Bakarich v Commonwealth Bank of Australia

[2004] NSWSC 283

CITATION:	Allan John Bakarich and Anthony George Bakarich as Executors of the Estate of the late Mary Patricia Bakarich & Ors v Commonwealth Bank of Australia [2004] NSWSC 283
HEARING DATE(S):	10/11/03; 11/11/03; 12/11/03; 13/11/03; 14/11/03; 17/11/03; 18/11/03; 19/11/03; 20/11/03; 21/11/03; 24/11/03; 25/11/03; 27/11/03; 28/11/03; 01/12/03; 02/12/03; 03/12/03
JUDGMENT DATE:	20 April 2004
JUDGMENT OF:	Nicholas J
DECISION:	Plaintiffs' claim dismissed. Judgment for the Defendant.
CATCHWORDS:	EQUITY - Equitable relief - Guarantees and mortgage for bank loans - claims for relief under s 52 Trade Practices Act 1974 (Cth) - whether Plaintiffs induced to provide securities for loan by bank's false and misleading conduct - whether transactions unconscionable - whether principle in Commercial Bank of Australia v Amadio (1983) 151 CLR 447 applies - whether variation of agreement discharged Plaintiffs from liability under the securities - whether principle in Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 applies - whether guarantees and mortgage unjust under s 7(1) Contracts Review Act 1980 (NSW) - whether undue influence
LEGISLATION CITED:	Contracts Review Act 1980 (NSW) ss 4(1); 7(1); 9(1); 9(2)(a) to (k); 15 Real Property Act 1900 (NSW) s 57(2)(b) Trade Practices Act 1974 (Cth) s 52
CASES CITED:	Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 77 ALJR 926 Baltic Shipping Company v Dillon (1991) 22 NSWLR 1 Blomley v Ryan (1956) 99 CLR 362 Commercial Bank of Australia v Amadio (1983) 151 CLR 447 Commonwealth Bank of Australia v McArthur [2003] VSC 31 Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 Cubillo v Commonwealth of Australia (2000) 174 ALR 97 Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 Falinski v Commonwealth Bank of Australia [Unreported, NSWCA, 6 February 1998] Radan v Commonwealth Bank of Australia (23 October 1998, BC9805707) State Bank of New South Wales Ltd v Chia & Anor (2000) 50 NSWLR 587 Watson v Foxman (1995) 49 NSWLR 315 at 318-319 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Westpac Banking Corporation v Robinson (1993) 30 NSWLR 668
PARTIES :	Allan John Bakarich and Anthony George Bakarich as Executors of the Estate of the late Mary Patricia Bakarich - First Plaintiff Allan John Bakarich - Second Plaintiff Anthony George Bakarich - Third Plaintiff Vitlern Pty Limited - Fourth Plaintiff A Bakarich Industries Pty Limited - Fifth Plaintiff Commonwealth Bank of Australia - Defendant
FILE NUMBER(S):	SC 5840/92
COUNSEL:	B Coles QC, R J Powell SC, M R Tyson - Plaintiffs J R Sackar QC, M T McCulloch, T M Thawley - Defendant
SOLICITORS:	Bowring Stone - Plaintiffs Shaw McDonald - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Nicholas J

20 April 2004

5840/92 Allan John Bakarich and Anthony George Bakarich as Executors of the Estate of the late Mary Patricia Bakarich & Ors v Commonwealth Bank of Australia

JUDGMENT

1 His Honour: On 19 September 1989 Commonwealth Bank of Australia (the Bank) advanced a trade lending facility in the sum of $2,650,000.00 to Demson Pty Ltd (Demson) to assist it to import air conditioners for sale. The Plaintiffs provided guarantees and mortgages to the Bank to secure the advance.

2 The claims for relief against the Bank are on grounds that:

(i) The Plaintiffs were induced to provide the securities by false and misleading representations made to them by an officer of the Bank, in breach of s 52 Trade Practices Act 1974 (Cth) thereby entitling them to relief under that Act;

(ii) The securities were provided to guarantee an agreement between the Bank and Demson to advance the trade lending facility on condition that funds would only be advanced upon the Bank sighting confirmed orders for air conditioners which agreement was subsequently varied so that funds would be advanced for which no confirmed orders had been sighted provided the value of the imported air conditioners did not exceed $300,000.00 per month. The variation was without the knowledge or consent of all or any of the Plaintiffs, by reason whereof the Plaintiffs were discharged from all liability to the Bank under the securities in accordance with the principle in Ankar Pty Limited v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549;

(iii) The circumstances in which the Plaintiffs agreed to provide the securities were such as to render the transactions unconscionable and/or unjust so as to entitle the Plaintiffs to equitable relief in accordance with the principles in Commonwealth Bank of Australia v Amadio (1983) 151 CLR 447 and/or to relief under the Contracts Review Act 1980 (NSW).

3 By consent, questions of relief and remedy were deferred pending determination of the issues of liability.

Introduction

4 Anthony Bakarich (Anthony) and Mary Patricia Bakarich (Mary), now deceased, were the parents of Stephen, Allan John, and Anthony George Bakarich. The family home was on a 20 acre farm at Lot 3 Cowpasture Road, Hoxton Park (Lot 3) from which the business of growing and selling tomatoes was conducted. Anthony lived there with Mary until his death on 7 February 1989.

5 Mary became the registered proprietor of Lot 3 pursuant to a transmission application dated 11 September 1989. She died on 27 October 1997 aged 74 years.

6 Allan John Bakarich (Allan) is the Second Plaintiff. He was born on 19 July 1944, and lived with his parents at Lot 3 whilst they were alive. He worked on the farm picking and growing tomatoes. It was accepted that by reason of ill health he was unable to attend Court. In his affidavit sworn 19 June 1998, he described himself as mostly illiterate. He is totally incapacitated and is cared and provided for by his brother Anthony.

7 Anthony George Bakarich (Tony) is the Third Plaintiff, and with Allan is an executor of the estate of his late mother, the First Plaintiff. He was born on 16 May 1946. After completing the Leaving Certificate in 1964, and tertiary general and mechanical engineering courses, he left the family home in 1971. He was employed in the engineering industry for seven years. He was married on 19 August 1973 and has four children. He separated from his wife on 2 May 1986 and they were later divorced.

8 Vitlern Pty Ltd (Vitlern) the Fourth Plaintiff was established in 1986 as a property investment company by Anthony, Mary and Allan. At relevant times its directors were Allan and Mary. It was the owner of three home units at The Chateau, Surfers Paradise, Queensland.

9 On 27 October 1975 Tony established A Bakarich Industries Pty Ltd (ABI) the Fifth Plaintiff. At all relevant times he and Allan were its directors. He controlled its operations which were conducted as a family company which supported himself, Allan, and his parents. Mary was a director between 2 July 1993 and 27 October 1997. Its business was the manufacturing of tubular steel products and other light industrial activity. Tony said that at one stage it was the largest manufacturer of television stands in Australia. It owned property at Jedda Road, Lurnea (Jedda Road), Wirreecoo Road, Berrara and No 23 Burbank Avenue, East Hills which was Tony’s residence.

10 Stephen Bakarich (Stephen) had been involved in the air conditioning business since leaving school. He and his wife, Rosanna, were directors of Celsius Air-Conditioning Pty Ltd (Celsius) which from about October 1982 sold and installed residential and commercial air conditioners. They were also directors of Rutisa Pty Ltd (Rutisa) which from about December 1987 carried on business as a property developer in Cabramatta. His business interests included residential development projects and a travel agency, Speedwise Travel Pty Ltd.

11 Mr Darryl William Aspinall (Mr Aspinall) was employed by the Bank between 1983 and 1993 as its assistant loans manager at its Liverpool branch (the branch). His principal function was to make recommendations as to loans and to approve those within his delegated authority. Under his supervision was Mr Michael Newton, the senior loans officer. He first met Stephen in about 1983 or 1984 and Stephen became a customer of the branch in about 1986. During 1987 and 1988 Mr Aspinall was involved in the provision of financial assistance by way of overdraft facilities and personal credit lines for Stephen, his wife, and their businesses. He first met Tony in about July 1988. His involvement with members of the family continued thereafter.

12 Mr Michael John Newton (Mr Newton) was employed between 1987 and 1992 by the Bank as its senior loans officer at the branch. His first contact with the Bakarich family was with Stephen in relation to an application for an overdraft facility to assist Celsius, apparently in about December 1987. His next involvement with members of the family was in relation to the purchase of Lot 34A Cowpasture Road, Hoxton Park (Lot 34A) in July 1989. His involvement continued thereafter.

Witnesses

13 Tony was the only witness for the Plaintiffs. Allan was not required for cross-examination in respect of those parts of his affidavit sworn 19 June 1998 which were admitted into evidence.

14 For the Defendant, the witnesses were Messrs Aspinall, Newton and Ms Garland. Affidavits sworn by Bank officers Barry Robert Watson, Leslie James Rowe, and John Irwin, were read, and they were not required for cross-examination.

Chronology of events between 1985 and 1994

15 The following narrative is of events which involved members of the Bakarich family and provides some background for the better understanding of the Plaintiffs’ claims. Most of these matters were not in dispute and in any event there was ample evidence for the finding that each took place.

16 By the end of 1985 ABI was in serious financial difficulty and Tony was involved in divorce proceedings with his wife. By letter dated 4 December 1985 Stoikovich & Banfield, his solicitors, wrote to Beston & Riordan, solicitors acting for his wife. The letter advised of the need to auction the company’s real estate to pay out its creditors and warned of the risk of its liquidation after February 1996 if the auctions did not take place.

17 On 16 June 1986 Tony’s wife commenced proceedings in the Family Court of Australia seeking orders with respect, inter alia, to settlement of property and the winding up of ABI.

18 The situation deteriorated. By notice dated July 1986 signed by Tony and Allan, ABI’s liabilities were estimated at $883,000.00 and its assets at $720,000.00. Its serious financial situation remained substantially the same during 1987. In his draft affidavit of 9 September 1987 for the Family Court proceedings Tony estimated that liabilities exceeded assets by about $120,000.00. He also described the adverse physical and mental affect upon his parents by reason of their concern that Lot 3 was in jeopardy.

19 Following the letter from National Australia Bank (NAB) to ABI of 6 May 1988 which complained of the unsatisfactory state of ABI’s accounts Tony responded that the family might be prepared to sell the farm in order to assist ABI. Tony was sure they would have sold it if he asked them to do so.

20 On 9 May 1988 Tony signed an undertaking to the Family Court that as a shareholder and director of ABI he would not deal with or sell the properties at Burbank Avenue (his home) and Jedda Road.

21 On 1 June 1988 Tony, on behalf of ABI, agreed to sell Jedda Road to Pupuri Pty Ltd for $1,550,000.00. On 21 June 1988 he phoned Mr Banfield, his solicitor, and told him he had agreed to sell Jedda Road for $1,550,000.00. On 28 June 1988 he accepted a deposit for $155,000.00. He and Allan agreed to sell at this price because ABI’s financial position necessitated sale, it having been decided to close the company down.

22 However, at about this time Tony told Stephen of the proposed sale and that he was providing vendor finance of $1,000,000.00 at 13% paid monthly, and that he planned to retire. Stephen’s response was to ask him to reconsider, saying that if he invested $1,000,000.00 in the project to be undertaken through Rutisa at Cabramatta he could guarantee a return of not less than 26% and possibly 50%, and the Bank would support him.

23 On 4 July 1988 Tony phoned Mr Banfield and advised that he had definitely sold Jedda Road for $1,550,000.00, and asked whether he needed to tell his wife.

24 Stephen approached Tony and put a number of proposals for the sale and development of Jedda Road. They were not accepted. Ultimately on 25 August 1988 there was an exchange of contracts simultaneously with settlement when the property was sold for $1,250,000.00 to Pupuri Pty Ltd. Tony and Allan signed the contract on behalf of ABI as vendor.

25 On 25 August 1988 the sum of $999,438.54 was deposited by ABI with CBFC Limited.

26 Tony and Allan consented to their appointment as directors of Rutisa effective 20 September 1988, and became shareholders and directors on 29 September 1988. Stephen and his wife had been directors since 17 December 1987.

27 On 30 September 1988 the property at 132-139 John Street, Cabramatta (John Street) was transferred to Rutisa for the price of $410,000.00.

28 On 9 November 1988 NAB demanded payment from ABI of the total sum of $367,430.46 in respect of its overdraft and borrowings.

29 By contract dated 11 November 1988 Vitlern agreed to purchase residential units 41 and 42 at The Chateau, Surfers Paradise, Queensland for $270,000.00. The company already owned Unit 43. On 24 November 1988 the Bank provided $250,000.00 by way of a residential property investment loan to assist the purchase, security for which were mortgages over the three units. On 28 November 1988 relevant documents, including the mortgages, were signed by Allan and Mary for Vitlern, whose signatures were witnessed by Tony.

30 The Bank’s diary note of 17 November 1988 records the recommendation of an application by Rutisa for a facility of $800,000.00 to assist in the construction of 11 townhouses at John Street, and 14 townhouses at 5/7 Thelma Street, Liverpool. On 30 November 1988 the facility was approved. On 9 December 1988 Tony and Stephen as Rutisa’s directors signed the Bank’s documents to enable drawdown.

31 On 13 January 1989 the solicitors for Tony’s wife wrote to Mr Stoikovich seeking particulars of the sale of Jedda Road and of the disposal of its proceeds. By letter dated 1 March 1989 Mr Stoikovich, so far as is relevant, advised that of the net proceeds of $1,156,938.54 received by ABI the sum of $466,000.00 had been paid to sundry trade creditors, and that the balance of approximately $600,000.00 was lent to Rutisa to fund its development projects.

32 On 3 March 1989 Rutisa provided a mortgage to the Bank over the property at 5-7 Thelma Street, Liverpool.

33 On 20 March 1989 Stephen and Tony became directors of Demson.

34 From 22 April 1989 to 28 April 1989 Tony was in Singapore. During this time he visited Acma Electrical Industries Ltd (Acma), met those in charge and inspected the factory. Acma manufactured air conditioners and refrigerators which, at the time, Stephen was considering importing.

35 On 4 May 1989, Tony and Stephen signed Demson’s lease for its premises.

36 On 28 June 1989 Vitlern completed the sale of Unit 43, The Chateau, for $170,000.00. The memorandum of transfer was signed by Allan and Mary and witnessed by Tony. On 3 July 1989 Vitlern’s account with the Bank’s branch at Liverpool was credited with the sum of $150,658.50.

37 On 3 July 1989 an application for financial accommodation for the purchase of Lot 34A, a property of 13.8 hectares, was prepared by Mr Newton. On 13 July 1989 arrangements were made for the purchase of Lot 34A, for the sum of $1,150,000.00 which was to be partially funded by a loan from the Bank of $800,000.00 secured by mortgage. The remaining funds came from the sale by Stephen and Rosanna of their property at Lot 309, Kelvin Park Road, Kelvin Park, the sale by Rutisa of the property at Thelma Street, Liverpool, and the sale by Vitlern of Unit 43. Lot 34A was bought as an investment in the expectation that it would be rezoned residential. The memorandum of transfer is dated 27 July 1989. The owners were Stephen and Rosanna as joint tenants as to one third share, and Allan, Tony and ABI as tenants in common of the two thirds share, being proportions agreed upon by Stephen and Tony.

38 On 5 July 1989 Stephen and Mr Koh of Acma met the Bank’s representative, Mr Hateley, in Singapore to discuss the financing of Demson’s importation of air conditioners for distribution in Australia. A documentary credit for $73,500.00 was established through the branch on 10 July 1989.

39 By letter dated 24 July 1989 NAB advised Stoikovich & Banfield that the amount required to discharge the mortgage of Lot 3 which supported the overdraft and loan facilities of ABI was the total sum of $360,340.87.

40 On 31 July 1989 there was a meeting with Stephen, Messrs Aspinall and Newton, and members of the Bank’s trade lending group. Stephen was asked to provide cash flow projections and, to establish the viability of the enterprise, copies of confirmed orders and relevant contractual documentation to support Demson’s estimated sales potential. The preparation of cash flows and ordering schedules would form the basis of a formal proposal for appropriate level of facilities.

41 Between 2 and 11 August 1989 Tony travelled to Singapore and Hong Kong. Mr Paul Cross accompanied him. The trip was for the purpose of Demson’s business.

42 On 3 August 1989 Demson’s accountants, Galluzzo Bros. & Partners, sent the Bank a cash flow budget as instructed by Stephen. The document was a spreadsheet in a standard form provided by the Bank. It is TB 399-400.

43 From about 4 August 1989, orders for Acma air conditioners were placed by retailers with Demson, and from about 8 August 1989 Acma began shipping air conditioners to Demson in Sydney, and invoicing for them.

44 On 8 August 1989 Acma issued invoices to Demson in respect of four shipments for a total of 957 air conditioners for the sum of SGD$689,340.00.

45 On 10 August 1989 Demson faxed to Mr Newton a copy of the confirmation from Norman Ross of a bulk order for 1,300 air conditioners.

46 By the memorandum dated 14 August 1989 Mr Newton submitted to the Bank’s Southern Metropolitan Zone (Zone) an application for financial accommodation for Demson for consideration and approval. He recommended approval of a trade lending facility of $2,650,100.00 to finance the importation of air conditioners from Singapore.

47 The application contained a summary of the facilities already provided to related Bakarich accounts. Mr Newton’s proposal for security was in the following terms:

“1. A Guarantee (Unlimited as to amount) by Stephen, Rosanna Margaret, Allan John and Anthony George Bakarich partially supported by security held in their own names and A Bakarich Industries Pty Limited.
2. A Guarantee (Unlimited as to amount) by A Bakarich Industries Pty Limited, Vitlern Pty Limited, Rutisa Pty LImited (sic) & Demson Pty Limited.
NB: This Guarantee is fully interlocking.
3. A registered equitable mortgage by Demson Pty Limited over all of its assets except freehold including uncalled capital.
4. A mortgage by Mary Patricia Bakarich over a 3ha rural property Lot 3 Cowpasture Road, Hoxton Park NSW”.

48 Under a heading “BALANCE SHEET/PROFITABILITY” it said:

“A newly incorporated company with no tangible assets. The directors however, anticipate a net profit of some $600,000 from current orders which should be completed by June 1990”.

49 Details of Demson included the following information:

“As previously mentioned Stephen Bakarich has been involved in the air-conditioning business, both sales and installation, since leaving school and has the expertise and knowledge to sell these products to Australian wholesalers/retailers. Discussions have been held with the Singapore supplier, Acma, over a period of 12 months to ensure that both of them have the ability and means to fulfil their share of the agreement.

To date orders have been received for the supply of 4,385 room air-conditioners to distributers (sic) around Australia and such well known retailers as Norman Ross and Harvey Norman.
Imports will be on a monthly basis with payment 90 days after FOB. The Australian wholesalers/retailers will pay either 30 days after delivery or by Letter of Credit payable 60 days after receipt. This safeguards Demson so that if any purchaser defaults or is late with payment no further orders are taken/delivered.
…
Current orders should be fulfilled by March 1990 with no further orders for air-conditioners expected until later that year. In the interim, Mr Bakarich is looking to import television sets from Hong Kong on a similar basis and continued documentary credit facilities will be required. At this time however, no other details are known.
Cash flow budget for the import operation as prepared by the Group’s accountant is attached. This was prepared along the lines suggested by George Emerson from Trade Lending and we are happy with its content.
These people are extremely energetic and have a very much “hands on” approach. Stephen is a perfectionist and is known to ride unmercifully solicitors, accountants, employees, bankers and anybody else to ensure that matters are completed quickly and satisfactorily. In short, he gets things done”.

50 The comments of the branch’s chief manager, Mr John Irwin, were appended as follows:

“As you are aware, this is the type of business which the branch is actively seeking to offset the mainly property development content of our present lending.
The proposal is quite straight forward, security backstop is considered adequate and if the planned expansion is achieved, (and we share Bakarich’s optimism) the connection will develop into a very worthwhile and lucrative one for the Bank”.

51 I interpolate that Mr Aspinall said that it was likely that Stephen provided the information relating to Demson. He checked and fully supported the application, and wanted to see it granted by the Zone. He thought the transaction was subject to normal commercial risks. It was his understanding that Stephen and those in Demson involved with the importation of air conditioners knew what they were doing. I accept his evidence.

52 With the application were included a trading projection for year ending 30 June 1990, an order placed by Demson on Acma on 9 June 1989 for 7,635 units at a cost of SGD$5,885,850.00, a cash flow on the Bank’s pro-forma document, and documents evidencing orders in place.

53 Events within the period 15 August to 19 September 1989 during which the guarantees and mortgage were signed are considered later in this judgment.

54 By fax dated 11 October 1989 Cony Electronics Products Ltd, Hong Kong, sent to Demson the final draft of an agreement whereby it granted Demson sole distribution rights in Australia for colour television sets manufactured by it. It was marked for Tony’s attention. It requested him to bring bank guarantees, and to advise details of his visit so that accommodation for him might be arranged. It concluded by saying “Thank you for your kind attention and we look forward to seeing you soon in the Fair” (TB 804).

55 On 11 October 1989 Tony signed Demson’s application to the Bank for a documentary credit in favour of Acma for SGD$156,040.00 which was established the same day.

56 Between 15 October and 22 October 1989 Tony travelled to Singapore and Hong Kong for the purpose of Demson’s business.

57 On 26 and 27 October 1989 Tony and Stephen were in Melbourne for a meeting with Mr Paul Cross who was involved in establishing Demson’s sales office there. Tony’s detailed report of that meeting is dated 28 November 1989.

58 On 31 October 1989 Tony and Stephen and Mr John Stewart met to discuss the operations of Demson including its operations in Melbourne.

59 On 16 November 1989 Tony sent a memorandum to Stephen in respect of a proposed trip for Demson. He said he could not afford any time to go overseas as Demson needed too much time “ … with fuc-all (sic) return”. He suggested cancellation of his tickets, or cancellation of the trip until Demson “ … gets in credit”. He concluded by saying “Mum, myself and Al really have never been more ill at ease than now what for? And why”.

60 On 26 November 1989 Tony travelled to Singapore, Hong Kong and Bangkok for the purpose of Demson’s business, and returned to Australia on 10 December 1989. His detailed report of the trip is at TB 789B.

61 On 20 December 1989 Stephen sent a fax from Demson to Acma in which complaint was made about faulty air conditioners, resultant difficulties and expense in repairing them, and that dealers were reacting adversely to them. It also referred to a lack of quality control over Acma’s production, and conveyed the view that there was a big problem with its plant.

62 On 4 January 1990 Stephen sent a fax from Demson to Acma in the following terms (TB 1097):

“It appears we are going from bad to worse today, as this morning we have changed 2 more units. We have 9 units now in our store that do not work and 8 in Melbourne.
We have just been faxed by the S.C.C. in Victoria, not to sell any 95, 180 and 180R units as these have not been yet approved. This has not helped with the situation.
Paul Cross our General Manager in Melbourne has faxed us a letter how the situation now stands and is not very impressed.
John Stewart made a phone call to Norman Ross yesterday, our single, largest purchaser with a very unpleasant result. They were to take about 380 units this month but due to the poor performance in quality control they will not be taking Acma units but have re-ordered from National, they had completely sold out of Lemair and National RAC’s. Their Sale Staff were reluctant to sell Acma due to too many recalls, one shop replaced three 240R’s and not one worked. Ivan and myself replaced it after testing 2 in our warehouse to find one to work. I still cannot comprehend how all this has happened.
We are now both finding dealers in Melbourne, Perth and Sydney very apprehensive about purchasing your units due to bad quality control.
After talking to Michael Koh and Heidi, we are going to check the units that we sell from now, only to see if they start on Cooling and Heating then re-pack, this will not 100% tell us that the unit will work properly.
We are not prepared to repair the units that have been and will be returned to us, as I feel that after 3 lots of shipping we have unpacked, fixed certain faults and re-packed not knowing that there were other problems to come. It is a major job for us as our premises are not built to do major repairs.
As I have said to Michael Koh and Heidi, what are Acma going to do?
After a conference call with John and Paul this morning, we feel that it would be more realistic to send the containers back to Acma to be re-worked on their production line where there are all the facilities, as to do the lot here in Australia and certainly the ones that have no gas (probably due to leaks) would cost more than the units worth, noting that you will pay $65.00 per hour plus parts to re-gas.
There are units here that there is no way on God’s earth could have been tested, the evap supply fan is jammed in tight against the frame of the unit, the smart guy assembling the unit could not fit the supply fan on as the grub screw missed the shaft so he pushed the fan against housing to tighten screw thus fan cannot start, yet this was supposed to have been tested , there is not only one of these but a few.
As I said we will be selective where we sell because of service and the rest as far as we are concerned should be returned to Acma.

…
We need these units to show face that we are not deserting the marketplace as a full withdrawal would be disastrous for future sales, which only time will tell anyway.
…
Our existence depends on Acma, we have at the present no other means of survival, we trusted Acma’s performance, future looks very bleak ”.

63 On 8 January 1990 Tony faxed to Stephen his letter dated 6 January 1990 which included the following:

“I’ve had plenty of time to reconsider things and overall nothing you predicated (sic) really eventuated as explained. We could have comfortably existed on the interest and closed the business, now your (sic) got us into a position that this no longer is a possibility, anyway lets at least part with little argument.
…
(4) Commercial looks good but don’t stuff it up as you & John did with ACMA both Paul & myself know you paid too much for the units besides the managerial Stuff up. Anyway you keep harping how you want to go – go – its all yours now, as long as some of your promises and indication as to how much was made is even close.
(5) Believe me when I say I’m on the edge of exploding so don’t push, just do the split properly with ACMA taking all stocks it shouldn’t be too difficult to call it a day”.

64 On 16 January 1990 Stephen sent a fax from Demson to Acma in the following terms:

“As you are well aware we have a large problem with the R.A.C.’s, mainly 180’s and 240’s.
We now have 4 large retailers that will probably never sell ACMA R.A.C.’s again, they have cancelled all outstanding orders and even one retailer has informed us that if any of their other 32 outlets ring for units that we are to tell them to ring Head Office and to take no orders.
All this has eventuated from STUPID manufacturing mistakes and what has happened, ALL the units have now been tared (sic) with the same brush…
[The faults were listed].
All the small problems become a disaster as one dealer said.
Norman Ross installed 3 x 240 R’s before one worked at Liverpool. Also 3 x 240 R’s at Sydney and 2 x 240 R’s at Mt Druitt. Now they simply send them back and install other brands.
This company has cancelled 350 ACMA cooling only units because of this problem. Now we have them sitting on the floor, unable at the moment to sell them.
Our Melbourne office has exactly the same problems. Retailers are returning the units and want credit on them. What an introduction to the marketplace?
I cannot understand how ACMA could purchase the best equipment to go into a unit and have a very poor , lousy finish to their product.
Lemair, which are the cheapest form of air conditioning equipment on the marketplace, with poor type of parts, sell clearer then (sic) we do because it appears they have a Q.C. and the cosmetic finish is excellent. Where does this then put ACMA? This is not their first year in production.
I understand from my last trip to Singapore that the equipment to manufacture had not been ordered in time and this is the reason production was not on time (approx. 8 weeks late) and when parts did arrive it was in full urgent production which in my opinion did not help having a good Q.C. unit.
My brother’s trip (Tony) there last time, he arrived by himself, you told him how ACMA did let us down. If you recall you told me that the first shipment onwards would be on time. If you check your purchases orders for the part you required, I am sure you will find out they were not ordered on time.
We have a problem now that as far as I am concerned the screw situation has still not been solved -
…
If ACMA cannot guarantee us that the units we have are at least 99% good it would be damaging to sell into the marketplace. Certainly if ACMA, as I hope they are looking at a long time (sic) future, because if we put them back into the marketplace and there are small problems a second time around we will go BANKRUPT without doubt.
My opinion would be for ACMA to recall all unsold units in the warehouse, certainly the 180’s and 240’s and re-work the lot. This would be the only acceptable thing for long term future, then introduce them back to the marketplace without the drama we have now, because if we don’t, I do not think that there will be a future for the R.A.C.’s because the confidence of the sale retailers is very low.
As it stands at the moment I cannot see us taking the 6 containers still on the wharf due, that these containers have 240s in them and that every 240 will have to be re-worked. I would prefer if this was done, in Singapore as this would only cost about $26.00 to ship back-ways plus your cost for re-work, as labour alone here would cost much more as we do not have facilities to do this here.
…
I would like to know if ACMA are or could assist us in the units that have been cancelled by our retail outlets as this will be a very heavy burden on us to carry till next summer is (sic) not sold now, certainly the cooling only units.
Also Melbourne has sold 400 R.A.C.’s and has had 35 units that that (sic) had break-downs, some returned to store and the rest service calls (8% recall). This is a joke.
I have informed Demson-Melbourne not to sell or re-work anymore units until this is sorted out (only 240s) at this stage. 180’s are still a problem.
At the moment, as Michael Koh knows, we are the laughing stock of the industry.
Martin when I was in Singapore last time my meeting with Heidi, with you present, I was told that I would have my 1 H.P., R/C, split installed before Xmas. I spoke to L.T. today to find out what has happened, he told me he’d chased the matter up only to be told this was not so. THIS IS DEFINITELY NOT TRUE.
…
I find out that every time I arrive there and have discussions with ACMA everything seems to be denied at a later date. This I find very disturbing.
…
My conclusion to the matter is that unless all units are 100% checked out the situation will only get worse, the reason being that if anyone takes 10 units and there are any problems it all will be very minor, the whole 10 will come back and there is no way ACMA will get into the marketplace next summer.
I am prepared, if needed to come over this week at 1 day’s notice to sort this mess out with you, only directly. We cannot go on hoping there will be no problems. This in my opinion would be a stupid road to take as there would be no future in this direction …”.

65 On 22 January 1990 Tony sent a fax to Stephen in which he proposed terms for the separation and settlement of their respective business interests including cessation of involvement with Demson.

66 During February 1990 Tony wrote to Stephen and Mr Albert Macri, solicitor of Macri Stathis & Co, on a number of occasions on the subject of his investment in Rutisa and Demson, and with proposals for unravelling their various interests. In an undated letter to Mr Macri (TB 1192A-E) (probably written about 20 February 1990), he requested him to act as an arbitrator to resolve the disputes between Stephen and himself. It included the following:

“I did as promised, discuss all the happenings openly with our mother and Allan as this is and has affected all of us.
We are now starting to realise the enormity of Steves (sic) contempt and diceit (sic) towards our trust and believes (sic) as time (sic) go on this will only increase. When we think of how we trusted him and Rosanna with only personal verbal guarantees and agreements, where by using our $1,000,000.00 we were all to prosper especially Steve’s (sic) and Rosanna’s family as we were allready (sic) comfortable by the sale. Now what is coming to light is unbelievable and hurts that they could even think of some of these actions besides carry them out. What Steve and Rosanna must be told is that because Steve is our oldest brother, this does not give him the rights (sic) to our money nor does it allow him to be irresponsible with it and he is not judge and jury over it. All we seek is that we be allowed to put our case forward and then have it independently arbitrated on – honest – fair and just.
…
(6) Steve initially sought the purchase of 34 Cowpasture Road, we had no reason for it (sic) purchase but reconsidered when Steve assured me, Allan and our mother that he had $400,000 personally to inject from the sale of 5 acres and a business Cellcius. With this he guaranteed that RUTISA P/L was going to return no less than $360,000 profit and that Demson’s Gross profit should exceed $1,000,000 because orders were allready (sic) on hand to confirm this claim.
…
Steve was quite aware of our financial position and to achieve funds gave personal guarantees to alter our minds. Anyway the NA Bank requested App $150,000 for them to release the deeds, Steve organised the funds imediately (sic) and from which account, it didn’t matter, as it was in line with the funds from VITLERN P/L and as Steve pooled funds and operated either company from this pool it didn’t cause a problem, and we were all well aware that with our investment and charges we were still in overall credit, and that’s not even considering his personal guarantee of a minimum of 30% return on investment.
…
I hold Steve responsible for looses (sic) incurred by his malice, where he refused to act in the companies best interests and obide (sic) by agreements undertaken and agreed by all.
I again point out that DEMSON – ACMA – UNI-AIR and CONTEC are all valuable assets of DEMSON P/L, even though, this has been eroded by Steve and Rosanna’s actions, for this I hold them totally responsible for (sic)”.

67 In accordance with the written agreement made on 7 March 1990 between Stephen, Rosanna and Tony the dispute in relation to Demson and Rutisa was settled. As a consequence, Stephen resigned as a director of Demson and Rutisa, Stephen and Rosanna transferred to Tony their shares in each, and Tony took over control of Demson and Rutisa.

68 Between 11 and 16 March 1990 Tony was in Singapore to visit Acma to discuss supplies for the following year.

69 In his letter to the Bank dated 15 June 1990 Tony wrote:

“We sincerely thank the bank for the past consideration especially at these trying times.
A. Bakarich Industries Pty Ltd, Anthony George Bakarich, Allan Bakarich, Mary Bakarich and Vitlern Pty Ltd, do at all times feel obligated for any debts that they may have incurred.
The liability as to Demson Pty Ltd, is one where only 50% of this debt is initially our responsibility, the other 50% is Steve and Rosanna’s responsibility, and should any misfortunate action occur, we would expect securities to be equally drawn against by the bank, as they were aware of the company structure prior to any loans organised.
We do wish to make use of the loans organised by A Bakarich Industries Pty Ltd, but whilst Steve and Rosanna refuse to honour their undertakings, we insist that their total securities not be used elsewhere, as they have been exposed well in excess of their assets for the past few years, and unfairly exposing others for selfish means”.

70 On 27 June 1990 Tony and ABI provided mortgages and guarantees to the Bank to secure additional accommodation for ABI.

71 On 15 October 1990 Tony, Allan and Mary each signed a letter to the Bank which stated:

“I hereby acknowledge that the Bank has granted or may be granting from time to time to Demson Pty Limited accommodation and otherwise permitting the Debtor to incur liabilities to the Bank not exceeding an aggregate amount at any one time and from time to time of $2,677,249 (Net) against the security of my mortgages(s)/guarantee(s) to the Bank referred to in the Schedule below.
I clearly understand that my mortgage(s)/guarantee(s) will also secure the payment to the Bank of interest and any costs charges and expenses with which the Bank shall be at liberty to debit and charge the account of the Debtor or for which I am liable under my mortgage(s)/guarantee(s)”.

72 On the same day Tony and Allan on behalf of Demson, ABI, Vitlern and Rutsia signed a letter of request to the Bank in respect of facilities for Demson in the sum of $2,677,249.00.

73 On 26 October 1990 Tony wrote to the Bank requesting financial accommodation to enable cheques drawn to be met on presentation. The request was denied by the Bank on 31 October 1990.

74 By letter dated 12 December 1990 to the Bank Tony sought a letter of credit facility to enable the importation of a shipment of air conditioner units. He stated that Demson’s actual sales to 30 November 1990 amounted to $307,910.00 and projected sales for the period December 1990 – March 1991 were for the amount of $1,776,000.00. The request was declined by the Bank on 17 December 1990.

75 By letter dated 21 February 1991 the Bank advised Demson of cancellation of the trade finance limit and that no more documentary credits would be established. It also advised of requirements for reduction and clearance of the bill for $462,000.00 by late April 1991 and thereafter “ … meaningful reductions are to commence on the bill of $2,100,000 each 30 days pending full clearance to come from sale of land” (TB 1670).

76 Demson’s income statement for the period ended 28 February 1991 recorded an operating loss of $269,649.40.

77 On 21 March 1991 Tony and Allan signed an authority for the Bank to complete mortgages and other documents for security for advances and accommodation granted or to be granted.

78 Pursuant to Transfer dated 28 March 1991 ABI acquired Stephen and Rosanna’s one third share of Lot 34A.

79 The Bank’s memorandum of 12 June 1991 records the discussion at a meeting with Tony, Mr Yule and bank officers Messrs Moran and Watson. It was proposed that clearance of the facilities provided to Demson, ABI, and Vitlern which then amounted to $2,931,216.00 would come from the sale of Lot 34A to Landcom for $3,000,000.00. It was noted that the rezoning of Lot 34A was expected to take place after a council meeting on 19 June 1991 and that it was Tony’s intention to return to engineering with ABI and to continue selling air conditioners through Demson.

80 By letter dated 29 August 1991 to Demson the Bank advised that by reason of Demson’s inability to meet roll-over costs on the matured bills facility for $2,100,000.00, the bill was transferred to a cash funded facility.

81 On 7 November 1991 Tony, Allan and Mary signed letters of acknowledgment to the Bank in respect of accommodation to Demson for up to the amount of $2,416,581.00 against the guarantees of 18 August 1989 and the mortgage of 12 September 1989.

82 On 11 November 1991 Demson applied for documentary credits for US$44,250.00 and SGD$207,920.00 which facilities were provided by the Bank on 12 November and 14 November 1991 respectively. By letter dated 13 November 1991 the Bank advised Demson of the drawdown of its bill discount facility for $312,000.00

83 On 29 January 1992 the Bank approved excesses on Demson’s cheque account up to a maximum of $14,200.00 to cover payment of import duty on air conditioners.

84 On 8 May 1992 a meeting between Tony, Messrs Montgomery, Moran and Watson took place during which the Bank’s concern about the non-performing conduct of various loans and the ongoing delay with negotiations for the sale of Lot 34A to Landcom was expressed. Mr Watson’s memorandum of the meeting dated 11 May 1992 records the following (TB 8/1848):

“ … together with the fact that all the loans were now in bills matures (sic) account, the $2.1 million B/D/F was matured on 8/5/92, made it imperative that action was now taken to protect the banks (sic) position. I stated that I was seriously considering making demands on all parties.
At this point Tony became quite emotional and pleaded for indulgence for another month by which time he was certain a contract would be available from the Department of Housing. He further undertook to extract a letter of intent from the Department concerning the purchase and provide us with a copy during week commencing 18/5. Mr Moran explained that the way the accounts were at present he must do something now which generated a fresh outburst of emotion from Tony during which he states that he was doing the best that he could and that the financial plight of the company was his brother’s fault and that he could not be held to blame for the ongoing delay with the gazetting and sale of the land”.

85 I interpolate that Tony said that Mr Watson’s account was incorrect. Tony said he then also criticised the Bank for failing to honour its agreement to finance air conditioners and denied mentioning only Stephen as the cause of the financial plight of the company (T p 928). Mr Watson was not required for cross-examination. His account accords with the probabilities and I so find.

86 By letter dated 28 September 1992 to ABI, the Bank refused the request for finance to assist with the construction of stable blocks for the ACT Harness Racing Club. It also advised that the Bank was not prepared to provide further financial assistance and expected the current excess to be cleared from normal income failing which cheques would be returned unpaid.

87 On about 14 October 1992 Tony considered the draft of a letter prepared by Mr Banfield to be sent to the Bank on behalf of the Plaintiffs. The evidence is unclear as to whether in fact a letter in terms of the draft was sent. Relevantly it included the following passage of which Tony approved:

“Because of the Notice served by the Commonwealth Bank dated 28 September, 1992, as Guarantors, we have reason to believe this to be unfair.
Our investigations into how Demson Pty Ltd finished up in such a state as at January, 1990 shows that we have reason to believe the sole reason for this was due to the Bank’s failure to abide by the conditions.
As third party Guarantors – A Bakarich Industries Pty Ltd; Mary Bakarich, Vitlern Pty Ltd; Alan John Bakarich, Anthony George Bakarich, insisted that the Bank exercise control over Steve Bakarich and Demson Pty Ltd as we had no knowledge of Imports and the Air Conditioning Business. Steve’s input (securities), into this project was relatively minor by comparison. Because of this and the Bank’s concern, the Commonwealth Bank at Liverpool issued a letter dated 19 September 1989 (Copy enclosed) that they would only allow imports within certain constraints. It was only with such an assurance that our securities were ever offered…”

88 By letter dated 21 October 1992 Tony advised the Bank of an offer of $3,600,000.00 for Lot 34A subject to confirmation.

89 On 24 November 1992 the Statement of Claim in these proceedings was issued.

90 By notices dated 27 November 1992 to ABI the Bank made demands upon Tony, Allan, Mary, ABI and the various Bakarich companies for payment of various substantial amounts within 14 days, failing which recovery action was threatened.

91 By letter dated 2 February 1993 to each of ABI, Vitlern, and Mary, the Bank made demand for payment of amounts owing to it by Demson, ABI, Tony and Allan within 14 days failing which recovery action was threatened.

92 On 23 March 1993 the Bank gave notice to Tony pursuant to s 57(2)(b) Real Property Act 1900 (NSW) for payment of $3,260,410.89 within one month failing which the power of sale under the mortgage in respect of Lot 34A would be exercised.

93 By contract dated 26 March 1993, ABI, Tony and Allan agreed to sell Lot 34A to Landcom for the sum of $2,900,000.00. Settlement took place on 2 July 1993 resulting in payment to the Bank of $2,740,000.00 in reduction of Demson’s debt to it.

94 On 22 October 1993 the sum of $1,042,701.80 was paid to the Bank by Mary in discharge of the indebtedness of the Plaintiffs to the Bank whereupon all remaining mortgages were discharged and the Plaintiffs were released from the guarantees.

95 Lot 3 was sold in about June 1994.

The representations

96 The Plaintiffs rely upon conduct constituted by the aggregation of representations said to have been made by Mr Aspinall to Tony in about July 1988, November/December 1988, and mid-1989, which were misleading and deceptive and intended to be, and were, relayed by Tony to Allan and Mary.

97 In deciding the representation issues I had regard to the principles stated in Watson v Foxman (1995) 49 NSWLR 315 at 318-319 per McLelland CJ in Eq:

“Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously describe as "misleading") within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act ), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not ...attained or established independently of the nature and consequence of the fact or facts to be proved" including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding": Helton v Allen (1940) 63 CLR 691 at 712.
Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act ), in the absence of some reliable contemporaneous record or other satisfactory corroboration. ...
What I have said above as to the cause of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act ) is equally applicable, mutatis mutandis, to the causes of action based on contract and on equitable estoppel (with the added requirements, in the case of contract that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding, and in the case of equitable estoppel that any representation alleged was clear and unequivocal and was relied on to the substantial detriment of the representee)”.

Tony as a witness

98 Thus it is necessary for the Plaintiffs to prove to the reasonable satisfaction of the court in the sense explained that Mr Aspinall spoke the words alleged. They rely upon Tony’s evidence to do so. It is appropriate at this point to state my findings about him as a witness.

99 In evaluating the extent to which reliance may be placed on Tony’s evidence generally, and in particular of conversations, meetings and events, it is important to keep in mind that most of the relevant events were said to have taken place between June 1988 and March 1990. Tony kept no contemporaneous diary note or other record. His oral evidence was given in court during November and December 2003.

100 The versions of the conversations, meetings and events relied upon by the Plaintiffs first appear in Tony’s affidavit sworn 19 June 1998.

101 Having regard to these considerations alone, absent satisfactory corroboration, the Plaintiffs were confronted with significant difficulties of proof of the representations sued upon. In any event, during the course of the hearing I came to the view that Tony was a witness upon whose evidence no reliance should be placed where it was contested unless it was corroborated by, or is consistent with, independent and accepted documentary or other evidence.

102 It is well-settled that a trial judge is entitled to believe part of the evidence given by a witness and to reject the rest. (A recent discussion of the cases is in Cubillo v Commonwealth of Australia (2000) 174 ALR 97 paras 118-123, O’Loughlin J). There is an important segment of Tony’s evidence which was unchallenged and which I do accept. This was of his relationship with Mary and Allan to the effect that he always explained to them the nature and effect of mortgages signed by them to ensure that they understood the transactions in which they were involved. I elaborate on this evidence later in these reasons.

103 I observed him under cross-examination for many days. On occasions he became visibly upset, sometimes prevaricated, and many times endeavoured to avoid answering a question directly when he perceived that to do so might be harmful to his case. There were occasions on which he demonstrated confusion, lack of memory, or invention, or all of these, which generated doubt as to the reliability of his evidence as to detail. Examples include the concession that his memory is selective and mixed up as to dates (T p 201; p 637); the evidence as to reconciliation of para 42 of his affidavit of 19 June 1988 with para 15 of his affidavit of 26 September 2003 concerning the purchase of units by Vitlern (T p 366); and his evidence as to the contents of paras 60-64 of his affidavit sworn 19 June 1988 (T pp 631-648). My conclusion is that in the many intervening years since the claims were first made he has reconstructed events so as to accord with the several grounds for the claims he has decided to make.

104 Furthermore, with regard to a number of issues Tony gave and vigorously adhered to evidence which was patently false and/or implausible, or simply improbable, which generated grave doubts about the truthfulness of his evidence generally.

105 An example concerned the sale of Jedda Road. He denied that he had concealed from his wife the sale of Jedda Road and that the sale was in breach of his undertaking to the Family Court given 9 May 1988. His evidence was to the effect that she knew of, and consented to, the sale when it took place. This evidence was contradicted by documents which demonstrate that he sold Jedda Road in deceit of his wife and in breach of the undertaking. The documents include the file note of his conversation with his solicitor dated 4 July 1988, the letters from his wife’s solicitors to his solicitors of 13 January 1989 and to NAB and the ANZ Bank of 24 January 1989, his wife’s application in the Family Court for an interim junction filed 14 February 1989, her affidavit in support sworn 6 February 1989 and Terms of Settlement dated 23 February 1989. All support the finding, which I make, that she remained ignorant of the sale until mid-January 1989. I am satisfied that his evidence on this topic was false. His adherence to it in the teeth of these documents (which were put to him) served to undermine any standing he might have had as a credible and reliable witness on matters about which there was a contest.

106 Other examples were his evidence as to the events of 18 August and 12 September 1989 and as to the extent of his involvement in the operation of Demson prior to January 1990. My analysis of this evidence and resultant findings which lead to its rejection appear later in these reasons.

Mr Aspinall as a witness

107 With respect to Mr Aspinall, I find that he was a truthful witness who gave his evidence honestly, to the extent that his recollection and reference to contemporaneous documents enabled him.

108 Unsurprisingly, he frankly acknowledged his lack of recall of conversations and events without reference to a contemporaneous record. However he was firm and unequivocal in denying that he made the statements which were relied upon as conveying the representations. He said, as was the fact, that it was not his function to discuss and express views about the merits of an investment, and that he was not, and was not qualified to be, a financial consultant. He explained that his duties were to take and handle loan applications for the Bank. He was unshaken in cross-examination. It was not probable that he would have made the statements as claimed.

The July 1988 representations

109 The Plaintiffs allege that representations were made to Tony by Mr Aspinall at meetings on a day in about July 1988 one of which was at lunch at the Al-Fontana Restaurant, Liverpool, attended by Stephen. It is also alleged that it was Mr Aspinall’s intention and purpose that Tony should relay the representations to Allan and Mary.

110 Evaluation of the evidence of Tony and Mr Aspinall as to the representations and surrounding circumstances requires an understanding of relevant events which led to the meeting.

111 In his affidavit of 19 June 1998, Tony said that Stephen introduced him to Mr Aspinall in about July 1988 and they then inspected the property at John Street, which Stephen proposed for development. Tony said that Mr Aspinall was laudatory of Stephen’s success in business, encouraged him to invest $1,000,000.00 in Stephen’s development project, guaranteed that he would at least double the 13% return from his purchaser, and assured him there was no risk in doing so.

112 Shortly thereafter he met Stephen and Mr Aspinall for lunch at the Al-Fontana Restaurant, Liverpool. Tony said that the conversation was to the following effect (affidavit 19 June 1998, para 23):

“I thereafter attended a restaurant in Liverpool called the Al-Fontana. When I arrived Stephen and Aspinall had already been seated. We had a conversation to the following effect:

Aspinall said:
“Tony, you and the family don’t have to do a thing, you don’t even have to fill out a form. Because of Stephen’s history the bank’s 100% behind him. If you agree and help Steve with the deposit he’s off and going and the loan is approved. Honestly he is the best operator I know. He knows the right people as I told you, I know the area personally. I’ll guarantee that you’ll more than double the 13%.”
Stephen said:
“Tony I can easily run the air conditioners and look after a development. I’ll be putting my $100,000.00 which I made from the last development with Carriotte. I am also selling my business Speedwise Travel and will hopefully put another $50,000.00 from those proceeds in as well. It’s no different from what I’ve been doing with Frank. I’ll get a licenced builder who’ll keep an eye on things and I’ll organise the contractors. Then I only need to do daily inspections. It’s easy money. You don’t need to do a thing. Do as you planned, retire, look after your children, do as you wish. If I have use of the $1,000,000.00 I’ll make a fortune. Isn’t that right Darryll?”
Aspinall said:
“What Steve says is right Tony. Steve’s proven that he can do it; there’s no risk. All you have to do is let it happen. Give your brother the benefit of the money. If you don’t you must realise that you’ll only be letting someone you don’t even know have the use of the money. Give Steve that opportunity and I assure you he will give you a much bigger return.”
I said:
“How long does something like this take to complete?”
Stephen said:

Findings as to the effect of the letter of 19 September 1989

280 Analysis of these terms of the guarantees and of the mortgage, and of the letters and the resolutions demonstrates that the parties specifically provided for future variations in the obligations of Demson to the Bank so that liability extended to advances made from time to time on different terms from those previously made. In my opinion these documents make plain that the parties contemplated and accepted liability for Demson’s then and future indebtedness on any account up to the maximum of $2,650,000.00 irrespective of the terms and conditions upon which accommodation was provided to Demson from time to time.

281 The guarantees and the mortgage do not refer to any particular loan contract or arrangement. They contain what is generally known as “all moneys” clauses, exemplified by those to which I have referred.

282 In Commonwealth Bank of Australia v McArthur [2003] VSC 31 Dodds-Streeton J considered the application of the special principle in Ankar. I respectfully adopt her analysis in the following passage from her judgment:

“192. In Ankar , the surety had secured the obligations of a lessee under a lease agreement. The surety agreement required the lessor to notify the surety of default under the lease or of the assignment of the lessee's interest. The lessor failed to fulfil those requirements. The High Court held that the breaches discharged the surety from liability.
193. In recognising the "special principle", the High Court majority construed the relevant requirements in the surety agreement as conditions, holding that the doctrine of strictissimi juris indicated that where there is doubt as to the status of a provision in a guarantee, it should be resolved in favour of the surety.
194. The special principle has application in cases where a particular liability is guaranteed, but it is altered or varied without consent, or the surety has certain contractual rights which are disregarded.
195. Limitations upon, or reservations concerning, the special principle endorsed in Ankar Pty Ltd v National Westminster Finance Australia Ltd have been applied. For example, in The Wardens and Commonality of the Mystery of the Mercers of the City of London v New Hampshire Insurance , Phillips J considered that the principle applies only in relation to obligations arising under a specific contract which are guaranteed and not to obligations arising from a future course of dealings. Accordingly, if there is a guarantee in respect of all loans without reference to any particular contract, the creditor and principal could conclude a new loan and proceed to vary its terms without that variation operating to discharge the guarantor.
196. A further exception to the variation principle is where the contract of guarantee or third party mortgage expressly permits variation. In the present case, the CBA mortgage by clause 9.12 expressly provided for the mortgagee's right to vary advances and accommodation.
197. Similarly, the principle has no application to a subsequent independent agreement, as distinct from the variation of the terms of a particular original agreement. Whilst discharge will result from variation of the terms of a particular agreement unless it is unsubstantial and unprejudicial or the guarantor consents, the guarantor will remain liable in relation to entirely independent contracts, provided that they are within the scope of the guarantee.
198. Therefore, where there is a widely drafted "all moneys" guarantee or mortgage clause, as in the present case, and as widely employed in modern commercial practice, a fresh advance or a subsequent loan would be within the scope of the guarantee. Moreover, a variation of a single agreement would also appear to be within the scope of such a guarantee.
199. Where an "all moneys" guarantee or mortgage is executed, the guarantor has undertaken to guarantee an indefinite number of liabilities without limit. In such a context, it is artificial to distinguish between original and subsequent independent agreements, on the one hand, and variations of a single agreement, on the other hand. In the absence of misrepresentation as to the effect of the "all moneys" guarantee or mortgage, or other vitiating factors, there appears to be no reason why equity should require the discharge of the guarantor's obligation in either case.”

283 Her conclusion is consistent with, for example, the observations of Kirby J in Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 at p 381 that guarantees and mortgages of this kind are intended to operate in a highly practical commercial setting and their scope should be determined with reality in mind.

284 As I have observed, the guarantees and mortgage provide for variations. If there was a variation to these principal contracts by the letter of 19 September 1989 in my opinion it was within the scope of their “all moneys” clauses and of clauses 25 and 27 of Part E of Memorandum T340042. Alternatively, if the letter evidenced an independent agreement for future advances it was within those provisions.

285 Accordingly, I am satisfied that the special principle recognised in Ankar does not apply and the Plaintiffs’ submissions in reliance upon it must be rejected.

Additional considerations

286 In further answer to the Plaintiffs’ claims the Bank submitted that as a consequence of signing the letters of acknowledgement of 7 November 1991 (para 81), Tony, Mary and Allan are estopped from asserting that the guarantees and mortgage were ineffective. It was put that the situation was substantially similar to the circumstances concerning Mrs Falinski in Falinski v Commonwealth Bank of Australia [Unreported, NSWCA, 6 February 1998] in which the Court of Appeal upheld the proposition that a letter of acknowledgment in terms similar to the letters in this case gave rise to an estoppel precluding Mrs Falinski from disputing her liability for the amount recorded in it.

287 It is self-evident that the letters of acknowledgment signed on 7 November 1991 were intended to be relied upon by the Bank thereafter, and that future dealings with the Bank would be with regard to them. As a matter of fact the Bank provided additional substantial accommodation by way of documentary credits and a bill discount facility within days of the letters being provided (paras 82, 83).

288 In Falinski Sheller JA said:

“The estoppel is founded not on a representation, but on an agreed statement of the relationship between the parties, the truth of which has been assumed, by their convention, as the basis upon which they will thereafter proceed. In the present case, in my opinion, as CBA submitted, that relationship was one which recognised the continuation of the guarantee Mrs Falinski signed in 1990. The effect of the doctrine is that she was estopped from denying that relationship and hence from denying her liability to CBA in accordance with the terms of the guarantee..…in these proceedings she was estopped from denying a continuing liability under the guarantee after she signed the letter of acknowledgment of 15 April 1993”.

In my opinion the submissions of the Bank should be accepted. I uphold the estoppel defence.

289 The Bank also submitted by way of an alternative defence that the payments made in discharge of all the various mortgages and guarantees, including those of 18 August and 12 September 1989 were made voluntarily with the consequence that, in the circumstances, the payments were irrecoverable. Since I have found that the Plaintiffs have failed on other grounds it is unnecessary to decide this question.

General conclusion

290 The Plaintiffs have failed to establish any of their claims for relief. I therefore propose to order that in these proceedings their claims be dismissed and that there be judgment for the Bank.

291 In the circumstances it is appropriate that I direct the Defendant to bring in short minutes and to afford the parties the opportunity to address me in relation to costs. Arrangements should be made with my Associate by 28 April 2004 for the re-listing of the matter.

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Last Modified: 04/29/2004