such collateral advantage is not either (1) unfair and unconscionable, or (2) in the nature of a penalty clogging the equity of redemption, or (3) inconsistent with or repugnant to the contractual and equitable right to redeem." 70 The distinction between the second and third categories was identified by Lord Parker earlier in his speech at 50. His Lordship saw the equity of redemption as an implied term of the real bargain between mortgagor and mortgagee that the property should remain redeemable after failure to exercise the contractual right of redemption. A condition that if the contractual right was not exercised by a specified time, the mortgagee should have the option of purchasing the mortgaged property, was regarded as a penal provision by his Lordship, repugnant only to the equitable right but not to the contractual right. His Lordship explained his third category as applicable to a condition that a mortgagee have an option to purchase for a period beginning before the time for the exercise of the equitable right had arrived, or which reserved to the mortgagee any interest in the property after the exercise of the contractual right. His Lordship regarded such a provision as inconsistent not only with the equitable right but with the contractual right itself. 71 The rule only applies to a transaction of mortgage. It does not apply if, in substance, the transaction is one of purchase. Lord Parker at 52-53 so limited the rule: "I have pointed out that in mortgages in common form an option to purchase is inconsistent with and repugnant to the proviso for reconveyance on payment of the money secured. But is there any such repugnancy or inconsistency in the following case? A agrees to give B an option for one year to purchase a property for 10,000 l . In consideration of such option B agrees to lend, and does lend, A 1,000 l to be charged on the property without interest, and be repayable at the expiration or earlier exercise of the option. I cannot myself see that there is any inconsistency or repugnancy between the provisions of this perfectly simple and straightforward transaction. It would have been very different if A had conveyed the property to B with a proviso that on payment of the 1,000 l there should be reconveyance, and the deed had then provided for the year's option. Here the option would be inconsistent with, and would in fact have been destroyed by, the reconveyance." 72 It is essential, therefore, to characterise the transaction to determine whether it is, in substance, a transaction of mortgage. In Jones v Morgan [2001] EWCA Civ 995 at par 55, Chadwick LJ derived the following principles from the cases: "The principles which I derive from those passages, so far as material to the present appeal, may be summarised as follows: (i) there is a rule that a mortgagee cannot as a term of the mortgage enter into a contract to purchase, or stipulate for an option to purchase, any part of or interest in the mortgaged property; (ii) the foundation of the rule is that a contract to purchase, or an option to purchase, any part of or interest in the mortgaged property, is repugnant to or inconsistent with the transaction of mortgage of which it forms part, and so must be rejected; (iii) the reason why the contract or option to purchase is repugnant to or inconsistent with the mortgage transaction is that it cannot stand with the contractual proviso for redemption or the equitable right to redeem - the proviso for redemption (and, where the contractual date for redemption is past, the equitable right to redeem) requires the mortgagee to reconvey the mortgaged property to the mortgagor in the state in which it had been conveyed to him at the time of the mortgage; and (iv) it is essential, in any case to which the rule is said to apply, to consider whether or not the transaction is, in substance, a transaction of mortgage." 73 If, in substance, the transaction is not one of mortgage, it is treated as a separate transaction. The contrast is exemplified by two decisions of the House of Lords. In Noakes & Co Ltd v Rice [1902] AC 24 the mortgage of the leasehold of a public house to brewers contained a covenant that the mortgagor would not during the term of the lease, and whether or not moneys were owing on the security of the mortgage, sell malt liquor other than that purchased from the brewery. It was held that the covenant was a clog on the equity of redemption. At 36 Lord Lindley said: "My Lords, I agree in thinking that the covenant contained in this mortgage, and by which the mortgagees have attempted to convert the house mortgaged from a free public-house into a tied public-house even after redemption, is invalid. I see no answer to the objection taken to it that upon payment off of the mortgage money the mortgagor cannot get back what he mortgaged, namely, a free public-house." 74 On the other hand, in Reeve v Lisle [1902] AC 461 the plaintiffs agreed to lend moneys to the defendant secured by a ship mortgage which provided that if during the term of the loan, the plaintiffs elected to enter into partnership with the defendant, he would be relieved of liability for payment of the mortgage money and would transfer the ship free of mortgage so that it could form part of the capital of the partnership. Subsequently a further mortgage was executed as additional security and one month later the parties entered into a further agreement providing that the plaintiffs should have the right for a further five years to enter into partnership with the defendant, in which case the same consequences would follow as had been agreed in the original agreement. The plaintiffs sought to exercise their right and the defendant resisted on the basis that the right granted in the last agreement was in the nature of a clog on the right to redeem the mortgage made one month earlier. It was held that the transactions were separate and distinct. At 465 Lord Lindley said: "In point of fact, the real transaction was not taking a mortgage security for 5000 l or getting a better security than they had. The real transaction was that the mortgagees were bargaining for a share in the partnership on certain terms. 75 The plaintiffs relied on Samuel v Jarrah Timber and Wood Paving Corp Ltd [1904] AC 323. The appellant lent 5,000l to the respondent upon security of 30,000l mortgage debenture stock upon terms that he had an option to purchase the whole or any part of the stock at 40% at any time within 12 months. The respondent sought to repay the advance within that period whereupon the appellant claimed to purchase the whole of the stock at the agreed price. The respondent was held entitled to a declaration that the option was void. At 329 Lord Lindley said:

"The doctrine "Once a mortgage always a mortgage" means that no contract between a mortgagor and a mortgagee made at the time of the mortgage and as part of the mortgage transaction, or, in other words, as one of the terms of the loan, can be valid if it prevents the mortgagor from getting back his property on paying off what is due on his security. Any bargain which has that effect is invalid, and is inconsistent with the transaction being a mortgage. This principle is fatal to the appellant's contention if the transaction under consideration is a mortgage transaction, as I am of opinion it clearly is." 76 Kreglinger stands in contrast to that decision and, unlike Noakes, the collateral agreement was treated separately from the mortgage. The appellant wool brokers lent moneys to the respondent on the security of a floating charge over its undertaking. The loan agreement provided that for five years the appellant had a right of first refusal over all sheepskins sold by the company. The respondent paid off the loan but the appellant claimed entitlement to the continued exercise of the pre-emptive rights. It was held it could. The pre-emptive rights formed no part of the mortgage transaction but arose under a collateral contract entered into as a condition of the respondent's obtaining the loans. At 61, Lord Parker characterised the transactions thus: "In the present case it is clear from the evidence, if not from the agreement of August 24, 1910, itself, that the nature of the transaction was as follows: The defendant company wanted to borrow 10,000 l , and the plaintiffs desired to obtain an option of purchase over any sheepskins the defendant might have for sale during a period of five years. The plaintiffs agreed to lend the money in consideration of obtaining this option, and the defendant company agreed to give the option in consideration of obtaining the loan."

His lordship went on to say: "I doubt whether, even before the repeal of the usury laws, this perfectly fair and businesslike transaction would have been considered a mortgage within any equitable rule or maximum relating to mortgages. The only possible way of deciding whether a transaction is a mortgage within any such rule or maxim is by reference to the intention of the parties. It never was intended by the parties that if the defendant company exercised their right to pay off the loan they should get rid of the option." 77 In the instant circumstances, on the findings I have made, Macquarie wanted to borrow $300,000 and Endeavour wanted to obtain an option to purchase. They were in the business of acquiring medical centres. They were not financiers. The only basis upon which Endeavour was prepared to countenance the transaction, was if it had the option to purchase. 78 The original offer did not contain a loan at all. The $300,000 was characterised as an option fee. The substance of the transaction was an option to purchase in consideration for the payment of an option fee, both secured by the fixed and floating charge. The essential nature of the transaction did not change to one of mortgage when the documents were drafted on the basis of a loan. The substance remained the obtaining of an option to purchase in consideration for making the loan. 79 In my view, the transaction was not one of mortgage. It was not the intention of the parties that, if Macquarie paid off the loan, it should get rid of the option. The loan agreement provided for repayment on the expiry of the option period or the earlier date on which Endeavour exercised the option. While Macquarie could pre-pay the loan at any time, the option agreement persisted and it was a condition precedent to the grant of the loan that the option agreement be executed. 80 It follows that in my opinion the option agreement did not constitute a clog on the equity of redemption and the option to purchase was not void and unenforceable. 81 If I be wrong in this characterisation and the transaction was one of mortgage, it was submitted on behalf of Macquarie that I am bound to find that the option to purchase was void and unenforceable. While it is unnecessary for me to consider this submission, in deference to the submissions of counsel, I indicate my views. 82 In Westfield Holdings Ltd v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194 at 202, Young J said: "There does not appear to be any commercial reason why, in 1992, the court should invalidate any transaction merely because a mortgagee obtains a collateral advantage or seeks to purchase a mortgage property. Quite obviously equity must intervene if there is unconscionable conduct. Again equity must intervene in the classic case where it can see that a necessitous borrower is not, truly speaking, a free borrower.

In my view, in 1992, the rule only applies where the mortgagee obtains a collateral advantage which in all the circumstances is either unfair or unconscionable." 83 In Re Modular Design Group Pty Ltd (in liq) (1994) 35 NSWLR 96 at 103 these observations were cited with approval by Santow J, as they were by the Full Court of the Supreme Court of South Australia in Epic Feast Pty Ltd v Mawson KLM Holdings Pty Ltd (in liq) (1998) 71 SASR 161 at 173. 84 It was submitted that there is authority to the contrary that is binding on me. In Baker v Biddle (1923) 33 CLR 188 the defendant appointed the plaintiff her attorney to sell the lease and licence of a hotel, there being a proviso enabling the plaintiff to call upon the defendant at any time during the term of the lease to sell it to him. The defendant obtained the lease and executed a bill of mortgage and a bill of sale in favour of the plaintiff. By the bill of mortgage, the plaintiff mortgaged her estate and interest in the lease with a right to redeem at any time. By the bill of sale, she assigned to the plaintiff the chattels subject to a proviso for redemption and reassignment. The defendant subsequently discharged her indebtedness to the plaintiff and the plaintiff called upon the defendant to sell the lease to him. He was refused specific performance of the agreement. 85 Knox CJ at 194 pointed out that the Chief Justice of Queensland in the court below had treated the whole matter as one transaction and it made no difference in substance that the option to purchase was not included in the bill of mortgage or the bill of sale. Had it been, the Chief Justice concluded that it would be inconsistent with the contractual right of redemption. Knox CJ went on to say that it was not disputed in the High Court that if this view of the facts was correct, the action must fail because the option to purchase extended over the whole period of the lease irrespective of the fact of redemption and would be inconsistent with or repugnant to the right of redemption vested in the mortgagor. If the option to purchase was not a distinct and separable transaction it was conceded in the High Court that it was invalid. Knox CJ decided that if the power of attorney was a separable transaction, it could not remain in force because the terms of the subsequent bill of sale and bill of mortgage were inconsistent with the view that the power of attorney remained in force after execution of those documents. 86 Starke J, at 198-199, took a similar view. The bill of sale and the bill of mortgage were substituted for the security constituted by the power of attorney and amounted to a cancellation of the power of attorney with the result that the power of sale no longer subsisted. 87 Isaacs J, at 196, said if it was absolutely necessary to determine whether the power of attorney was the initial step in an intended course of conduct, he would be prepared to agree with the finding of the Chief Justice of Queensland. At 197-198, his Honour said that if the documents were to be regarded as connected, though partly overlapping, the option to purchase could not be supported having regard to Kreglinger. If, on the other hand, they were regarded as separable, then the later documents supplanted the earlier power of attorney and prevailed. 88 It was submitted that there were two rationes decidendi, the one determining the option to purchase was spent, the other adopting Kreglinger. If there are two rationes, I am bound by each (Jacobs v London County Council [1950] AC 361 at 369). 89 Like Young J in Westfield at 201, I do not see two rationes in the decision of the court. Knox CJ based his judgment on the spent force of the power of attorney. He recited the concession of the parties. That does not involve a judicial determination that Kreglinger applied. Starke J did likewise. His observation that Isaacs J had shown that the decision would have been correct if the facts were as assumed should not, in my opinion, be treated as an endorsement of the approach taken by Isaacs J. While Isaacs J clearly endorsed Kreglinger as one solution to the problem, that approach was obiter dicta worthy of great respect but not binding on me. 90 In Toohey v Gunther (1928) 41 CLR 181 the respondent registered proprietor sold his land to the appellant together with the hotel thereon and the licence and goodwill thereof. A predecessor in title to the respondent had given a bond, not mentioned in the particulars of title, tying the trade of the hotel to the company. The appellant refused to accept title on the ground that the tie would be binding on him. It was held by a majority that the appellant was not justified in refusing title. 91 While Knox CJ at 192 said that even if the title to the land was not under the Real Property Act 1900, he would be prepared to hold the restrictive condition unenforceable after the discharge of the mortgage in line with Noakes. But the Chief Justice decided that the land was under the Real Property Act 1900 and its paramountcy provisions afforded a conclusive answer to the contention of the appellant. 92 Issacs J at 196 followed Samuel and Kreglinger to hold the bond unenforceable and went on at 197 to hold that the vendor was free from the bond obligation under the Real Property Act 1900. 93 Higgins J decided that the clause under which the appellant purported to rescind did not apply. If it did, his Honour agreed that the bond was unenforceable, not because of the Real Property Act 1900, but under the Conveyancing Act 1919 and the principle approved in Lord Strathcona Steamship Co Ltd v Dominion Coal Co Ltd [1926] AC 108. It was only in obiter dicta that his Honour went on at 203 to consider whether the bond should be treated as a clog on the equity of redemption. 94 Starke J based his judgment on the Real Property Act 1900. 95 Like Young J in Westfield, I do not regard the clog on the equity of redemption principle as forming part of the ratio decidendi of the case. 96 In Toohey, Isaacs J referred to the Fairclough v Swan Brewery Co Ltd [1912] AC 565 in which the Privy Council held that equity would not permit any device or contrivance being part of a mortgage transaction or contemporaneous with it to prevent or impede redemption. It was submitted that I am bound by this decision because the High Court was bound by it at the time it was delivered. I reject that submission. The High Court is no longer bound by decisions of the Privy Council (Privy Council (Appeals from the High Court) Act 1975 (Cth), Viro v The Queen (1976-1978) 141 CLR 88) and nor am I. 97 It was submitted that the principles in Kreglinger had not been doubted in the established Australian texts (Fisher and Lightwood's Law of Mortgage, Australian ed, Butterworths, 1995 at 32.8; Peter Butt: Land Law, 4th ed, Law Book Co, 2001, par 1826, 1827, (it should be noted, however, that the author mentions the development in Westfield in par 1827); Sykes and Walker: The Law of Security, 4th ed, Law Book Co, 1993 at 71,72). 98 In the United Kingdom there has been a growing dissatisfaction with the clog on the equity redemption principle. 99 In Samuel at 325, the Earl of Halsbury LC said he regretted that the state of the authorities left him no alternative other than to affirm the judgments below. Lord Macnaghten at 327 said he would not be sorry if their Lordships could see their way to modify the rule to prevent its being used as a means of evading a fair bargain come to between persons dealing at arms' length and negotiating on equal terms. In Kreglinger at 46, Lord Mersey said that the doctrine was: "like an unruly dog, which, if not securely chained to its own kennel, is prone to wander into places where it ought not to be." More recently in Jones at par 86 Lord Phillips MR said: "… the doctrine of a clog on the equity of redemption is, so it seems to me, an appendix to our law which no longer serves a useful purpose and would be better excised." 100 While the United Kingdom may be obliged to maintain the doctrine, there is no reason why, on the state of the authorities in Australia, the courts should not rid us of this vestigial rule. In my view the approach taken by Young J in Westfield should be endorsed as the law in this State. 101 If that be the correct approach, the question remains whether Endeavour's conduct was unconscionable. Again, in deference to the submissions of counsel on this issue, I indicate my views. 102 Conduct is unconscionable if a party to a transaction was under a special disability in dealing with the other party to the transaction with the consequence that there was an absence of any reasonable degree of equality between them and the special disability was sufficiently evident to the other party to make it, prima facie, unfair that the other party procure, accept or retain the benefit of the disadvantaged party's assent to an impugned transaction in the circumstances in which it was procured or accepted (Blomley v Ryan (1956) 99 CLR 362 at 405, Commercial Bank of Australia Ltd v Amadio (1982-1983) 151 CLR 447 at 461, 474, Louth v Diprose (1992) 175 CLR 621 at 637, Meagher, Gummow and Lehanes' Equity Doctrines and Remedies, 4th ed, Butterworths Lexis Nexis, Australia, 2002 at par 16-010). 103 The relevant circumstances from which the plaintiffs contended that unconscionable conduct arose were as follows. 104 It was submitted that Macquarie was a necessitous borrower. Macquarie required $300,000 as a matter of urgency. It was consistent with its desire to commence operations as soon as possible. But that does not establish a necessitous borrower in this context. The need for funds must be coupled with a disabling condition that seriously affects the ability of the borrower to make a judgment in his own best interests. As Young J said in Westfield at 202, the evidence must establish that the necessitous borrower is not, truly speaking, a free borrower. Mr Jones' evidence was that Mr Roberts was an alternative source of finance. No further evidence was adduced as to any other approach to a financial institution. The business plan forwarded to Mr Aitken was designed as an application for finance totalling $300,000 but not in the form sought from Endeavour. There was no explanation of its origin or whether finance had been refused by other financial institutions. The evidence fell short of establishing Macquarie as a necessitous borrower. 105 It was submitted that Endeavour knew Macquarie was a necessitous borrower and that its needs for finance were desperate to the extent that it was prepared to offer interest at the rate of 20%. I have already dealt with Mr Jones' assertion that it was Mr White, subsequently changed to Mr Aitken, who required the 20% rate. Mr Roberts corroborated Mr Aitken's evidence that this was volunteered by Mr Jones and Mr Roberts. They were both experienced in the medical centre business, Mr Roberts as the entrepreneur, Mr Jones as the administrator. Mr Jones was well aware of the value of medical centre businesses based on a multiple of earnings at the end of the day. The only security which was being offered for the proposed borrowing was a charge over the undertaking of the yet to be commenced business. While Mr Aitken agreed that bank interest rates at the time were in single figures, there was no evidence that any other financial institution would lend at a lower interest rate. As Santow J said in Modular Design Group at 103, a collateral stipulation in a mortgage is only unfair and unconscionable if imposed in a morally reprehensible manner. It is not sufficient that it be unreasonable. The evidence fell short of establishing that Endeavour took unfair advantage of Macquarie's offer of interest at 20%. The negotiations extended over a two month period. There was ample opportunity to test the excessiveness of the interest rate and to negotiate alternative finance. There was no evidence that this course was followed. The acceptance by Endeavour of Macquarie's offer of interest did not, in my view, establish unconscionable conduct either alone or in combination with the other circumstances. 106 It was submitted that Macquarie's approach to Endeavour was to borrow funds to complete the medical centre and that Endeavour knew it was seeking to borrow funds and had approached Endeavour for that purpose. This was undoubtedly the case, but on the evidence I have accepted Endeavour was not a financier. It was in the business of establishing medical centres and its offer of assistance was based upon an option to purchase the business. Mr Jones was aware of the structure of the offer as an option fee and option to purchase and, albeit that his attention was not specifically drawn to it, he was aware of the change in the first draft documents to an option to purchase with a loan of $300,000. Mr Jones was not the unsophisticated person he was initially portrayed to be. He had considerable experience in the administration of medical centres and had developed an understanding of the value of these businesses in the market place. While he did not take legal advice he had had experience in negotiating leases and in preparing contracts for medical practitioners. It was not unconscionable conduct on the part of Endeavour to offer assistance of $300,000 as consideration for the grant of an option to purchase the business under a stated formula. 107 It was submitted that Endeavour was trying to expand its business of medical centres in New South Wales. It was primarily Western Australian based. Mr Aitken recognised the business potential that the site presented. It was well located in a major shopping centre. It was the site that attracted itself to Endeavour if it could obtain it at a good price. These matters were established in evidence. Mr Aitken said it was the best deal Endeavour was likely to do. But that does not establish unconscionable conduct. 108 It was submitted that Endeavour took advantage of Macquarie's need to borrow funds and its approach to it for a loan to meet an urgent requirement and sought to provide the funds on terms that it have an option to purchase the business to achieve the commercial advantage and objectives just mentioned. The evidence fell short of establishing that Endeavour took advantage of the situation in a reprehensible way. The fact that it declined a loan but offered funds on the basis of an option to purchase was not reprehensible. Nor was the fact that the acquisition of Macquarie's business suited its plans for expansion into New South Wales. A commercial objective was sought by Endeavour. The way in which that commercial objective was sought as an option to purchase rather than a loan did not constitute unconscionable conduct. 109 There was no allegation in the statement of claim that the formula for exercise of the option to purchase at three times EBITDA with the opportunity of incentive payments at two times incremental EBITDA and at incremental EBITDA of the subsequent periods was low at the time. The pleading asserted that the business was worth six times EBITDA at the time of trial. The formula was accepted by Mr Jones and Mr Roberts in circumstances where the one had significant experience in developing medical centres and the other was well aware of market valuation based upon multiples of earnings. There was no evidence of any complaint that the formula was too low. While Mr Aitken accepted that it was the best deal that Endeavour was likely to do, he said he could have done better in the circumstances. 110 Schon Gregory Condon, a chartered accountant, registered company auditor, tax agent, trustee in bankruptcy, official liquidator of this court and a member of the Association of Certified Ford Examiners, gave evidence. Mr Condon held a bachelor of business degree from the University of Technology Sydney and was a fellow of the ICAA and CPA Australia. Mr Condon prepared a report at 2 June 2003 in which he expressed the opinion that the Macquarie Medical Centre business indicated an earnings multiple in the range of four to six times EBITDA. 111 It turned out that the two prior valuations with which he was concerned were carried out by someone else in his firm. He had discussed the issues with that person. They centred on three times EBITDA as a norm adjusted up or down for strengths or weaknesses. He thought a medical centre away from the Macquarie Medical Centre might have a multiple of three maybe three and a half times EBITDA but the Macquarie Medical Centre should have a multiple above this. Mr Condon agreed that the formula in the asset sale and purchase agreement of three times EBITDA for the 12 months before purchase followed by two times incremental EBITDA in the next 12 months and incremental EBITDA in the next 12 months could well result in a number between his four to six times EBITDA. I did not gain much assistance from Mr Condon's evidence. It did not, in my view, establish any unfairness in the formula agreed upon by the parties in the asset sale and purchase agreement. 112 The plaintiffs submitted that Macquarie asked to borrow $300,000 at 20%, the transaction documents involved a loan of $300,000 at 20% and it was in this context that Macquarie was to provide an option to purchase. I do not accept that characterisation of the transaction. For the reasons that I have already explained, it is my view that the transaction should be characterised as an option to purchase in consideration for which the loan of $300,000 at 20% was made. 113 It was submitted that the sole director and shareholder of Macquarie had no legal advice in relation to a complex transaction involving documentation of more than a hundred pages. Endeavour and its legal advisers were aware of this fact. Mr Jones' approach to the transaction was unusual. He was prepared to execute the documents without advice or any analysis of them and he failed to appreciate the detail of the transaction. I do not accept that Mr Jones was prepared to execute the documents without analysis of them. The evidence reveals that he did peruse the first draft documents because he volunteered missing information from some of them. Nor do I accept that he did not appreciate the detail of the transaction. Furthermore, Mr Roberts, his adviser, was aware of the nature of transaction and gave his imprimatur to it. 114 It was submitted that to the knowledge of Endeavour the transaction documents were executed without Macquarie obtaining legal advice. This is so. It was submitted that to the knowledge of Endeavour, Mr Jones was at the time of execution subject to acute personal stress. This is also so, but the documents he executed were in terms of the drafts he had perused. 115 It was submitted that the transaction documents were executed by Macquarie under circumstances of urgency in which Macquarie was subject to significant financial pressure. Similarly Endeavour pursued settlement of the arrangement with urgency lest it lose the deal and the substantial advantages that would flow from it. I have already said that the negotiations extended over a two month period, notwithstanding the pressure from Mr Jones to have the transaction implemented as quickly as possible. Endeavour reacted to this request on the basis that since Mr Jones required the matters to be attended to as a matter of urgency, Endeavour should react to accomplish that end. 116 Finally it was submitted that the circumstances revealed that Macquarie sought to redeem the mortgage and Endeavour sought to enforce the option so as to acquire the business at a substantial undervalue. Macquarie did not meet any of its financial obligations under the agreements of 2 July 2001. On 7 March 2002, Macquarie, Mr Jones and Mr Roberts executed an agreement with Endeavour whereunder, in consideration of Macquarie making certain payments and granting a right of first refusal to provide pathology services at the centre, Endeavour undertook not to exercise the option to purchase and to discharge the fixed and floating charge. Macquarie made no payments under that agreement either. It was only on the last day of the trial that an application was made to further amend the statement of claim to include a claim for a declaration that the plaintiffs were entitled to a discharge of the fixed and floating charge on payment to Endeavour of the balance of the principal and interest owing under the charge. There was no evidence that those outstanding moneys were paid. 117 In my view, the circumstances surrounding the transaction did not constitute unconscionable conduct on the part of Endeavour.

118 The plaintiffs have not established an entitlement to any of the relief they sought. I will hear the parties on costs. I direct the parties to bring in short minutes of orders to reflect these reasons.

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