Bank of Western Australia Ltd v Floreani
[2012] VSC 261
•21 June 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 5522 of 2010
| BANK OF WESTERN AUSTRALIA LTD (ACN 050 494 454) | Plaintiff |
| V | |
| ENZO ALIDO FLOREANI & ORS | Defendants |
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JUDGE: | SIFRIS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 21-22 November 2011, 15 February 2012, 20-22 February 2012, 6 March 2012 | |
DATE OF JUDGMENT: | 21 June 2012 | |
CASE MAY BE CITED AS: | Bank of Western Australia Ltd v Floreani & Ors | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 261 | |
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CONTRACT – Varied from time to time – Terms – Whether bank obliged to provide further funds - Whether bank in breach – No breach made out.
TRADE PRACTICES ACT – Misleading or deceptive conduct – Whether representations made by bank in relation to funding – Whether representations relied on by borrower – Whether representations untrue - Whether representations caused loss - s 52 Trade Practices Act
GUARANTEE AND INDEMNITY – Terms – Whether guarantors liable.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Fary | Middletons |
| For the Defendant | Mr J Ribbands (Until 20 February 2012) | Heydon & O’Loghlen |
TABLE OF CONTENTS
A. Introduction......................................................................................................................... 1
B. Bank’s Claim........................................................................................................................ 1
C. Claims made by Sweetwater............................................................................................. 5
Breach of Contract................................................................................................................... 5
Misleading and Deceptive Conduct.................................................................................... 7
D. Claims made by the defendants....................................................................................... 9
E. Issues..................................................................................................................................... 9
F. The Facility Agreement – the ratchet term.................................................................... 10
G. Misleading or deceptive conduct................................................................................... 13
The April 2006 representations........................................................................................... 13
The ratchet representation – August 2007......................................................................... 15
H. Conclusion – claims made by Sweetwater.................................................................... 19
The Guarantee................................................................................................................... 19
J. Disposition......................................................................................................................... 19
HIS HONOUR:
A. Introduction
The plaintiff (bank) seeks payment of the sum of $5,028,757.63[1] from the defendants pursuant to a guarantee executed by the defendants (“Guarantors”) in respect of loan facilities provided by the bank to Sweetwater Living Pty Ltd (“Sweetwater” or “the borrower”).
[1]The amount owing as at 20 February 2012.
Sweetwater[2], although not a defendant, has denied any liability to repay the loans and has counterclaimed against the bank for damages. The defendants rely on this claim[3] and assert that no amount is owing by the borrower that would attract any liability under the guarantee. Other defences are also raised.
[2]On 5 August 2011, the bank appointed Glenn Crisp and Andrew Boucher joint and several receivers and managers of Sweetwater.
[3]The receivers and managers elected not to prosecute the counterclaim commenced before their appointment. On 15 February 2012, I gave the defendants leave to continue the proceeding in the name of Sweetwater. As Sweetwater is before the Court, the defendants may be entitled to rely on this claim (See Indrisie v General Credits Ltd [1985] VR 251).
B. Bank’s Claim
The defendants, Enzo Alido Floreani (“Enzo”), Paul Anthony Floreani (“Paul”), and Bernadette Anne Floreani (“Bernadette”), are and were at all relevant times directors of Sweetwater.
The claim arises out of an agreement between the bank, as lender and Sweetwater, as borrower dated 21 April 2006 as varied from time to time (“facility agreement”).
By a letter of offer dated 21 April 2006, the bank agreed to provide the borrower with the following facilities:
•Commercial Advance Facility 1 - $270,000
•Commercial Advance Facility 2 - $4,130,000
•Business Bonus Overdraft Facility 3 - $250,000
By letter of offer dated 6 November 2006, the bank and the borrower agreed to vary[4] the facilities as follows:
•Commercial Advance Facility 1 - $46,000
•Commercial Advance Facility 2 - $224,000
•Commercial Advance Facility 3 - $4,130,000
•Commercial Advance Facility 4 - $112,000
[4]Minor variations to the facilities took place in June and July 2006. The variations are not relevant to the issues in dispute.
On or about 3 April 2007, Commercial Advance Facility 3 was increased from $4,130,000 to $4,840,000 and on 23 April 2007, it was further increased to $5,070,000. On 18 July 2007, this particular facility was varied further to provide for the capitalisation of interest.
By letter of offer dated 19 September 2007, the bank and the borrower agreed to new facilities as follows:
•Commercial Advance Facility 1 - $2,550,000[5]
•Business Bonus Overdraft Facility 2 - $250,000
•Business Bonus Overdraft Facility 3 - $350,000
The first two facilities are referred to as existing facilities and the expiry date is recorded as 1 September 2008. The third facility is referred to as a new facility and the expiry date is recorded as being 12 months from the initial drawdowns. Terms and conditions and acknowledgments are set out in the letter of offer which was accepted by the borrower and the Guarantors.
[5]This facility is referred to as the construction facility.
By letter of offer dated 21 April 2009, the bank and the borrower agreed to the following facilities:
•a Commercial Advance Loan Facility with a facility limit in the sum of $4,130,800 (facility 1) – interest was to be capitalized and the expiry date was 30 December 2009;
•a Business Bonus Overdraft Facility with a facility limit in the sum of $641,000 (facility 2) – the amount was repayable on demand;
•a Business Bonus GST Overdraft Facility with a facility limit in the sum of $208,000 (facility 3) – the amount was repayable on demand;
•a further Business Bonus GST Overdraft Facility with a facility limit in the sum of $100,000 (facility 4) – the amount was repayable on demand; and
•a further Business Bonus Overdraft Facility with a facility limit in the sum of $260,000 (facility 5) – the amount was repayable on demand.
By letter of offer dated 27 November 2009, the existing facilities continued and the bank agreed to provide a further $30,000 for transportation and concreting costs. The bank and the borrower also agreed to reduce the first facility limit from $4,546,000 to $3,546,800. Interest was to be capitalised in the same manner as the 21 April 2009 letter of offer. The agreed repayment date in respect of all facilities was 31 March 2010.
The facility agreement, which as pointed out was varied from time to time over a period of over three years, comprises the various letters of offer, duly accepted together with facility terms, and the general terms for business lending. Relevantly, and in addition to the facility expiry date (31 March 2010), there were two other terms relied on by the bank. First, with effect from 17 December 2009, the facility limits were not to be exceeded. Secondly, with effect from at least March 2008, there were to be no cost overruns. However, in its letter of demand, the bank only relied on the expiry date of the facilities.
The facilities were used by Sweetwater for the development of a retirement village in Henty, New South Wales which was ultimately to comprise a staged construction of 54 independent living units (ILUs), 10 assisted living units (ALUs) and an aged care facility (the development).
By guarantee and indemnity dated 31 August 2006 (“the Guarantee”), the Guarantors guaranteed payment of the “Guaranteed Money” to the bank, which was defined so as to include all amounts payable by Sweetwater to the bank under the facility agreement.
The bank alleges that Sweetwater committed events of default[6] by:
(a)failing to pay the outstanding amount under the facility agreement by the facility expiry date of 31 March 2010 or at all;
(b)exceeding the facility limits under the facility agreement from 17 December 2007 onwards;
(c)having cost overruns from at least March 2008 onwards.
[6]Clause 16 of the general terms of the facility agreement.
The bank has served notices of demand[7] and the balance of the debt as at 20 February 2012 is $5,028,757.63.
[7]The only breach referred to in the demands is the failure to repay the loans on the expiry date. Failure to pay is clearly a breach.
The bank’s claim is for the most part admitted. It is common ground that:
(a)the facility agreement was entered into;
(b)the Guarantees were given;
(c)notices of demand have been served;
(d)the Guarantors and Sweetwater have not paid the amount demanded.
Despite the clear terms of the facility agreement, default is denied. Sweetwater and the Guarantors in fact allege default by the bank.
C. Claims made by Sweetwater
Sweetwater alleges two causes of action in its counterclaim:
(a)breach of contract; and
(b) misleading or deceptive conduct.
Breach of Contract
Sweetwater alleges:
(a)it was a term of the facility agreement that:
the bank “would vary the facility limit upwards or downwards as required subject to the parameters that had previously been prescribed in respect of the facility limit” (ratchet term);
(b)in or around August 2007, Sweetwater sought a further advance from the bank under its then approved loan facilities;
(c)the bank breached the facility agreement by:
(i)purporting to enforce the facility limit;
(ii)failure/refusal to “continue to advance funds to Sweetwater as required”;
(d)Sweetwater suffered loss and damage by reason of the breach.
The bank’s answer to the claim for breach of contract is:
(a)There was no oral agreement relating to the ratchet term.
(b)The alleged ratchet term would be void for uncertainty.
(c)There was no request for a further advance in August 2007, rather, Sweetwater applied for an increase in funding to cover cost overruns by way of a further overdraft facility of $350,000.
(d)The bank continued to advance funds sought by Sweetwater under the facilities after August 2007, including the $350,000 overdraft facility sought by Sweetwater.
(e)A request for additional funding made in March 2008 to cover further cost overruns was declined in April 2008. The bank contends that this was not a refusal to advance funds under the facility agreement, but rather a request for a fresh facility.
(f)Sweetwater was in any event in breach of the facility agreement:
(i)it exceeded the facility limit from December 2007 onwards;
(ii)there were cost overruns in connection with the development and the costs to complete exceeded the undrawn balance of the facilities;
(iii)Sweetwater failed to apply GST refunds against the GST facility;[8]
[8]Pursuant to undertaking (b) of the facility terms. This is an event of default under clause 16.1(c) of the general terms.
and the bank was not obliged to continue funding.
(g)No loss and damage has been suffered by Sweetwater as a consequence of the alleged breach of the facility agreement.
(h)Any delay in the completion of the development was a result of tradesman walking off site in February 2008 as a result of Sweetwater's failure to pay.
(i)There were subsequent variations to the facility agreement in April 2009 and November 2010 that are inconsistent with the alleged ratchet term. In any event, Sweetwater waived any subsisting rights that it had.
(j)The bank is entitled to set off any loss and damage against the debt owed to it by Sweetwater under the facility agreement.
Misleading and Deceptive Conduct
Sweetwater alleges:
(a)the bank made the following representations to Sweetwater:
(i)in April 2006:
1.“The various amounts of money to be lent pursuant to the loan agreement as varied from time to time would be available to Sweetwater as and when required for the purposes of allowing it to undertake the development”;
2.“Bankwest was pro-active as a lender and it had a specialist division in retirement village construction and understood the expectations and needs of a property developer such as Sweetwater”;
3.“That a banking relationship with Bankwest would be of benefit to Sweetwater in undertaking the development particularly in view of the expertise that Bankwest had with its specialist division in retirement village construction”;
(ii)in August 2007:
1.“in order to induce Sweetwater to enter into the loan agreement, as varied on 19 September 2007, Bankwest represented and/or warranted that notwithstanding the reduction in the facility limit to an overall sum of $3.15 million, further funding would be provided to Sweetwater in accordance with the scope of the original budget” (ratchet representation);
(b)Sweetwater entered into:
(i)the loan agreement;
(ii)variation to the loan agreement made on 19 September 2007,
in reliance on the representations;
(c)the representations were untrue in that the bank:
(i)“failed to advance funds in a timely manner and/or when required by Sweetwater in accordance with the scope of the original budget”;
(ii)“failed to understand the needs of a property developer such as Sweetwater and/or it lacked the necessary skill and expertise to support Sweetwater in a project such as the development”;
(d)Sweetwater suffered loss and damage.
The bank’s answer to the claim for misleading or deceptive conduct is:
(a)The alleged representations were not made.
(b)The alleged representations are uncertain and not actionable.
(c)Sweetwater did not rely on the alleged representations.[9]
[9]In accepting the letter of variation dated 19 September 2007, Sweetwater acknowledged and agreed that it had not relied on any representation: clause 8.2(c)(ii) and (iii).
(d)The representations were not untrue in that:
(i)the bank advanced funds to Sweetwater in a timely manner and/or when required;
(ii)the bank understood the needs of a property developer such as Sweetwater and had the necessary skill and expertise.
(e)Sweetwater did not suffer loss and damage.
(f)There was a subsequent variation to the facility agreement in April 2009 that broke any alleged chain of causation and was inconsistent with continued reliance on the alleged ratchet representation.
(g)Sweetwater contributed to its own loss (contributory negligence) in that it failed to:
(i)pay creditors in accordance with their terms of trade;
(ii)keep within the facility limits;
(iii)keep within its own budget and there were cost overruns.
(h)The bank is entitled to set off any loss and damage against the debt owed to it by Sweetwater under the facility agreement.
D. Claims made by the defendants
The defendants allege that the bank is in breach of contract. It is alleged that:
(a)there were terms of the Guarantee that the bank:
(i)would abide by the terms of the facility agreement; and
(ii)would not act in such a way as to cause loss and damage to Sweetwater;
(b)the bank breached the terms alleged;
(c)the defendants suffered loss and damage by reason of the breach.
The bank’s answer to the claim for breach of the Guarantee is:
(a)there are no terms to the effect alleged;
(b)there is no basis for the implication of the alleged terms;
(c)there has been no breach of the alleged terms;
(d)the defendants have not suffered loss and damage; and
(e)reliance on a set-off of the principal is prohibited under the Guarantee.[10]
E. Issues
[10]Clause 9 of the guarantees provide (relevantly):
“As long as any of the guaranteed money remains unpaid, you may not, without our consent: (a) reduce your liability under this guarantee and indemnity by claiming that you or the debtor or any other person has a right of set-off or counterclaim against us”.
As pointed out, the bank’s claim is largely admitted. But for the issues raised in the counterclaim, the bank would be entitled to the relief it claims. Put another way, if the breaches of contract and representations the subject of the counterclaim by Sweetwater and the Guarantors are not made out, the bank will be entitled to judgment as claimed.
The following critical issues need to be determined:
(a)Did the facility agreement include the ratchet term?
(b)If yes, did the bank breach the facility agreement?
(c)Were representations made to Sweetwater in April 2006 as alleged?
(d)If yes, did Sweetwater rely on the representations and were they false and misleading and if so did Sweetwater suffer loss and damage?
(e)Were the representations made to Sweetwater in August 2007 (ratchet representation)?
(f)If yes, did Sweetwater rely on the representations and were they false and misleading and if so did Sweetwater suffer loss and damage?
(g)So far as the defendants are concerned (paras(a)-(f) are issues relating to claims made by Sweetwater), was it a term of the Guarantee that the bank would abide by the terms of the facility agreement and not act in such a way so as to cause loss and damage to Sweetwater?
F. The Facility Agreement – the ratchet term
A convenient and critical starting point must be the agreement between the parties, that is lender (the bank) and borrower (Sweetwater).
The original facilities were varied from time to time as referred to above.
By letter dated 28 August 2007, Sweetwater notified the bank that its overall cash requirements would reduce significantly. After further discussion and a bank credit risk assessment, the parties entered into a further variation to the facility agreement. The variation was by letter of offer dated 19 September 2007 and was accepted by Sweetwater and the defendants on 1 October 2007. Pursuant to the variation and as set out in paragraph 8 hereof, the facility limit in relation to the construction facility was reduced to $2,550,000. The reduction was based on discussions and cash flow projections provided by Sweetwater to the bank. During the conversations that led to the variation, Sweetwater advised the bank that it proposed to change its modus operandi and consequently, its funding requirements had changed. A request for a fresh facility in the form of an overdraft in the sum of $350,000 was also made as Sweetwater was in urgent need of funds. The request was approved and was the subject of the executed variation facility.
There is no reference or suggestion in the documentation of any ratchet term or any similar term. The variation agreement sets out the terms of the variation and there is no reference at all to the borrower being permitted to increase or reduce the facility. The limits are clearly and unambiguously stated. There was no provision for a reversion to the previous limit, whether in relation to the construction facility or otherwise. Given that the varied facilities were documented and signed by all the parties, they are bound by the specific terms of the document executed by them. There is no claim for rectification and it is not asserted that the variation arose out of duress, undue influence or was otherwise unconscionable. Further, the evidence does not support any collateral oral agreement to such a term. It should also be noted that further variations to the facility agreement are inconsistent with the term alleged.
The evidence on the part of the defendants and Sweetwater was to the effect that Adam Vickers told them that it was a bank requirement that the facility be reduced to $2,550,000 but that an amount up to the original funding would be granted if and when requested.
The evidence was to the effect that the bank in fact created the variation and presented it to Sweetwater and the Guarantors who accepted the reduced facilities based on the representations made. I will deal with this aspect when dealing with the claim for misleading or deceptive conduct. However, to repeat, there is no indication from the loan documentation to the effect that the ratchet term was a term of the facility. It was not.
The Guarantors and Sweetwater allege that at further meetings held on 7 October 2007 and 11 December 2007 between Vickers and one or both of Enzo and Paul, Vickers reiterated the ratchet term. I will deal with this aspect when dealing with the claim for misleading or deceptive conduct.
The bank continued providing further funding to Sweetwater. As referred to earlier, a number of variations to the facility agreement were made in 2008 and 2009. Of some relevance is the fact that in credit memoranda prepared by the bank after the 19 September 2007 variation, the facility limit appears to be recorded at the old limit and not the revised limit agreed to and evidenced by the letter dated 19 September 2007. For example, in subsequent credit memoranda (at pages 942, 1243 and 1301 of the Court Book), the credit limit is referred to as the old limit and not the reduced limit pursuant to the 19 September 2007 variation. This peculiar situation was not adequately explained by Vickers.
The fact that the bank continuously recorded the facilities as being higher than that agreed in the 19 September 2007 variation does not mean that the parties had agreed to the increased amount. The only relevant analysis is the agreement between the parties. Although there were further variations after 19 September 2007, the old limit was not re-instated.
The matter may of course be academic because in the events that unfolded, the bank did continue to provide funding in excess of the reduced limit perhaps in the mistaken belief that the limit recorded in the credit memoranda was correct. However the bank’s case was that even if the ratchet term did apply, and consequently the higher limit was applicable in relation to the construction facility, there was relevantly no breach of the facility agreement.
In or about April 2008 (although this is disputed by the borrower), Sweetwater requested further facilities and the bank rejected such request. Pursuant to the request, an additional $500,000 was sought. Sweetwater indicated that the amount was required in order to meet the cash flow concerns that it had originally identified in December 2007. According to the credit review prepared by the bank, the position had changed and the bank was not prepared to provide further funding. It should be stressed that the request was not a request for a further draw down under the construction facility. Rather, it was a request for new or additional funding based on the needs of Sweetwater at the time. As was properly conceded by Enzo and Paul, the bank was under no contractual obligation to provide such fresh funding.
In the final result, I am unable to conclude on the evidence that the parties agreed to the ratchet term or a term to similar effect whether in relation to the construction facility or more generally. The documents contain no such promise and the evidence does not establish any promise or consensus to such effect.
G. Misleading or deceptive conduct
The conduct, it is alleged, relates to false statements or representations made by the bank to Sweetwater in April 2006 and August 2007. The representations are set out in paragraph 21 above.
The April 2006 representations
The relevant representations are set out in paragraph 21(a)(i) hereof.
Subject to what is said below, I accept that statements very broadly along the lines suggested, were made by Vickers to Enzo and Paul at the commencement of the relationship. So much is unremarkable. Banks usually make such statements in trade and commerce in order to attract customers. Self promotion and puffery is to be expected.
A feature of the representations is that they were general and made at the commencement of the banker client relationship. More relevantly however, they were overtaken by the specific terms and conditions agreed to by the parties from time to time. This is of course relevant when assessing reliance and falsity.
The court should examine evidence of representations made in the course of conversations with a degree of care and any such discussions must be considered in the overall context of the transaction. [11]
[11]Lezam Pty Ltd v Seabridge Australia Pty Ltd and Anor; JWL (NSW) Pty Ltd v Seabridge Australia Pty Ltd and Anor (1992) 35 FCR 535 per Sheppard J at p. 542; Pappas v Soulac Pty Ltd (1983) 50 ALR 231.
Vickers had a very limited recollection of matters discussed in April 2006. The bank did not have a specialist division in retirement village construction. It had bankers with expertise in retirement village construction. It is unlikely Vickers made reference to a specialist division that did not exist and indeed Paul and Enzo’s evidence appears to be equivocal as to whether the reference was to a specialist division or persons with relevant expertise.
To the extent that a representation to the effect that various amounts of money to be lent pursuant to the loan agreement would be available, I agree with counsel for the bank that this is little more than a restatement of the terms of the April facility agreement.[12]
[12]It is also a representation as to a future matter.
In my opinion, and whatever the precise representations, Sweetwater has not demonstrated reliance on the April representations. The existence of a division was not “critically important”. Unsurprisingly, what was agreed upon ended up in the facility agreement. Further, Sweetwater has not demonstrated that reliance on the alleged April representation was causative of the loss that it seeks to recover.
The April representations are alleged to be untrue because the bank:
“failed to understand the needs of a property developer such as Sweetwater and/or it lacked the necessary skill and expertise to support Sweetwater in a project such as the development.”
In my opinion, and in the event that the representations as alleged were made and relied on, it has not been established to the requisite degree that they were untrue. The bank has demonstrated a degree of flexibility in relation to the facility. The facility was varied on a number of occasions, as referred to earlier.
There is no evidence that the bank failed to understand the needs of a property developer or that it lacked the necessary skill or expertise. To the contrary, Sweetwater was satisfied with Vickers’ understanding, skill and experience.
It is not alleged that Vickers did not have reasonable grounds for making the alleged representations at the time when they were made and nor would the evidence support such a claim.
It follows that this aspect of the counter-claim has not been made out. It should be stressed that the suggested representations were far too general and imprecise. Further the bank was, as Enzo and Paul well knew, financiers operating within an agreed contractual framework and not joint venturers or partners with Sweetwater.
The ratchet representation – August 2007
I find, on a balance of probability, that it is unlikely that the ratchet representation, as pleaded, was made. Any such statement would contradict the specific facility limits set out in the negotiated, agreed and executed facility agreement.
Vickers was extensively cross-examined. Not surprisingly his memory of the suggested discussions, which allegedly took place over four years ago, was hazy. The most he was prepared to concede was that he may have said that the bank would consider increased funding pursuant to any application that was made, if such proposed increase was specifically within the scope of the original budget and related to the construction of additional units.
Relevantly however, whatever the precise words or substance of the discussions about flexible (whether up or down) or increased funding as the situation required, the statements did not go so far as to convey to Enzo and Paul that such flexibility was automatic and within Vickers’ authority. To the contrary, and as appropriately and properly conceded by both Enzo and Paul, any representation carried with it the proviso that application be made, justified and approved before such flexibility was engaged.
Accordingly, whatever the representation, and so long as it included the proviso (which I find it did), it cannot be established that such representation was false in circumstances where the proviso was engaged and the further funding rejected. It should be noted again and emphasised that both Enzo and Paul agreed that the bank retained a discretion in relation to further funding.
In the event that the representation, as pleaded was made, Sweetwater has not demonstrated that it entered into the variation to the loan agreement made on 19 September 2007 in reliance on the ratchet representation. In particular:
(a)Enzo and Paul had significant commercial experience including experience in relation to construction funding. They also knew that Vickers’ authority to approve credit was limited and that the credit department had the final say in any application;
(b)Paul said that “he understood that the September 2007 variation (by which the facility limit was reduced) was legally binding;
(c)Sweetwater continued to look for funds both in the form of equity and from mezzanine financiers in early 2008.
Sweetwater alleges that the ratchet representation was untrue in that the bank:
“failed to advance funds in a timely manner and/or when required by Sweetwater in accordance with the scope of the original budget.”
If the ratchet representation was made and relied on, I do not consider that so far as it related to the construction facility, it was untrue. In fact, as conceded by Paul, the contrary is the position. The evidence is to the effect that all requested draw downs under the construction facility were upon compliance with the terms thereof, permitted and paid notwithstanding the reduced limit. To the extent that such limit was exceeded, the amount advanced under this facility went up. It went up as requested by Sweetwater and upon compliance with the procedure for draw downs. No request in proper form was denied.[13] The refusal to provide further funds not related to, and that did not arise under the construction facility, does not render false the representation made with specific reference to the construction facility.
[13]Drawdowns continued during 2008 (for example, drawdowns 13-18) and 2009.
There is no evidence that the bank failed to advance funds in a timely manner in accordance with the terms of the facility agreement.
Further, even if the facility limit had not been reduced in September 2007, the bank would not have been obliged to provide the further $500,000 under the terms of the existing facility. The $500,000 in additional funding that was sought was for cost overruns outside the scope of the existing construction budget upon which funding was based. The bank was not contractually obliged to approve further increases in the facility limit. The borrowers’ main complaint appears to be that a request for $500,000 made some time between December 2007 and March 2008 was refused.
While Sweetwater’s funding needs appear to have been discussed from time to time, the request for $500,000 was probably in February or March 2008.
That request was for additional funding outside of the scope of the construction budget upon which funding under the facility agreement was based. In any event, the request is not pleaded.
A substantial reason for the decline of the $500,000 request appears to have been the bank’s discovery of the outstanding creditor position fairly late in the process and probably after 22 February 2008. In a draft credit submission dated 13 March 2008, Vickers recorded information provided to him by the borrower. The information included details of cost overruns, creditors and queried cash flow difficulties. The cost overruns exceeded $1 million.
The discovery of further significant cost overruns was critical in the decision of TAS Dendes’ not to approve the further funding. His email to Vickers provided:
“In view of the project performance to date, the substantial blow out in costs, the less than ideal management of the project and account request for equity reimbursement/repatriation is not acceptable. In view of the above, I cannot support proposal and request is declined.
Further, Sweetwater and the defendants have not demonstrated that any loss or damage was suffered in reliance on the ratchet representations. The variation made to the facility in September 2007 was not the cause of funds not being advanced.
To the extent that the ratchet representation related to the future, it may be assumed that Vickers had reasonable grounds to believe further funds would be provided as indeed they were whenever requested.
The funding request triggered a requirement for a formal review of the facilities and the development. There followed a series of proposals and negotiations between the parties culminating in:
(a)the bank providing $162,230 from August 2008 to complete four units; and
(b)a variation on 21 April 2009 (see paragraph 9 above) under which the bank provided further funding to complete 12 further ILUs, and a further variation or extension on 27 November 2009 (see paragraph 10 above). These variations, pursuant to which the bank provided in excess of $1.8 million, cannot be overlooked. Whatever the complaints of the defendants relating to the denial by the bank of the earlier request for funding, further agreed facilities were negotiated, agreed and documentation in relation thereto, executed.
It is not alleged that, at the time the alleged representations were made, there was no reasonable basis for the bank to make them.[14] The manner in which the case has been conducted by the defendants and the evidence would not support such a claim. The mere fact that representations as to future conduct do not come to pass does not make them misleading or deceptive.[15]
[14]Section 51A of the Trade Practices Act 1976 (Cth).
[15] James v ANZ Banking Group Ltd (1985) 64 ALR 347 per Toohey J at p 372.
It follows that no loss flows from the representation.
The alleged representations made in October and December have not been adequately pleaded and in any event do not take the matter any further.
In all of the circumstances, and in the context of the various discussions, executed documentation, contemporaneous documents and hindsight documents, I am unable to conclude that the bank engaged in misleading or deceptive conduct. The statements that were allegedly made were not clear and unequivocal. Rather, they were more general and imprecise and are not supported in any way by the contractual documents.
H. Conclusion – claims made by Sweetwater
Accordingly, for the reasons given, Sweetwater’s counterclaim must fail.
I. The Guarantee
In my opinion, the alleged term as set out in para 24(a) above was not a term of the guarantee. It is not express and cannot be implied. The evidence does not support such a term.
Even if it was a term for the reasons given, I do not regard the bank as being in breach of the term.
J. Disposition
The bank is entitled to judgment on its claim.
The counterclaim must be dismissed.
I will hear from the parties as to the form of order and costs.
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