Bourke, M.V. v Beneficial Finance Corporation Ltd
[1990] FCA 163
•30 MARCH 1990
Re: MICHAEL VINCENT BOURKE; TERENCE MARCELLIN BOURKE; L and M HOLDINGS PTY
LIMITED; L R A RESTAURANTS PTY LIMITED; HUNTER DEVELOPMENTS CO PTY LIMITED;
EMAS PTY LIMITED; BONOTO PTY LIMITED and KRYS PROPERTIES PTY LIMITED
And: BENEFICIAL FINANCE CORPORATION LIMITED
No. G351 of 1989
FED No. 163
Trade Practices
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Hill J.(1)
CATCHWORDS
Trade Practices - Interest payment of applicants due to State Bank - whether respondent made representations verbally or by correspondence that State Bank would capitalise interest - whether respondent engaged in misleading or deceptive conduct or conduct likely to mislead or deceive.
Trade Practices Act 1974 (Cth): s.52.
Federal Court Rules: o 29 r 2.
HEARING
SYDNEY
#DATE 30:3:1990
Counsel and Solicitors Mr M Cashion instructed by
for Applicant: Messrs J M Caruana Kay and Barry
Counsel and Solicitors Mr T Bathurst QC and Mr T Hale
for Respondent: instructed by Messrs Bruce and
Stewart Turton
ORDER
A. The questions submitted for the determination of the Court by the parties be answered as follows:
1(a) No.
1(b) No.
3. Not applicable.
B. The applicants must bear the costs of the proceedings to date.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
As at 23 December 1986 the corporate applicants of which Mr Michael Bourke and Mr Terence Bourke were directors were indebted to the respondent in the sum of $1,335,491.69 which sum included accrued but unpaid interest to that date. This indebtedness, which arose from loans made between 3 March 1985 and 17 January 1986 by the respondent Beneficial Finance Corporation Limited to three of the corporate applicants, Hunter Developments Co Pty Limited, Emas Pty Limited and L and M Holdings Pty Limited was secured by mortgages over certain lands owned by the corporate applicants and by guarantees given by the Bourkes and other companies in the group. The corporate applicants, or at least some of them, carried on the business of property development on lands which included the lands over which the security was given. For present purposes it is unnecessary to detail the precise security position.
As at the same date the corporate applicants were indebted to the State Bank under a secured facility granted on 28 May 1986 in the sum of $5,300,000. This facility was secured by registered first mortgages over various properties as well as interlocking joint and several guarantees from the group companies and Mr Michael Bourke. The first payment of interest under this secured facility in an amount of approximately $400,000 was due for payment on 31 December 1986.
Some time, probably in late November 1986, Mr Michael Bourke approached the respondent with the proposal that it refinance its facility by, in effect, capitalising arrears of interest under the facility and bringing the facility to a total indebtedness of $1,526,000 which figure included provision for further advances available for draw down of $190,508.31. Mr Bourke dealt with a Mr Pantel, who was the Collection Manager of the respondent.
According to Mr Pantel's evidence the application was made at a meeting at which both Mr Michael Bourke and Mr Terence Bourke were present and at which the following conversation took place:
"'Your accounts with Beneficial are in substantial
default. What do you propose to do about them?' and Michael Bourke replied, 'We are in the process of subdividing the property known as Farley Downs and we need a six month interest facility. Are you able to rearrange the loans so that we can capitalize the interest for six months?' And what did you say in response to that?---I said, 'Let's put it down in writing and see if we can get it approved.'
Yes?---Or words to that effect."
There was no contest that such a meeting was held or that a conversation along the lines deposed to by Mr Pantel took place.
From the documentary evidence it would seem that Mr Pantel contacted the State Bank and obtained details of the securities held by that Bank. He apparently also sought the consent of the State Bank to the registration by the respondent of second mortgages on all of the properties held by the State Bank as security for its secured facility.
The State Bank responded to Mr Pantel's request by indicating that it was prepared to consent to the registration of the Beneficial securities as second mortgages but subject to a condition that the applicants meet their December interest bill. Accordingly on 1 December 1986 Mr Pantel wrote to Mr Michael Bourke a letter in the following terms:
"We have recently requested of the State Bank,
their consent to ourselves registering 2nd Mortgages on all their 1st Mortgage security properties.
They have responded to the effect that such consent is given subject to the interest payment due 31st December, 1986 on your $5.3m facility with them being met.
This is obviously unsuitable, as should your proposal to Beneficial be approved, we have designated a settlement date of no later than 23rd December, 1986, and any such forthcoming approval will be strictly conditional to that effect. We therefore advise that a condition precident
(sic) of any and all negotiations or approvals regarding your proposal to Beneficial, is that Beneficial receives unconditional consent from the State Bank to registration of 2nd Mortgages. Such 2nd Mortgages would by no means subordinate the State Bank's charges; the Bank would be in a position to recover all principal, interest and costs due, prior to Beneficial having the benefit of any equity.
We have taken the opportunity to communicate with the Bank on this aspect and hope that a speedy and acceptable reply will be forthcoming. Nonetheless we advise that you should consider it your absolute priority to communicate with the Bank on your own merits, and ensure that our precident
(sic) condition is met at the earliest, and preferably by 5th December, 1986. Please give this matter your most urgent attention and keep us closely informed."
On the same day Mr Pantel wrote to Mr Paul Robertson, a Manager of the State Bank, in the following terms:
"Your consent to our proposed registration of 2nd
Mortgages poses a problem however, in that it is conditional upon your borrower meeting your December interest bill, which we understand is due 31st December 1986.
We advise that an over-riding condition of the proposal submitted to us by Michael Bourke, is that if approved, the loan must settle by 23rd December, 1986 and no later.
We further advise and confirm that registration of our 2nd Mortgages would in no way subordinate your 1st Mortgage charges. The State Bank would be entitled to recover all principal, all interest, all costs etc., prior to Beneficial having the benefit of any of the remaining equity. Our principal motivation in consideration of this proposal is prevention of the financial downfall of our mutual clients.
You would recall that this was discussed at some length during recent telephone conversations with yourself, by our Mr. J. Malouf and more recently this writer, and general concurrence to this course of action was evident.
Under these circumstances, and specifically because your position is not subordinate in any way, we feel that you are not in a position to withhold otherwise unconditional consent to registration of 2nd Mortgages by Beneficial.
Please let us have your reply at your earliest convenience."
A copy of the letter to the State Bank was sent to Mr Michael Bourke at or about the same time as the letter from Mr Pantel addressed to him was sent. Both letters were received by Mr Bourke.
According to Mr Michael Bourke a meeting took place with Mr Pantel some time between 1 December 1986 and 19 December 1986. At this meeting, in accordance with Mr Bourke's evidence, the following conversation ensued:
"Mr Pantel said 'The State Bank have requested we
pay December interest'. He said 'We won't be in that'.
MR CASHION: Did you say anything in reply to that?---I said 'Our companies are not in a position to meet that payment'."
Mr Pantel denied that this conversation took place. According to Mr Pantel's evidence a later meeting took place between Mr Pantel and Mr Michael Bourke alone at which Mr Pantel said:
"'What do you intend to do about the interest
payment that is due on 31 December to the State Bank on the $5 million facility that you have with them?' and he replied, 'That will be taken care of. We are liaising with Paul Robertson on a daily basis and it is not going to be a problem.'"
This conversation was denied by Mr Bourke.
On 19 December 1986 a letter was sent by the respondent to L and M Holdings Pty Limited, one of the applicants, advising that the refinancing had been approved subject to certain conditions. Among these conditions were the following:
"2. Beneficial's solicitors must be satisfied that
title to the properties over which Beneficial is to take security is satisfactory and that the security described previously will constitute effective security for the loan. ...
7. State Bank of New South Wales is to consent unconditionally to the registration of our second mortgages as detailed under the heading New Securities (1-25 inclusive). The unconditional consent is to cover the on demand production of any certificates of title that may be required by Beneficial to enable registration to Beneficial's second mortgages.
8. State Bank of NSW to limit the priority they require under their first mortgage to $5,500,000.00 plus the capitalisation of interest for the quarter ended 31/12/86, plus interest, costs and charges, accrued theron
(sic) are to advise Beneficial if arrears develop in excess of one (1) month on the facility provided by them.
9. The borrower and guarantors will be deemed to be in default of our facility if default occurs with any creditor of the borrower."
A subsequent meeting took place between Mr Pantel and Mr Michael Bourke after 19 December 1986. According to Mr Pantel, Mr Terence Bourke was present. On Mr Terence Bourke's own evidence he was not. According to the evidence of Mr Michael Bourke, Mr Pantel is said to have said "that he had the State Bank's consent but the matter had to be settled by the 23rd, or on the 23rd".
According to Mr Pantel's evidence what he said at this conversation was:
"The State Bank - I've got an approval, it's
preferable that we settle it before Christmas ... The State Bank has given its consent to registration of the second mortgage."
On 23 December 1986 the Bourkes attended at the office of the respondent and executed the securities necessary to satisfy the respondent's refinancing offer of 19 December 1986.
It is on the basis of this evidence that the applicants have commenced proceedings in this Court relying inter alia upon the provisions of s.52 of the Trade Practices Act 1974 (Cth). In their final amended Statement of Claim the applicants allege that the respondent made the following representations:
"(a) the State Bank of New South Wales had agreed
to capitalise the December interest payment;
(b) the State Bank of New South Wales would not regard the applicants in default if and when the December interest payment was not paid on 31 December, 1986;
(c) the respondent was prepared to lend the sum of $1,526,000 even though it was aware the applicants were not in a position to make the December interest payment to the State Bank of New South Wales; and
(d) the applicants need not retain separate legal representation in relation to the proposed loan agreement, second mortgages, variations of first mortgage, mortgage documentation and deeds of guarantee."
The allegation in paragraph (d), which was the subject of evidence before me and which was denied by a Mr McKenzie of the respondent who, it was alleged, had made it, was not the subject of any reliance by the Bourkes and was ultimately not the subject of any submissions before me. It was said in the Statement of Claim that the representations referred to were misleading and/or deceptive and/or likely to mislead or deceive and that the applicants had executed the securities on 23 December 1986 in reliance upon them. It is not in dispute that, if the respondent did make the representations set out above in paragraphs (a) or (b), then those representations were contrary to fact and were untrue.
There were other matters dealt with in the Statement of Claim, including a claim that it was a condition of any loan made by the respondent that the State Bank of New South Wales would capitalise the December interest payment and that the respondent was estopped from denying that this was a condition of the loan and in the alternative that the securities executed on 23 December 1986 in favour of the respondent were executed in escrow upon the condition that the State Bank of New South Wales would capitalise the December interest payment. It was also alleged that the respondent as mortgagee had sold certain of the properties of the corporate respondents mala fide or in the alternative below market value and that the applicants were accordingly entitled to damages.
Pursuant to order 29 rule 2 of the Federal Court Rules I make an order by consent of the parties for the determination of the following questions:
"(a) whether the conduct of the respondent
referred to in paragraphs 1-22 of the Further Amended Statement of Claim contravened s.52 of the Trade Practices Act and s.42 of the Fair Trading Act (NSW) or constituted unconscionable conduct within the meaning of s.52A of the Trade Practices Act or s.43 of the Fair Trading Act;
(b) whether conditions referred to in paragraphs 17 to 22 of the Further Amended Statement of Claim arose, or whether the respondent was estopped from denying the condition arose and whether the non-fulfilment of the condition precluded the respondent from relying on the securities.
3. If the answer to 1(a) or 1(b) is yes, to what relief (if any) are the applicants entitled?"
The reference to the Fair Trading Act (NSW) may clearly be disregarded for more than one reason, not the least of which is that that Act was not in force at the relevant time. No evidence was presented by the applicants in support of an argument that the securities were delivered in escrow and the separate question in paragraph 1(b) at the end amounted to no different a question than that spelt out in question 1(a).
For the applicants evidence was given by Mr Michael Bourke and Mr Terence Bourke. According to Mr Terence Bourke he was not present at any of the relevant conversations, save that at which the representation in paragraph (d) in the Statement of Claim, to which I have already referred, was said to have been made. As the matter of that allegation ceased to have relevance in the proceedings, the evidence of Mr Terence Bourke was of no assistance to the applicants and requires no comment.
So far as there is a conflict between the evidence of Mr Michael Bourke and Mr Pantel I prefer the evidence of Mr Pantel. There are some difficulties in accepting all of the evidence of Mr Michael Bourke. I had the opportunity of observing him in the witness box. Under cross-examination he appeared deliberately to avoid answering questions which he perceived presented difficulties for his case and volunteered answers which were non-responsive but which, if accepted, would appear to advance his case.
I have a particular difficulty about Mr Michael Bourke's evidence in cross-examination as to what conversations he had with Mr Robertson of the State Bank in the relevant period. He expressed himself as unable to recall whether he had asked Mr Robertson whether the State Bank would capitalise interest. He said that he had approached the State Bank to this end but kept stressing that the conversations on this matter were being held between Mr Pantel and Mr Robertson. This was notwithstanding the fact that his own solicitor had apparently in the period been in contact with the State Bank and at least as at 11 December 1986 it was clear that that Bank was certainly not conciliatory or intending to capitalise interest as it had indicated an intention to realise its securities.
Another matter which casts some doubt upon Mr Michael Bourke's evidence is that his original Statement of Claim filed on 30 June 1989 and the Amended Statement of Claim filed on 23 August 1989 contained no reference at all to any allegation of representations said to have been made by the respondent concerning the capitalisation of interest. Indeed, the original Statement of Claim alleged merely that the respondent knew of the requirement for the applicants to make a payment of interest to the State Bank but was nevertheless prepared to re-write the loan agreements in that knowledge and the first Amended Statement of Claim was to similar effect. It was only in a document headed Further Amended Statement of Claim served upon the respondent on 13 October 1989 but not filed in the Court that for the first time representations along the lines of paragraph (a) to (c) were alleged to be at the forefront of the applicants' case.
It is inconceivable that if the representations said to have been made were in fact made and were of the significance which Mr Michael Bourke said they were in securing the execution of the security documents on 23 December 1989 that the original Statement of Claim and Amended Statement of Claim would not have referred to a matter of such significance.
Accordingly, to the extent to which there is a conflict in the evidence, I prefer the evidence of Mr Pantel, who gave his evidence confidently and was not shaken at all in cross-examination, to the evidence of Mr Michael Bourke.
At the end of the day the applicants' case was said to depend upon the following matters:
1. The respondent knew that an interest payment was
due to the State Bank on 31 December 1986. There is no dispute as to this.
2. The special conditions contained in the offer
letter of 19 December 1986 in paragraph 8 itself contained a representation in all the circumstances that the State Bank would capitalise its interest and clause 9 reinforced that representation having regard to the fact that it was a condition that the Beneficial further securities would be in default if default occurred in the security with the State Bank.
3. The respondent knew that the applicants were unable
to meet the interest payment to the State Bank from their own funds. This may certainly be inferred from the evidence.
4. The statement made by Mr Pantel that the State Bank
had "consented" carried with it a representation that that consent was not only to the registration of the securities of the respondent but also to the capitalisation of interest. Alternatively, that if as I have found, the evidence of Mr Pantel should be accepted that the reference to "consent" was used in the context of consent to the registration of securities nevertheless a statement that the State Bank had consented to a registration of the securities carried with it the implication that the State Bank had agreed to capitalise the interest.
It may be noted that the applicants' case was not put on the basis that there was an obligation of some kind upon the respondent to advise the applicants that the State Bank had not consented and that the misleading and deceptive conduct was constituted by the respondent's silence cf Henjo Investments Pty Limited v. Collins Marrickville Pty Limited (1988) 79 ALR 83 at 94-5 per Lockhart J with whose reasons Burchett J agreed.
The law is clear that for conduct to be misleading or deceptive or likely to mislead or deceive the conduct will generally consist of a representation, whether that representation be express or by silence. Cf. Henjo (supra) at 93. The question whether the conduct complained of is misleading or deceptive or likely to mislead or deceive is to be determined objectively.
It may well be, as Mr Michael Bourke said in evidence, that he merely made an assumption, when he learnt that the State Bank had given its consent to the registration of the second mortgages that it had also agreed to capitalise its interest. It may alternatively be that Mr Michael Bourke thought that once he had arranged the refinancing with the respondent he could deal at a later time with the State Bank and ignored the consequence of potential default in the respondent's mortgage. It is not necessary to form a view as to which of these two alternatives is correct. Even if Mr Michael Bourke did make the assumption that the State Bank had in fact consented to the capitalisation of interest there was nothing in what was said by Mr Pantel or what appeared in the conditions of 19 December 1986 that could reasonably have led Mr Michael Bourke to this conclusion. In my view one cannot from the evidence when Mr Pantel's version is preferred torture out any representation by the respondent of the kinds referred to in paragraphs (a) to (c) of the Statement of Claim. Indeed, even if the applicants' version of the conversations were accepted there would be great difficulty in seeing anything said or written by Mr Pantel as involving the representations alleged in paragraphs (a) to (c).
The applicants have therefore not made out a case that the respondent engaged in conduct that was misleading or deceptive or likely to mislead and, there being no evidence adduced otherwise relevant to estoppel or execution in escrow I would answer the questions stated for determination as follows:
1(a) No.
1(b) No.
3. Not applicable.The applicants must bear the costs of the proceedings to date.