Commonwealth Bank of Australia Ltd v Marsden

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

No. 01239 of 2011
List B

COMMONWEALTH BANK OF AUSTRALIA LTD	Plaintiffs
(ABN 123 123 124) and OTHERS
v
ALAN ADRIAN MARSDEN and OTHERS	Defendants

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JUDGE:	JUDD J
WHERE HELD:	Melbourne
DATES OF HEARING:	8-11, 15 and 16 October 2012
DATE OF JUDGMENT:	11 December 2012
CASE MAY BE CITED AS:	Commonwealth Bank of Australia Ltd v Marsden
MEDIUM NEUTRAL CITATION:	[2012] VSC 607

ESTOPPEL – Equitable estoppel – Precontractual representation that the bank would provide ‘financial support for the long term’ and would be flexible in dealings with the customers’ needs – Customer and security providers could not reasonably have interpreted statements by the bank to mean that the bank would not be entitled to enforce facility limits and default powers.

BANKER AND CUSTOMER – Precontractual representation that the bank would provide ‘financial support for the long term’ and would be flexible in dealings with the customers’ needs – The bank’s reliance on its facility limit and default powers was not unconscionable.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr M C Garner of counsel	Corrs Chambers Westgarth
For the Defendants	Mr MY Bearman of counsel with Ms KJ Gillies of counsel	Wilmoth Field Warne

HIS HONOUR:

Introduction and summary

In early 2007, a company known as Streetscapes Pty Ltd carried on a landscaping and paving manufacturing business. The manufacturing business was conducted under the name and style, ‘Stonevue’.

Streetscapes was part of a group of companies owned and operated by the first and second defendants, Alan Adrian Marsden and his wife, Robin Elaine Marsden. Other members of the Marsden group included the second plaintiff by counterclaim, Monthill Investments Pty Ltd, the sole shareholder of Streetscapes; and the fourth plaintiff by counterclaim, Marsden Investments Pty Ltd, the sole shareholder of Monthill Investments. Marsden Investments is the registered proprietor of a farming property at 282 Bungower Road, Moorooduc in Victoria. Mr and Mrs Marsden are the registered proprietors of a residential property at 36 Adelaide Street, Armadale, Victoria.

Over the years, the Marsden group had relied on different bankers to provide financial accommodation. Westpac Banking Corporation Ltd replaced the National Australia Bank Ltd in around 2005, although by early 2007 the relationship between Westpac and the group had turned sour. A number of events led Westpac to impose on the Marsdens a ‘forced exit’. They were required to find replacement finance within a relatively short time.

At around the same time as Mr Marsden was looking for replacement finance, Streetscapes sold its landscaping business and changed its name to Stonevue Pty Ltd. Stonevue later changed its name to Lokio Rio Pty Ltd, following a restructure of the Marsden group that took place in early 2009. To avoid confusion I will refer to that company throughout as ‘Stonevue’, although in the pleadings and exhibits it is variously known as Streetscapes, Stonevue and Lokio Rio.

One consequence of the restructure that took place in 2009 was that Stonevue transferred its assets to Monthill Investments, which thereafter carried on the paving manufacturing business. Stonevue was placed into voluntary administration. Another consequence was a variation to the facility. New trading entities were incorporated. They were the third plaintiff by counterclaim, Stonevue Holdings Pty Ltd; Stonevue Australia Pty Ltd; Stonevue Management Pty Ltd; the fifth plaintiff by counterclaim, Stonevue Contractors Pty Ltd; Stonevue Asset Holdings Pty Ltd and Stonevue IP Pty Ltd. Following the restructure the existing securities remained in place and were supplemented by guarantees and charges given to the bank by Stonevue Holdings, Stonevue Australia and Stonevue Asset Holdings.

To add to the confusion over names, the first plaintiff, Bank of Western Australia Ltd, also changed its name. The assets and liabilities of Bank of Western Australia were transferred to the Commonwealth Bank of Australia under the Financial Sector (Business Transfer and Group) Restructure Act 1999 (Cth) and, for the purpose of this proceeding and all other relevant purposes, the first plaintiff became known as Commonwealth Bank of Australia. I will refer to the first plaintiff as ‘the bank’.

On about 17 August 2007, the bank advanced the sum of $3,623,174.90 to Monthill Investments, of which $2,602,176.75 was paid directly to Westpac in satisfaction of amounts due to it by Stonevue. Repayment was secured by guarantees, charges and mortgages. Mr and Mrs Marsden each gave a guarantee and mortgaged their Armadale property to the bank. Monthill Investments, Stonevue and Marsden Investments each gave a guarantee and a charge over its assets. Marsden Investments granted a mortgage over the Moorooduc property.

At settlement, a number of accounts were opened by the bank including cheque accounts in the name of Stonevue, Monthill Investments and Streetscapes Bloodstock. These cheque accounts had no approved overdraft. Two further accounts were opened to record the advance; a commercial advance to Monthill Investments in the sum of $900,000; and a further advance in the sum of $2.8 million.

Within a few months of settlement, Mr Marsden sought further accommodation from the bank, including an overdraft facility. The requests for accommodation were often preceded or accompanied by account irregularities which, if not remedied, might have been relied upon by the bank as an event of default under the facility agreements. From time to time the bank extended the overdraft limit and provided further accommodation, until 13 July 2009 when it imposed on Mr Marsden and his group a ‘forced exit’. Mr Marsden was given six months to find replacement finance. On 7 December 2010 the second and third plaintiffs, Bruno Secatore and Daniel Juratowitch, were appointed receivers and managers of the assets of Marsden Investments, Monthill Investments, Stonevue, Stonevue Asset Holdings and of the properties mortgaged to the bank.

At around the time the receivers were appointed, the third defendant, Terravue Pty Ltd, commenced to operate the paving manufacturing business, using the plant and equipment previously employed by Stonevue, and then Monthill Investments, for that purpose.

The receivers were denied access to the assets of the paving manufacturing business and possession of the properties. The defendants’ contended that the receivers were not entitled to possession of the business assets because Terravue had not given a charge over those assets in favour of the bank. The defendants go further and contend that the assets were never the subject of any charge in favour of the bank. According to the defendants’ pleaded case, the plant and equipment was a fixture on the land at the business premises at Bacchus Marsh, owned by Terravue. That allegation seems to have been abandoned.

The defendants also pleaded ‘that (the) bank was informed of and consented to the sale of the Plant and Equipment and the Intellectual Property on or after 27 June 2007’. In their particulars of the allegation, the defendants refered to discussions between Mr Marsden and Wilson Fernandez. They alleged that ‘during the discussions the Bank advised that it consented to the sale of the equipment to Terravue and did not seek security over the equipment, which [Fernandez] considered to have no value’. The sale to Terravue was allegedly made pursuant to an agreement dated 27 June 2007, under which Stonevue purported to transfer specific items of plant and equipment to Terravue. The authenticity, validity and efficacy of that agreement was challenged by the plaintiffs.

Another basis upon which the receivers were denied access to the plant and equipment and the mortgaged properties was a contention that the bank was estopped from (a) relying upon certain events of default, (b) terminating the facility and calling in the loans, (c) calling for payment under the guarantees and (d) appointing the receivers. The defendants alleged that such conduct was inconsistent with representations made on behalf of the bank that had induced the borrower and the security providers to assume that the bank would provide long-term support under the facilities, and that it would operate those facilities in a flexible way. The defendants go so far as to contend that the conduct of the bank in appointing the receivers made it practically and commercially impossible for the business to continue within the group as then structured, and for the loans to be repaid. By a counterclaim, the security providers (Mr and Mrs Marsden, Monthill Investments, Stonevue Holdings, Marsden Investments and Stonevue Asset Holdings) seek to restrain the bank from exercising its security rights; and mandatory injunctions compelling the bank to release the securities.

The plaintiffs sought a declaration that the receivers were entitled to possession of the properties, and what they described as the Business Assets, which comprises the plant and equipment employed in the paving manufacturing business now carried on by Terravue, stock, debtors and intellectual property. They also sought orders that Terravue account to them for its use of the charged assets by an award of damages reflecting profits made. The amount of the bank’s claim against Mr and Mrs Marsden under the guarantees was, as at 5 October 2012, $5,909,312,65 with interest accruing at $1,672.66 per day.

The defendants conceded that there are only two issues for determination in this proceeding:

(1)whether the bank is estopped or otherwise precluded from exercising its rights under the guarantees, charges and mortgages;
(2)whether the business assets employed in the paving manufacturing business, now carried on by Terravue, are subject to a charge in favour of the bank granted by Stonevue or Monthill Investments.

There is no dispute as to the identity or terms of the facility documents, the amounts claimed by the bank, the service of notices and demands, the fact of non-compliance with the demands and even the objective facts that constitute the events of default upon which the bank relied. The defendants and plaintiffs by counterclaim conceded that if they failed to establish the estoppel, the bank was entitled to recover under the securities and to possession of the properties; and that if the plant and equipment was found to have been charged in favour of the bank, the receivers were entitled to possession. Nor did they challenge the plaintiffs’ contention that in such circumstances, the receivers would be entitled to an account of profits derived from the deployment of those assets by the defendants.

Estoppel case - background

The structure of the defendants’ estoppel case was unusual. Their case is best explained by reference to the decision of the Court of Appeal in Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd,[1] upon which they placed great reliance. At the heart of the defendants’ pleaded case was the allegation that between about 2 July 2007 and 26 July 2007 the bank represented to Mr Marsden, and thus the Marsden group, that if Monthill Investments entered into lending arrangements with the bank, and if the Marsdens and group entities provided security, the bank would:

(a)provide finance for working capital from time to time in a manner that was flexible both in respect of drawing to and above the facility limit and in respect of repayment;
(b)provide irregular but common and urgent overdrafts above the standard facility limit as and when they were required;
(c)provide financing by flexible means;
(d)provide the Monthill Group with financial support for the long term; and further or in the alternative,
(e)provide financial support for a minimum of 10 years.

[1][2008] VSCA 86.

The defendants pleaded an alternative case in which they alleged that the bank induced assumptions or expectations to like effect. They alleged that they executed the facility documents, including the securities induced by and relying upon the representations or assumptions. They alleged that the bank acted in accordance with the representations or assumptions on and after 26 July 2007 until about March 2009, when the restructure took place. At that point, so the defendants alleged, they relied upon the past conduct of the bank in overlooking overdrawn accounts, providing increased overdraft limits, and renegotiating capital repayments. They also alleged that the bank’s post contractual conduct lends weight to the existence of the representations or assumptions, and the defendants’ reliance upon them.

The defendants’ reliance on the past conduct of the bank, when the facility was varied following the restructure that occurred in February and March 2009, was coupled with the allegation that the bank was required to inform the borrower and each security provider if the bank did not propose to honour the representations or assumptions that had been made in 2007 prior to giving the initial securities. They alleged that having failed to so inform the Marsdens and those entities, the bank, by its silence, and no doubt its conduct in overlooking limits, continued the representations or induced a continuation of the assumptions to the same effect as those previously made. They alleged that Mr Marsden relied on the representations or assumptions to implement the restructure and arrange for the provision of additional security. There was conduct by the bank following the restructure that the defendants allegedly confirmed the representations or assumptions.

Until shortly before trial the bank had only pleaded a broad allegation of breach by Monthill Investments of its obligations to ‘make all payments in respect of the Facilities in accordance with the Facility Terms’, as required under the facility agreement. The bank pleaded events of default, including a failure to make timely payments; a party’s; and insolvency material adverse change in a party’s business, assets, financial condition or prospects.

The generality of these allegations as pleaded was unsatisfactory, but no complaint had been made by any of the defendants. Shortly before trial the bank notified the defendants of its intention to apply to amend its statement of claim so as to more explicitly plead the events of default upon which it relied. These events might have been pleaded by way of particulars, but the bank elected to plead the events as material facts to which the defendants would be required to plead by way of defence. Leave was granted to the bank to make the amendments over the defendants’ opposition.

None of the matters alleged by the bank in the proposed amendment came as any surprise to the defendants. The specific events of default, to be relied upon by the bank, arose out of the reconstruction. The facts were not in dispute. On the contrary, the defendants relied upon the events surrounding the reconstruction to support their case of bank accommodation, and had already proposed to address those circumstances in their evidence. By permitting the bank to more explicitly plead the events of default as material allegations, and requiring the defendants to formally address the allegations by way of defence, much needed definition was given to the issues for trial.

The more explicitly pleaded events of default may be summarised as follows:

(a)On 5 December 2008 the State Revenue Office of Victoria served a statutory demand on Stonevue in respect of a debt of $16,914.40. Stonevue did not comply with the demand and on 11 March 2009 the State Revenue Office filed an application in the Supreme Court of Victoria to wind up Stonevue in insolvency.
(b)On 1 April 2009 Mr Marsden, as its director, resolved that Stonevue was insolvent. Administrators were appointed.
(c)On 12 May 2009 the creditors of Stonevue executed a Deed of Company Arrangement under which they would receive a dividend of around 8 cents in the dollar. The creditors included the State Revenue Office and the Commissioner of Taxation, which was owed more than $300,000.

These events were intimately connected with a proposal for the restructure of the Marsden group presented to the bank by Mr Marsden in February 2009 for its approval. The bank approved the restructure by revising and amending the facility to remove Stoneview and introduce new entities. The defendants relied on that approval as an indicator of the bank’s adherence to the representations or assumptions, imposing on it the obligation to inform them if and insofar as the bank thereafter proposed to depart from the representations.

The defendants responded to the more explicitly pleaded events of default by alleging that the bank was estopped from relying or acting upon those events because to permit it to do so would be contrary to the representations or assumptions.

The decision of the Court of Appeal in Koko Black Pty was, I think, the foundation stone of the defendants’ case. Thus it is useful to dwell for a moment on the decision, because it has been misunderstood by the defendants, and may be so misunderstood in the future. It may explain, but does not support the defendants’ case.

As with most cases, the facts of Koko Black are critical. This is particularly so because the plaintiffs in that case also sought to raise equitable estoppel. The similarity between the facts in Koko Black and this case begin and end with the generality of a representation made to persons interested in investing in the Koko Black business that induced them to invest in a unit trust for ‘the long term’. The judge at first instance refused to grant an injunction restraining the trustee of a unit trust exercising a power of compulsory redemption of units. His Honour held that,[2]

It was submitted on behalf of the plaintiffs that all of the requirements for an equitable estoppel are present in this case. I do not accept this submission. In order to found an equitable estoppel, the representation or conduct of the defendant inducing the assumption or expectation relied upon, and the assumption or expectation itself, must be clear and unambiguous.[3] In this case, the long term assumption which is relied upon to found the equitable estoppel lacks the required precision. The ambiguity is not cured by the evidence, acknowledged by Mr Hills in cross-examination, that Mr Hills consistently informed the other investors that, if they decided to invest, their investment would be for the long term. The concept of a “long term” investment is not capable of clear definition.

[2][2007] VSC 40, [109].

[3]Legione v Hateley (1983) 152 CLR 406, 435-7.

In the Court of Appeal the principal judgment was delivered by Dodds-Streeton JA. Her Honour held,[4]

A representation which is insufficiently certain or complete to create a contract may found proprietary estoppel. Where necessary to inhibit unconscionability, equity will construe a representation robustly in context, to determine its meaning as reasonably understood by the addressee. In my opinion, the standard of certainty, clarity and completeness required of the representation cannot sensibly be determined in isolation from other elements of proprietary estoppel in the circumstances of each particular case. Moreover, ambiguity or indeterminacy generated by the representor in the context of unconscionable conduct should not confer immunity from equity’s ‘long arm’.[5]

[4]Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86, [178].

[5]Emphasis added.

The defendants in the present case relied on the proposition that a representation in estoppel was to be assessed by how it would be reasonably understood by the addressee in the context of the surrounding circumstances.[6] In making that assessment, the court in Koko Black held that the degree of certainty required to found an estoppel was not to be considered in isolation from all the circumstances, including preceding, contemporaneous and subsequent events.[7] Thus it was that the defendants relied on events that occurred after the Marsdens and group entities had entered into the facility agreement and given their securities.
[6]Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86, [134].
[7]Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86, [157].

The defendants placed great reliance on the way in which the facility had been managed by the bank after its commencement. They pointed to numerous instances in which the bank accommodated the borrower’s inability to make a payment, or when the borrower had exceeded the facility limit. Approval of the reconstruction by the bank was another example. While the significance of those events to the defendants’ case varied, they submitted that the manner in which the account was managed by the bank ‘accorded exactly with their expectations as to the Bank’s conduct of the accounts’.

There were inconsistencies and tensions in the defendants’ case. At one point the defendants submitted that ‘it was open to the bank to treat many of these events as breaches of the Facilities entitling it to terminate the Facilities… (and so) it should be inferred that the bank did not do so because it was acting in accordance with the representations that it had made to them.’ The defendants’ contention that it was open to the bank to treat ‘many of these events as breaches of the Facilities entitling it to terminate the Facilities’, would seem to contradict the very essence of their primary case.

Furthermore, the submission invited an analysis of the bank’s reasons for providing flexibility in the management of the account, which the defendants contended was consistent with the assumptions. That enquiry did not assist the defendants’ case. The evidence revealed that the bank made pragmatic decisions about the defendants’ failure to comply with its obligations under the facility arrangements. The Marsdens never suggested to the bank that it was bound to overlook breaches or events of default, and the internal bank communications did not reveal any acknowledgement by the bank of any such obligation.

The facts in Koko Black were unusual. The context in which the representation was made was summarised by Dodds-Streeton JA in her judgment.[8]
[8]Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86, [179-182].

In the present case, the representation that the investment would be for ‘the long term’ was not made on a single occasion or in an identical form, but was made in various forms on a number of occasions, both before the first investment of funds in about October 2003 and the second investment of funds in about March 2005, as evidenced by the following matters:
(i)From the outset and consistently thereafter until August 2005, Mr Hills, in oral discussions and in a series of proposal briefs which he authored, stated that the investment was for ‘the long haul’, ‘the long term’ or ‘a long time’. The stated plan was to expand the business significantly and to reinvest its profits for that purpose, rather than to pay dividends. It was emphasised that the proposal would suit long term investors and dividends were not a priority.
(ii)Mr Hills testified that he warned investors at the outset that ‘you might not make money right away’.
(iii)Mr Jackson deposed that Mr Hills said ‘[w]e’re in this together for the long haul …’. Mr Jackson deposed that when entering into the arrangement, he understood that it ‘was to be as a long term investor in the business rather, I considered that I was providing funds by way of venture capital and expected to hold my interest in the business for many years to allow me to participate in the anticipated future growth and expansion of the business that was envisaged and contemplated in the business plan. I am informed by West and believe that this was also his understanding’.
(iv)Mr West deposed that Mr Hills told him that ‘if the business is to grow there may not be any return on your investment, no dividends in the early years because if the business expands as I expect it to, all its earnings will be required to fund its development. You may need to put in further capital. It will be a long-term investment … I want to create a large company, not one or two shops’. Mr West deposed that ‘I understood that we were all a team, in it for the long haul … ‘.
(v)There were a number of conversations in November 2004 between Messrs Hills, Jackson West and Bourke as to ‘the ongoing plans to expand the business long term and the additional capital that would be required from all of us to allow the expansion’.

The context in which the representation was made and, as recognised in Flinn v Flinn, subsequent circumstances, may provide guidance to the meaning it conveyed. The following circumstances are relevant to the construction of the representation that investment in the business would be for ‘the long term’:
(i)The minimum time commitment for the investment was a period of two years, in order to retain the free two per cent of units.
(ii)The business, although profitable, has at no stage made distributions, save for an amount to cover certain taxation liabilities. All of the profits were otherwise reinvested in expansion.
(iii)The business secured a considerable number of leases, consistently with its expansion plan, which (save for the factory lease for three years and the Chadstone lease for six years), had five year terms with two options for renewal of five years each and, in one case, was for a 15 year term.
(iv)Mr Hills acknowledged in cross-examination that the ‘long term’ for the business had not arrived as at August 2005. Rather, he conceded that he had changed his mind and sought to expel the minority prematurely because circumstances had not evolved in accordance with his expectations.
(v)In about late 2004, Mr Hills requested the investors to advance further capital amounting to a total of $240,000. In late 2004, Mr Jackson and Mr West, together with other parties, invested additional funds for further expansion, at Mr Hills’ request.
(vi) By January 2005, the business had grown to the point where it could not meet consumer demand and it was necessary to acquire its own factory premises.
(vii)In March 2005, a factory in Coburg was leased and began production. It ultimately manufactured 60 per cent of the chocolate and became the Koko Black headquarters.
(viii)The 2005 Annual Report dated 30 June 2005 stated ‘At this stage of the business’s maturity there is ample room for experimenting on site selection before more accurately forming key criteria’. It also stated that ‘Koko Black although successful by many measures in the first year is by no means an assured success … Koko Black to date is a proven concept as a very small scale over a short period of time … ‘. The Report stated that, in relation to matters such as the exclusivity of the brand and product recognition at market level, there was good progress at local level only. The factory infrastructure was noted to be ‘in place to facilitate growth’. It was stated that the opportunity to achieve the ultimate goal of being ‘the number one premium chocolate brand in Australia was achievable from our current position’. The business was about to ‘enter a new phase’ – it was to ‘continue to develop and grow the brand’ and ‘enter new territories – at least three more locations by June 2006’. The core strategy was to ‘grow as fast as possible’ and ‘franchising is the best way to achieve this strategy’. The Report concluded that ‘Koko Black is poised for great change and increased risk’.
(ix)In late 2005, a franchising feasibility study at an estimated cost of $110,000 was conducted, which Mr Hills stated ‘could be seen as a long-term investment for the business’.
(x)As at December 2006, the reinvestment policy continued to apply and only sufficient dividends to pay taxes were to be paid. Mr Hills acknowledged that the business was on the verge of future growth, a goal which he described in the 2006 Annual Report as having ‘some urgency’.

The terms of the representation, considered in context and by reference to a number of the relevant circumstances, indicate that the meaning conveyed was that investors would be entitled to retain their investment until either successful expansion on a substantial scale was achieved, substantial capital gain secured and the routine reinvestment of all profit was no longer required, or, at least, until there had been a reasonable opportunity to achieve those goals. The compulsory redemption of the investors’ interests while the reinvestment policy continued and the business was on the verge of a new phase of significant growth is inconsistent with that meaning, which clearly accords with the understanding to which Messrs Jackson and West deposed. Although ‘the long term’ suggests a stage of development, as assessed by Mr Hills, rather than a specific period of time, some guidance is provided by the terms of the leases. The first lease, acquired in 2003, had a maximum term of 15 years (from 2002) and the last lease commenced on 1 February 2007 had a term of 15 years. Only one lease was for a term of three years.
In such circumstances, I conclude that ‘the long term’ had not arrived at the date of the service of the compulsory redemption notices.

The defendants seized on the proposition that ‘the long term’ had not arrived, to avoid placing any limits upon what ‘the long term’ in this case might mean. They contended that it had not arrived when the bank imposed the ‘forced exit’ on 13 July 2009 and would not extend an overdraft.

The plaintiffs sought to distinguish Koko Black on the basis that the plaintiffs in that case were not in breach of the Trust Deed. While that is true, the differences between Koko Black and this case are, in my view, much more profound. The facts of that case disclose an obvious injustice. Investors were invited to become capital partners in a start-up business, with the attendant risks, and with the explicit object of enjoying capital growth at the expense of dividends or profit distributions. Mr Hill opportunistically deployed an anomalous right of redemption under the Trust Deed, that was manifestly inconsistent with the intended purpose and investment plan. The existence of an unqualified power of redemption in the Trust Deed was plainly antithetical to the common purpose and business objectives of the investors. There were, in my respectful opinion, obvious and much more satisfactory remedies that appear to have been overlooked by the plaintiffs at trial. As Dodds-Streeton JA said,[9]

Some of the uncontested facts would appear, prima facie, to support relief on various grounds which were not argued, either before the learned trial judge or on appeal.
As his Honour observed, the facts may have suggested a claim to rectify the trust deed by the removal of the compulsory redemption power.
The appellants, however, did not contend that the trust deed should be rectified in that way. They thus accepted, implicitly at least, the validity of the compulsory acquisition power and merely sought to restrain its exercise at the date of the compulsory redemption notices.
Further, the facts may have suggested a partnership proper, entailing mutual fiduciary duties which would preclude the exercise of the formal ‘expulsion’ power. They may also have indicated grounds for winding up the Unit Trust.
The appellants did not, however, make a case for relief on any of the above bases.

[9]Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86, [95-99].

The principal extracted from the authorities by her Honour seems to be best expressed in the following paragraphs:[10]

Equity does not shrink from ascribing meaning to a representation and mere imprecision or loose definition will not preclude a remedy for unconscionability, at which proprietary estoppel is ultimately directed.
The relevant authorities exemplify a wide variety of apparently vague, imprecise and incomplete representations which have been construed in context and given effect.
Further, while a failure to give effect to an inherently ambiguous representation in the sense in which it was understood by the representee will rarely involve unconscionability justifying estoppel, Lord Hailsham recognised in Woodhouse that if the ambiguity is that of the representor, who induces someone to act to his detriment, the representor may be estopped.[11]

[10]Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86, [135, 137].

[11]Emphasis added.

There can be no doubt that in the present case the alleged representation or assumptions were, absent context, inherently uncertain. But the robust approach of equity focuses on more than the words employed. Context, including the conduct of the representor in generating ambiguity, may reveal that otherwise uncertain words were reasonably understood by the representee and acted upon to his or her detriment. Thus, while it is important to determine what, if any, representations were made, it is equally important to ask what Mr Marsden reasonably understood the bank to convey to him during pre-contractual discussions.

Another unusual feature of the defendants’ case was the manner in which the representations or assumptions were employed to, in effect, require the bank to continue to provide financial accommodation and to accede to Mr Marsden’s demands for additional funds beyond that expressly authorised, without any obvious limits. The bank was required to overlook the customers inability to make capital and other repayments and refrain from exercising its default powers. Thus, while the defendants relied upon the representations or assumptions to deny the bank a right to exercise its express contractual rights, they also advanced a positive component. Their case as pleaded required the bank to continue to provide ‘long term’ banking accommodation indefinitely, or at least up to 10 years. Taken at face value, the defendants required the bank to ignore facility limits, conditions and events of default and do whatever Mr Marsden asked.

Initially, the defendants argued that they were not obliged to identify any circumstance in which the bank might have been permitted to rely on its contractual rights, or limit the additional accommodation it was required to provide. The defendants contended that all they were required to do was to satisfy the court that the bank was estopped from terminating the facility and calling in the loans in the precise circumstances in which it did so. But, in their final submissions, the defendants conceded that there were circumstances in which events may fall outside the ‘flexibility’ they alleged had been promised, and which would justify the bank resorting to its contractual rights. They submitted that these might include:

(a)       Systemic non-payment of interest;
(b)      Non-responsiveness to Bank communications;
(c)       Non-payment of the restructured capital reductions;
(d)Significant overdrawing beyond the scope of the flexibility and without Bank permission.

The imprecise and arbitrary nature of those limitations does little to inform the inquiry. Why stop there?

In my view, these concessions demonstrated a logical flaw in the defendants’ case. Quite plainly, there may be circumstances in which precise words are not required before equity will grant relief. Sometimes a general statement may be reasonably understood to mean something sufficiently specific to be acted upon by the representee to their detriment, or may induce an assumption, departure from which is unconscionable. Ultimately, however, it is always necessary for a court of equity to identify the offending conduct so as to frame the relief. The particular facts in Koko Black required a remedy to prevent Mr Hill exercising the right of redemption. Having regard to the unsatisfactory way in which the plaintiffs’ case had been conducted at trial, the remedy granted was all that a court could do to prevent an obvious injustice.

Koko Black does not stand for the proposition that whenever vague and indefinite representations are made, such as those alleged in the present case, the applicant for relief is relieved from the obligation to demonstrate the reasonableness of his understanding of what it meant, or that an assumption need have no definition as to what the bank could and could not do. When claiming to have acted in reliance on words or an induced assumption, the party claiming relief must grapple with the need to establish that the conduct of the bank was unconscionable because of what they reasonably understood the bank to have conveyed. The defendants stubbornly refused to address that issue.

The bank denied the representations but contended that, even if the representations were made, they could not have been reasonably understood by Mr Marsden and his companies to require the bank to, or to have induced an assumption to the effect that, the bank would ignore the facility limits and conditions, not exercise its contractual rights in the event of default, and provide the group with whatever financial assistance it required.

The plaintiffs submitted that the estoppel claim, as pleaded by the defendants, amounted to no more than a common law estoppel by convention. They submitted that because the defendants sought to employ the representations to establish positive rights to a continuation of the facility and the provision of additional accommodation on demand, they were in substance attempting to enforce pre-contractual promises, rather than relying upon the representations or assumptions to inhibit the bank exercising its contractual rights. The plaintiffs submitted that if and insofar as the defendants’ estoppel claim was in the nature of a common law estoppel by convention, it was defeated by the parol evidence rule enunciated by Dixon J in Thomson v Palmer.[12]
[12](1933) 49 CLR 507, 547.

The defendants contended that their estoppel claim was properly characterised as promissory estoppel. They submitted that in such cases rules about parol evidence and entire contracts do not bind the parties. That is no doubt correct. While not directly confronting the plaintiffs’ contention, that the defendants’ estoppel claim was in substance a common law estoppel by convention, the defendants may be taken to contend that merely because an incident of equitable relief may involve the ‘enforcement of a promise only as a means of avoiding the detriment’[13] does not mean that the representee is not entitled to such relief from unconscionable conduct.
[13]Walton Stores (Interstate) Ltd v Maher (1998) 164 CLR 387, 427.

The distinction between a remedy in the nature of a preclusion, as opposed to the elevation of a non-contractual promise into an enforceable obligation, may have been an issue in this case were it not for the fact that the defendants’ case fails in a number of other material respects. There is much to be said for the plaintiffs’ contention that the defendants were doing that which was not permissible namely, elevating non-contractual promises to the level of a contractual promises that were inconsistent with the express terms of the facility agreements.

The alleged reliance by Mr Marsden and his companies on the post contractual conduct of the bank in overlooking, as the defendants would have it, breaches of the facility agreements during the currency of the relationship, might have been more helpfully analysed by reference to the common law principles applicable to estoppel by convention, or conduct by reason of which it might be said that the bank had waived a right to terminate in a particular instance. The defendants did not advance such a case. But even if they had done so, it would not, in my view, have resulted in a conclusion that the bank was in some way precluded from thereafter exercising any of its default powers. Such an approach, if adopted by the defendants, may have added force to the bank’s contention that the evidence of pre-contractual representations was inadmissible. Nevertheless, I propose to proceed on the basis that the defendants’ case is to invoke a promissory estoppel and receive the evidence of the pre-contractual statements upon which they rely.

The representations

In their particulars of the alleged representations or assumptions, the defendants relied on numerous conversations and telephone calls between Mr Fernandez and Mr Marsden between 1 June 2007 and 26 July 2007. When opening their case, the defendants relied on

the oral statements of Mr William Fernandez… to Marsden about the way in which the facilities provided would be applied by the Bank… to induce him… to assume as a state of affairs that:
·The Bank would provide long-term support under loan facilities; and
·The Bank would operate those facilities in a flexible way.’

The defendants contended that the statements were made at an initial meeting on 31 May 2007, and during subsequent telephone conversations, when the proposed borrowing amounts, terms and securities were discussed.

No witness statements were prepared in advance of trial, although outlines of the substance of evidence proposed to be given by each witness were exchanged prior to trial. Each witness was led through his evidence in chief in the usual way and cross examined. The evidence given by Mr Marsden in support the representations or assumptions bore little resemblance to the pleadings or opening.

The evidence that was given by the witnesses concerning statements that might have been made to or by the bank in the lead up to the establishment of the facility was vague and imprecise, with the exception of some firm denials by Mr Fernandez. The defendants relied substantially upon the evidence of Mr Marsden concerning a meeting that took place on 31 May 2012 at which he first met Mr Fernandez and Mr Jamieson of the bank. Mr Marsden was in the company of James Lawrence a senior employee of Stonevue. Mr Laurence was not called to give evidence.

When distilled, the evidence of Mr Marsden was that he informed the bank that he wanted flexibility and a long term relationship. He was told by the bank that it was looking for new customers with businesses that would grow along with the bank’s business. The relevant passages from the evidence of Mr Jamieson, Mr Fernandez and Mr Marsden are not lengthy and it is convenient to set them out in full.

Notwithstanding the defendants’ affirmative case to support the estoppel, the bank, as plaintiff, called its witnesses first. The first witness for the bank was Mr Jamieson. His recollection of the meeting was couched in terms of what he would have done or said. His recollection was largely reconstruction from his usual practice or by reference to documents. The following cross-examination of Mr Jamieson took place.

Mr Marsden will say that at the meeting he discussed that one of the requirements he was after was flexibility in that his former bank found it very difficult to give him urgent short-term overdraft facilities and extensions of time. Do you recall discussing that?---Not specifically, no.
Do you recall whether you discussed that the relationship you were seeking would be one for the long-term?---I would have discussed that. I would have talked about the bank wanting to develop relationships with customers for the long-term.
When you say "would have", you don't specifically recall. It was your practice?---I don't specifically recall it, no, but that would be normal.
The reason that's your practice is because that's what the bank was seeking?---Yes.
You are not just saying that to attract people. It is when you do have customers, that's what the bank seeks to do?---Correct.
Within its lending parameters and guidelines?---Yes.
Insofar as testing lending parameters and flexibility, "the best package we can," would it be the case that once the bank brought a customer on it would do what it could to keep it there, as it were, to maintain that long-term relationship?---Within the terms and conditions of the facilities and bank policy, yes.[14]

[14]T112-113.

Mr Fernandez gave the following evidence under cross examination:

Did Mr Marsden discuss or do you recall whether Mr Marsden discussed with you his concerns about the lumpiness of the cashflow and the need for potential urgent overdrafts for the paving business?---Certainly not, no.
Mr Marsden will say that he discussed those with you on numerous occasions?---I don't believe that's true.[15]
Mr Marsden will say that when he discussed these with you he was concerned at the extent of them because the business was in a growth phase and it could cause difficulty. Do you remember discussing that with him?---I don't recall exactly. I would imagine that Mr Marsden may say that, yes.
Mr Marsden will say that one of the things you discussed was the ability of the bank to renegotiate those capital reductions if that proved necessary when they fell due. Do you recall that discussion?---No, I don't recall that discussion.[16]

[15]T131.

[16]T137.

Mr Marsden approached his evidence in chief on this topic as if he was to be persuaded by the bank to become its customer, and then only on his terms. The objective facts demonstrate that nothing could be further from the truth. Mr Marsden’s existing banker, Westpac, had demanded his exit and was putting pressure on him to find another banker. He would require around $2.6 million to discharge his group’s obligations to Westpac and have it release securities in order to secure accommodation from another bank. That was after selling the landscaping business and applying the proceeds in reduction of the Westpac debt. He initially sought an overall facility of $4.4 million, although the bank eventually only offered a facility with a limit of $3.7 million. Notwithstanding his evidence to the contrary, the reduced amount was against the wishes of Mr Marsden and his advisors. Mr Kingwell said that Mr Marsden was upset by the bank’s offer.

In order for the bank to accommodate the minimum requirements of Mr Marsden’s group, including the repayment of Westpac, it was necessary for Mr Fernandez to persuade the credit approval committee to accept a capital repayment regime that would bring the overall amount of the facility within bank guidelines after three years. While Mr Marsden was approaching the bank in difficult circumstances, the bank was a new entrant in the market and was seeking to attract new customers, which may explain its willingness to compromise to some extent on its guidelines.

Mr Marsden gave some background to the initial meeting with representatives of the bank. He described his dissatisfaction with the National Australia Bank, with whom his group had been banking for over 20 years. He said that in 2005 he moved from the National Australia Bank to Westpac. By 2007 he ‘wasn’t all that happy with Westpac’. Mr Marsden said that he sought to re-engage with the National Australia Bank but ‘there was some time constraints in regards to how we were getting our approval. I wasn’t happy with that.’ Mr Marsden’s unhappiness with Westpac may be explained by its demand that he and his group make alternative banking arrangements.

During his evidence in chief, Mr Marsden was asked about the initial meeting with representatives of the bank on 31 May 2007. He said that the meeting was an opportunity for him to go to Sydney and make a presentation to the bank on behalf of his company. He went on,

It was more about looking for a banker that could do what I wanted done, given that I had had enormous experience in the commercial banking world with banks. I knew exactly how to approach them and how to deliver the message that I wanted delivered, and that message that I wanted delivered was that this brand, this paving brand, that we were developing and was starting to get traction in the commercial marketplace I wanted to concentrate on, and there was every likelihood that I would be selling off one of the divisions, if possible, to concentrate on it, and therefore we were looking for a banker who could support us for the long term. I needed flexibility because of the nature of the commercial business that we do. The commercial jobs are not your typical widget selling jobs. We could have a job that comes in that could be 700,000. We can have a job that comes in that's 2,000. They have constraints on their program as when they require them. So that can cause us to require funds quickly and immediately.
You said that is what you wanted. What did you say at the meeting?---I said at the meeting that specific items that I wanted - you must remember that I had a very long-term relationship with the National Australia Bank. It was successful. I had been at National Australia Bank for - and I don't know if anyone would recall this but in business - - -
Could you tell the judge what was said at the meeting, please?---Well, what was said was that I wanted flexibility and I wanted a long-term relationship that I could rely on.
Can you explain what you meant by "flexibility"?---Well, again, I just want to get back to the fact that the commercial nature of the jobs that we were doing at times they needed some grunt, and sometimes if that grunt required money - and I'm not talking a lot of money; I may be talking maybe 100, 200, 300, which might be no more than 10 per cent of our borrowings - I wanted a bank that would facilitate that without any issues.
Is that what you told Mr Fernandez and Mr Jamieson?---That's exactly what I told them, and I was very clear. I also gave them a very detailed presentation on the Stonevue product, what it represented in the marketplace, what the differentiation from all the other products were and why the Stonevue product would succeed going forward.
Did you tell them why you needed the long-term and the flexibility?---We had plans to put other factories in. We believed the growth would be quite successful. I think, for example, we doubled our turnover in the two previous years and we certainly doubled our turnover in the first year with Bank West. So from where I was sitting - I mean, I had a successful business in Streetscapes. It employed 50 people. I had been with it for 20-odd years, but this was something I wanted to do and concentrate on, and to do that I needed a relationship that I could rely on.
…
What did you tell Mr Jamieson and Mr Fernandez at the meeting?---I was very clear that I wanted, in whatever the facilities we took up - I didn't want to borrow any more than I needed at the time, but I wanted flexibility and I wanted a long-term relationship.
What did they say in response to your request?---I remember it clearly because - I will tell you what they said first. Mr Jamieson explained who they were, HBOS. He told me that they were one of the biggest banks in the world and that they had plans to grow Bank West to, if not bigger, but certainly as to the same strength and size as the Big 4 banks here. They were looking for businesses that would grow within the growth of their own business, and that was something that I was quite excited to hear because, you know, we're dealing with generally four banks here and it was exciting to hear that there was a new entrant and that they were going to do something similar to what we were trying to do.
Did they say anything else?---They were very keen to tell us whatever we wanted to hear. I suppose that was all relative to the fact that they were looking for new clients and also that we were referred to by the CEO of HBOS. So, as you can imagine, when the CEO sends you down to interview a customer, they like to make sure that customer reports back that everything went well.
Was any specific response made to your specific concerns?---Sorry?
Was any specific response made to your specific concerns?---As far as concerns as far as what I required?
Yes?---There was no problem with what we required. That was the type of bank they were. That's what they offer in their products, and they could facilitate a business like mine without any issue and it wouldn't be any problem going forward.
That's what was said?---That's what was said.[17]
…
Why did you make up your mind?---Because of the representations that they made, the representations that the business that we were bringing they could support, and they could give me that flexibility, that long-term - and I did feel that the market here needed companies to support new entrants. I felt that was important, and it would be good to see smaller banks, even though - you know, I didn't treat them as a smaller bank because I am thinking they are backed by a very large bank, which turns out not to be true, but I felt that was an important thing, that Australia needed that. I felt that, and that's why I really made up my mind at an early time.[18]

[17]T221 to 224.

[18]T225.

The evidence of Mr Marsden did not seem to extend beyond the meeting of 31 May 2007 as the occasion on which the representations were made. When asked about communications with Mr Fernandez following the initial meeting and leading up to the agreement, Mr Marsden said,

What was the substance of those conversations?---Well, it was mainly trying to get the finance facility right, I suppose, from his side. We knew what we wanted, but he had come back - once we signed the mandate, the $5,000 mandate, which had no capital reductions, then they did the valuations on the properties.
Before you get there, I was asking you what the substance of your conversations were with Mr Fernandez. What did you tell him about what you wanted that you have just explained?---That was all very clear from the first meeting, that we were looking - I mean, a 10-year loan was what we were looking for, and that was never an issue that was in dispute. The only discussions I suppose that we had over that period were more in keeping with what are the valuations going to be of the properties, what's the stock, what stock holding, what are your debtors, that sort of stuff, so he could create his valuation of the business itself, as the assets of the business itself, I suppose.[19]

[19]T227 to 228.

The conversations that took place at the important initial meeting on 31 May 2007 must be put in context. Mr Marsden had been told by Westpac that it no longer wished to provide support and that he should make alternative banking arrangements. He had limited time within which to make alternative arrangements. The Marsden group was indebted to Westpac for around $3.5 million, before a reduction in the debt following the sale of the landscaping business.

Mr Marsden said that he had ‘enormous experience in the commercial banking world with banks’. He was no novice when it came to negotiating with banks and dealing with them in relation to their management of his accounts. He was familiar with facility limits and the consequence of breach. He had experienced at least one ‘forced exit’. Mr Marsden said that he knew exactly how to approach the bank and to deliver the message he wanted delivered.

According to Mr Marsden it was he who said ‘that I wanted flexibility and I wanted a long-term relationship that I could rely on’. Mr Marsden’s expectation of flexibility was that sometimes the bank would be expected to go beyond the limits by ‘maybe 100, 200, 300 [thousand dollars] which might be no more than 10 per cent of our borrowing’. But he knew that should the bank agree to provide a refinancing facility, there would be limits and conditions. Mr Marsden knew that any extensions would need to be negotiated, even though he ‘wanted a bank that would facilitate that without any issues’. Mr Marsden’s decision to ‘go with Bankwest’ was made that day.

Following the meeting on 31 May 2007, at which the critical pre-contractual discussions were said to have taken place, Mr Marsden commenced to provide financial information to the bank, and eventually received an indicative offer. The first such offer was made on 8 June 2007. Mr Marsden was provided with a ‘Financing Proposal’ incorporating ‘Indicative Terms’. The covering letter provided that the Financing Proposal was not an offer, and that Mr Marsden should not rely upon it or enter into any commitments based on it. The bank required a signed Mandate Agreement, and a fee of $5,000, to proceed with its due diligence investigations. It also required specific information. The concluding paragraph in the covering letter provided:

This will enable us to commence our due diligence activities, which may include commissioning a valuation report and seek formal credit approval.
Once we are satisfied with our due diligence and if formal credit approval is obtained, we will be in a position to make a formal offer of finance to you. Please note that the terms and conditions of any formal offer of finance may be different to those set out in the attached Financial Proposal.

At the foot of the letter, in bold capitalised print, was the following notice,
THIS IS NOT AN OFFER OF FINANCE
SUBJECT TO DUE DILIGENCE AND FORMAL CREDIT APPROVAL

The proposal from the bank, sent on 8 June 2007, was for a multi-option facility, including overdraft, with an upper limit of $4.4 million. That was the amount sought by Mr Marsden. An overdraft, with a limit of $400,000, was repayable after 12 months. The amount of $4 million was for a term of three years with principal to be amortized over the term.

On 20 June 2007, Mr Fernandez sent an email to Mr Marsden attaching a Revised Indicative Letter of Offer based on a lower amount of $3.7 million. The revised proposal, dated 19 June 2007, was undercover of a letter of the same date in similar terms to the letter of 8 June 2007. The revised facility involved a credit limit of $3,700,000 comprising an overdraft facility with a limit of $300,000 repayable after 12 months, a commercial advance of $2.4 million for three years, interest only, and a further commercial advance of $1 million for three years with principal to be amortized over its term.

Mr Marsden said that he requested the reduction from $4.4 million to $3.7 million because Stonevue was proposing to sell the landscaping business. He said, ‘I asked for the reduction’. I reject that evidence. It is inconsistent with internal bank credit assessment documents in which the bank attributed no value to plant, equipment or goodwill, and struggled to even justify an advance of $3.7 million. Mr Marsden’s evidence is contradicted by Mr Kingwell, who said that when the bank revised the indicative offer down to $3.7 million, with principal reductions, ‘there was a discussion between Mr Marsden and Wilson Fernandez about how we could actually increase the facilities back to the original indicative offer and remove the principal reductions’. Mr Kingwell said that Mr Marsden was very concerned and very upset about the reduced offer from the bank.

Consultation and decision-making within the bank, including submissions made by Mr Fernandez to the credit review committee, are relevant because the defendants rely on the subsequent conduct of the bank to demonstrate compliance by it with the alleged representations. Mr Marsden said that he well understood the way in which banks operated, including the control exercised by credit committees and lending and security guidelines.

In his credit risk submission Mr Fernandez said that the purpose of the proposed facility was to refinance the existing facilities from Westpac and restructure borrowings in line with planned future growth. Additional funding of $350,000 was sought to assist with the manufacture and holding of stock, with an additional amount of $150,000 to assist with the purchase of spare parts required for the manufacturing process. Mr Fernandez noted that the ‘clients have advised that over the past few months there have been a number of dishonoured cheques on the WBC overdraft account’. The defendants relied on that statement as evidence of their good faith and willingness to provide full disclosure. Mr Marsden said that because the new facility would only operate electronically there was no opportunity for dishonoured cheques.

Mr Fernandez also mentioned, in his internal submission, that the security against the proposed debt would result in the debt exceeding the bank lending guidelines by $330,000, but that the risk could be improved by a program under which capital repayments would be required. He said, that ‘whilst this is the weakness to this transaction, we have proposed a bullet repayment in year 1 to align our debt and security positions.’ He proposed capital repayments of $100,000 each at the end of February, May and August 2008 and $200,000 by the end of August 2009.

On 2 July 2007, Mr Marsden signed a Mandate Agreement with the bank and paid the fee of $5000. The letter containing the Mandate Agreement included a further acknowledgement that the financing proposal did not constitute an offer of finance.

The finance application was approved by the credit committee and a formal letter of offer sent to Mr Marsden on 26 July 2007. The borrower was Monthill Investments. The guarantors were to be Marsden Investments, Stonevue and Mr and Mrs Marsden. The formal offer by the bank involved a $2.8 million interest only facility for three years and a $900,000 facility, interest only with some principal reductions, then converting to a fully amortized principal and interest repayment program over 10 years. In addition to the commercial advances of $3.7 million, there was an equipment financing facility through Capital Finance Australia Ltd, in the sum of $250,000, to finance the acquisition of equipment. The facility terms expressly provided that the limit must not be exceeded. Capital reductions of $100,000 were to be made at the end of February, May and August 2008, with a further $200,000 by the end of August 2009. On 9 August 2007, the offer was made on the basis of the bank’s General Terms for Business Lending and included an undertaking to adhere to an interest cover ratio. The offer was accepted by the Marsden’s on their own behalf and on behalf of Monthill Investments and the other security providers.

The General Terms for Business Lending include the following:

1.1 Facility Documents
(a)The terms and conditions upon which we enter into the Facilities with you and any Guarantor are contained in the Facility Documents.
(b)The Facility Documents comprise:
(i)the Agreement;
(ii)the Security;
(iii)any agreement relating to the priority of any Security;

(c)The Facility Documents contain the entire agreement upon which the Facilities are offered to you and should be read together.
(d)The Agreement will, unless you and we otherwise agree, supersede all previous offers and arrangements between us, you and any Guarantor relating to the provision of the Facilities by us to you.
…
3.1Drawings
Subject to the Facility Documents, we agree to permit utilisation of an Overdraft Facility by way of overdraft on receipt of your cheque drawn on the relevant Overdraft Account or in any other manner specified or agreed by us in relation to that Overdraft Account.

…
9.1 Repayments
You must make all payments in respect of the Facilities in accordance with the Facility Terms and as follows:
(a)you must pay all Scheduled Repayments in the amounts and on the dates specified in the Facility Terms;
(b)you must pay to us such amounts as are necessary to ensure that at all times the Outstanding Amount in relation to a Facility does not exceed its Facility Limit or any applicable Sublimit;
(c)you must repay the Outstanding Amount in respect of an Overdraft Facility does not exceed its Facility on demand by us;
(d)you must repay the Outstanding Amount in respect of a Loan Facility on its Facility Expiry Date;
(e)you must repay the Outstanding Amount in respect of all Contingent instruments issued under a Contingent Instrument Facility on its Facility Expiry Date;
(f)you must make all payments to us under each Risk Management Transaction in the amounts, in the currency and on the dates specified in each Confirmation; and
(g)you must repay the Total Outstanding Amount on the Final Repayment Date.
…
16.1Events
An Event of Default occurs, whether or not it is in your power to prevent it, if:
(a)you do not pay on time any amount payable by you under any Facility Document in the manner required under it;
(b)at any time the Outstanding Amount in relation to a Facility exceeds its Facility Limit or applicable Sublimit;
…
(h)a change occurs:
(i)in a circumstance which is warranted under a Facility Document to exist; or
(ii)in your business, assets, financial condition or prospects,

Which in our reasonable opinion has or may have a material adverse effect on:
(A)your willingness or ability to observe your obligations under the Facility Documents;

(B) the value of any Security Property; or
(C) our rights under the Facility Documents;

…
(o)you are or become insolvent or steps are taken to make you insolvent;
(p)an event described in this clause occurs in respect of any Guarantor, any Related Entity of you or any Related Entity of a Guarantor;
16.2Consequences
If an Event of Default has occurred we may at any time give you notice:
(a)specifying a new Final Repayment Date or a new Facility Expiry Date for a Facility, which may be the day we give the notice to you or any other later day;
(b)declaring the Total Outstanding Amount is either:
(i)payable on demand; or
(ii)immediately due for payment;

(c)declaring that we no longer need to provide any Facility or any other financial accommodation to you under any agreement that we have with you;
(d)terminate any Risk Management Transaction and calculate the close-out payable in accordance with clause 7.8;
(e)direct HBOSTS to close out (in whole or in part) any Risk Management Transaction which is subject to the HBOSTS Sydney Guarantee; or
(f)give you written notice requiring you to:
(i)provide additional security to secure the Total Outstanding Amount, which may include depositing with us such amount that we may require;
(ii)pay to us such amount to reduce the Total Outstanding Amount to the amount we specify; or
(iii)do both of (i) and (ii); or

(g)conduct a Facility Review.
…

Unlimited guarantees and indemnities were given by Marsden Investments and Stonevue. Personal guarantees were given by Mr and Mrs Marsden. These were limited to $3.7 million plus interest, fees, costs and other expenses payable by Monthill Investments under the facility agreements. The limitation on the amount for which the Marsdens could be made liable, excluding interest, fees and costs, corresponded with the upper limit of the facility amount under the agreements. A mortgage was given by Mr and Mrs Marsden over the Armadale property. A further mortgage was granted by Marsden Investments over the Moorooduc property. Fixed and floating charges were given by each of Marsden Investments and Stonevue over its assets and undertakings. Finally, there was a Deed of Subordination between the bank and Monthill Investments, Marsden Investments, Stonevue and the Marsdens, under which the Marsden interests agreed that prior to full repayment of the facility to the bank and discharge of securities, they would not accept or request payment of their subordinated debt from Monthill Investments.

The form of acceptance by the borrower included an acknowledgement that ‘you have made your own independent decision and have not relied upon any representation made by us, our officers or agents’. The guarantors acknowledgements, executed on behalf of Marsden Investments and by the Marsdens, included a statement that the guarantors ‘have obtained independent financial and legal advice regarding their obligations under the Guarantee and Indemnity’. While Mr Marsden said that he had not obtained any such advice, the evidence is to the contrary. His financial advisors were involved in the negotiations for the facility. He had also sought and obtained advice from his solicitors on the facility documents.

Mr Marsden, or Richard Joseph Kingwell, one of Mr Marsden’s financial advisors, had sought advice from solicitors Logie-Smith Lanyon on the meaning and effect of the facility documents. On 2 August 2007, the solicitors wrote to Mr Kingwell, referring to recent discussions, and said that they were continuing to review the security and other documentation provided by the bank. The solicitors said that they expected to be in a position to provide a final report ‘back to Alan and yourself as to the meaning and effect of those documents shortly’. The letter went on to provide some observations and advice, and concluded in the penultimate paragraph, ‘in the meantime, we will continue our review of the security documents’.

There was no evidence of any further communication from the solicitors, but on 9 August 2007 they sent executed copies of loan and security documents, including certificates of independent legal and financial advice, to the solicitors for the bank. The certificates, declared under oath by Mr and Mrs Marsden, were witnessed by Nicholas McKenzie-Mcharg, a solicitor at Logie-Smith Lanyon. Each certificate declared,

2.I have received both independent legal advice and independent financial advice regarding the loan and security documents referred to in paragraph 1.
3.After receiving that advice I have freely and voluntarily signed the following documents:
(a)small business and Consumer Guarantee and Indemnity from Lender to the Borrower in relation to the obligations of the Borrowers.
(b)Letter Offer dated 26 July 2007 from the Lender to the Borrowers in relation to total advances of $3,700,000.

And I make this solemn declaration conscientiously believing the contents to be true and by virtue of the Oaths Act 1900.

Shortly prior to settlement there were communications between Paul Daly of Westpac and Mr Kingwell in relation to the willingness of Westpac to continue to fund some motor vehicles and release around $100,000 from funds held following the settlement of the sale of the landscape business for the payment of some company tax. Also, because of the duration of a commercial bill, Westpac sought an undertaking from the bank in relation to settlement of that amount. In an email communication to Mr Marsden on 9 August 2007, the Mr Kingwell made mention of his negotiations with Westpac to ensure that following settlement of the refinancing transaction with the bank there was ongoing working capital. Mr Kingwell told Mr Marsden, referring to Mr Daly,

In essence he responded by saying that,
(1)We should refinance the other vehicles elsewhere (I told him this was not likely due to the defaults in credit checks and that Capital Finance line was not available, I suspect he may think it is).
(2)This was as far as the bank will go and that there tolerance on timing has reached an end (Asked what he meant he said ‘If settlement is not booked then they will issue letters of demand’).

At the moment he is unmoveable and steady in his position and he did refer to it as ‘his decision’ and the file would remain within his control.

The discussions between Mr Kingwell and Westpac continued. Mr Tyson of Westpac noted in an email,

There is one further matter. There has been an extraordinarily large amount of work and rework to reflect the ever-changing goal posts for the upcoming settlement. Should further changes need to be made or additional documents required, the bank will be increasing its settlement fee.

To which Mr Kingwell responded,
This is not acceptable given the overall complexity & nature of the original transaction & the stress placed on all parties because of the forced exit from Westpac – documentation and negotiation should be accepted as part of the process.[20]

[20]Emphasis added.

There is no doubt that an important contextual factor in his negotiation with the bank was that the relationship between the Marsden’s and Westpac had turned sour, and Westpac was requiring an early settlement. It was, to use Mr Kingwell’s expression, a ‘forced exit’.

Flexibility

The defendants relied upon numerous events and circumstances after the advances had been made and securities had been given, as evidence of performance by the bank of its promise, and as events to be taken into account in the assessment of the reasonableness of Mr Marsden’s assumptions or expectations. They also relied upon those events to support the alleged representations by silence following the restructure in early 2009. The defendants did not contend that those events informed the question of reliance by the borrower and security providers when entering into the facility agreement and giving security in 2007.

These events and circumstances were particularised in the defence and counterclaim. There were 24 separate incidents. They may be summarised as follows:

(i)On or about 2 November 2007, the defendants, required an extra $85,000.00 in additional funds which the bank provided on 12 November 2007.
(ii)On or about 12 December 2007, the Bank approved a temporary excess of $85,000.00 because the defendants were over their limit by $84,500.00
(iii)On or about 13 December 2007, Alan Marsden (for and on behalf of the defendants) requests a further temporary increase to $150,000.00 due being $110,000.00 over limit despite the $85,000.00 excess.
(iv)On or about 14 February 2008, the Bank allowed the defendants to remain overdrawn.
(v)Between about 15 February 2008 and 31 March 2008, the defendant advised that it was unable to meet the required capital reduction payments, the accounts were also overdrawn. In response the Bank extended and restructured the required payments.
(vi)On or about 4 March 2008, the defendants were $55,000.00 over limit.
(vii)On or about 27 March 2008, the defendants were overdrawn by $24,000.00.
(viii)On 28 March 2008, the Bank varied the Facility for the purpose of formalizing a prior informal overdraft.
(ix)On or about 22 April 2008, the defendants were overdrawn by $49,547.95 and a capital reduction payment was due.
(x)On or about 5 May 2008, the defendants were $67,000.00 overdrawn and had a capital reduction payment due.
(xi)On or about 6 May 2008, the defendants were $103,000.00 overdrawn.
(xii)On or about 13 May 2008, the Bank approved a temporary excess of $120,000.00
(xiii)On or about 19 May 2008, the Bank approved the extension of the temporary $120,000.00.
(xiv)On or about 10 June 2008, the Bank approval to allow payment of a $41,300.00 cheque which would further overdraw the account.
(xv)On or about 1 August 2008, the Bank approved a temporary excess of $118,000.00 to cover the defendants being overdrawn by $118,000.00.
(xvi)On 19 August 2008, the Bank varied the Facility for the purpose of formalising a prior informal overdraft and account extension.
(xvii)On or about 21 August 2008, the defendants were $120,000 overdrawn. The bank provided a temporary excess to cover the overdrawn amount.
(xviii)On or about 13 October 2008, the defendants’ advised that they would be unable to pay but required a payment of $30,000.00 to be made on their behalf, further overdrawing their account
(xix)On or about 22 October 2008, Alan Marsden (for and on behalf of the defendants) advised that he would not accept a proposal tightening of banking conditions made by the Bank in response to non-payment and being overdrawn.
(xx)On or about 24 October 2008, despite the defendant not having sufficient funds to do so, the Bank transferred $100,000.00 between the defendants’ accounts.
(xxi)On or about 31 October 2008, the Bank approved a temporary excess of $150,000.00 as the defendants were $280,000.00 overdrawn.
(xxii)On or about 4 November 2008, the defendants were $152,631.00 overdrawn on their accounts.
(xxiii)On or about 13 November 2008, the Bank approved a temporary excess of $130,000.00 and extended the due date of the capital reduction payment as the defendants were $130,000.00 overdrawn with a capital reduction payment due.
(xxiv)on or about 5 December 2008, the defendants were $121,484.00 over limit. The Bank attempted to provide a temporary excess but was unable to using the normal channels.

It is no doubt true that the bank, through Mr Fernandez, accommodated most of the pressing needs of the Marsden group in 2007 and 2008. From time to time Mr Fernandez pressed the credit committee for further accommodation, and overlooked breaches of facility limits, insofar as they were within his authority to do so. The further accommodation provided to the Marsden group involved a mixture of bank responses. In some cases the bank overlooked an account exceeding limits. There were occasions when the bank gave some time for an account to be brought back into order, and there were more formal variations when credit committee approval was sought and obtained.

There was no evidence of the bank conceding internally that it was under any obligation to provide the further accommodation. On the contrary, there was evidence of internal dissatisfaction with the operation of the account. Furthermore, when formal increases were required, they were submitted for approval to the credit committee, as Mr Marsden well knew would be the case.

The documentary evidence of communications between the bank and the Marsden group reveals promises by or on behalf of Mr Marsden to bring accounts back into order. The promises were not always kept. There were requests by or on behalf of Mr Marsden for indulgences. Contrary to the defendants’ case, these communications evidence acknowledgements by Mr Marsden of the importance and significance of the limitations imposed by the bank on the facility. Overdrafts may have been exceeded, and changes requested and made; but central to all of those dealings was the continuing mutual recognition that there were limits. During all of those negotiations and discussions, Mr Marsden never asserted to the bank that it was in some way bound to grant accommodation beyond the agreed limits, or to overlook a breach of the facility limits, nor did anyone on his behalf.

Restructure

The restructure of the group that took place in February and March 2009 was important to the defendants’ estoppel case, and became the defining event for the bank. The bank varied the facility on 18 March 2009. In doing so the bank approved a proposal for the restructure of the group, with the consequence that Stonevue ceased to trade. It was anticipated that newly incorporated entities, Stonevue Australia, Stonevue Asset Holdings, Stonevue IP, Stonevue Management, and Stonevue Contractors would carry on the business. The shares in each of those new entities were held by Stonevue Holdings. On 13 March 2009, the bank established new accounts in the names of Stonevue Holdings, Stonevue Australia, Stonevue Management, Stonevue Contractors and Stonevue Asset Holdings. The extent to which those companies actually participated in the ongoing business remained unclear. There is a discrepancy between what was planned and what in fact took place. A Deed of Confirmation, made on or about 31 March 2009, recorded the transfer by Stonevue to Monthill Investments of the trading assets employed in the paving manufacturing business. While Mr Marsden and his advisors may have intended that the new ‘Stonevue’ entities would each carry on various aspects of the business, little evidence exists that their plan was implemented. I am satisfied that from around 31 March 2009, Monthill Investments became owner of the business assets and carried on the business until the appointment of the receivers.

In final submissions, the defendants’ case changed. They contended that the limitation on the scope of the charge granted by Stonevue and Monthill Investments was based only upon the validity and efficacy of the agreement dated 27 June 2007, supported by evidence of the failure of the bank to attribute any value to plant and equipment in its internal security calculations.

The defendants’ evidence on this topic did not accord with their opening. During the trial it was not put to Mr Fernandez by the defendants that Mr Marsden had offered the plant and equipment as security or that the bank had declined security over it. Nor did Mr Marsden give any such evidence.

The Stonevue charge, dated 17 August 2007, extended over ‘rights to all rights, property and undertakings of whatever kind and wherever situated… including plant and equipment.’ The Monthill Investments charge included like terms. Insofar as it is relevant, Mr Marsden acknowledged in his evidence that the charges extended to all of the assets. Mr Kingwell said that during negotiations leading up to agreement with the bank in 2007, in an attempt to have the bank increase its offer, Mr Marsden complained that ‘the bank had paid no credence to the amount of plant and equipment that was in the business and how we weren’t expecting a principal reduction program that was put in place in the second offer’. That complaint by Mr Marsden is inconsistent with the defendants’ contention that the scope of each relevant charge did not extend to plant and equipment.

I reject the defendants’ contentions that plant and equipment was transferred from Stonevue to Terravue under the 27 June 2007 agreement; that the scope of the charges granted in favour of the bank by Stonevue and Monthill Investments do not extend to the plant and equipment utilised for the paving manufacturing business; and that the receivers are not entitled to possession of so much of that plant and equipment as is now utilised by Terravue.

The 27 June 2007 agreement was not prepared by Mr Marsden’s solicitors. Mr Marsden could not recall who had prepared the agreement, only that it had been prepared internally. He maintained that the agreement was intended to have the effect of transferring the assets listed in it, being most of the significant assets employed in the paving business, to Terravue on 27 June 2007. Mr Marsden intimated that the price paid for the transfer was an amount of $228,000 that Terravue had borrowed from Victorian Investments Ltd and advanced to Stonevue, and the ability of Stonevue to occupy and carry on its business from the Bacchus Marsh property owned by Terravue.

Notwithstanding the very obvious significance of this agreement to their case, the defendants were unable to satisfactorily explain its provenance. The agreement had some unusual features and terms that required explanation or clarification, if only to meet the plaintiffs’ challenge to its authenticity and validity. For example, Terravue is described as the landlord of the property located at 11 Rutherford Court, Bacchus Marsh. The records of Terravue indicate that it was incorporated a few weeks before the date of the agreement. Streetscapes (Stonevue) is described as the tenant, operating a concrete paver manufacturing business from the site. The agreement stated that ‘Streetscapes has not paid any rent to date’, and was selling its landscaping business and had agreed with Westpac to discharge its securities over the assets. The landscaping business was in fact sold in about July or August 2007 and the net proceeds paid to Westpac. The agreement further provided,

Terravue has agreed to borrow $228,000 and remit the funds to Streetscapes and continue to allow Streetscapes to Occupy the property on the basis of and for the following due considerations.
Transfer of Ownership of the Following Assets.
Streetscapes will Sell and Transfer Ownership of the Following Assets.

Thereafter was set out a list of plant and equipment which substantially overlapped with later lists of plant and equipment, employed in the paving manufacturing business, that was recorded as owned by Monthill Investments.

The agreement continued,

Terravue will allow Streetscapes the use of the Property on a month to month basis on the basis that it pays a sum that equals the loan repayments to AMIL (sic) plus a management fee to be agreed from time to time.
Streetscapes has provided a debenture charge to Westpac. This charge is to be removed and Westpac’s rights to the assets is to be removed. If a new debenture charge is to be provided, the property is to be excluded. A rental of $36,000 per annum plus GST was fixed and Streetscapes was obliged to ensure the plant and equipment noting Terravue’s interest.

Mr Kingwell said that he became aware of the agreement in around mid to late June 2007. He was not sure who prepared the document. He said that the purpose of the document was to record that Terravue had raised $228,000 which it had contributed to the Marsden group as working capital. Mr Kingwell accepted, as did Mr Marsden, that the purported effect of the agreement was inconsistent with numerous other documents and group accounts. Some of the inconsistencies are highlighted below. There were many documents evidencing the ownership of plant and equipment by Stonevue following 27 June 2007 and, following the restructure, by Monthill Investments. Even if the 27 June 2007 agreement existed prior to the date on which the charges were granted to the bank in 2007, the evidence compels the conclusion that it was entirely overlooked by Mr Marsden and his advisors in their dealings with the bank and the future management and operation of the group.

Following is a summary of some of the evidence that was inconsistent with any intention on the part of Mr Marsden and his advisors that the agreement operate according to its terms.

(a)Mr Marsden acknowledged in an email dated 7 May 2008 that the security given to the bank included a charge over plant and equipment. Mr Marsden’s attempt to explain his reference to ‘Plant & Equip’ as ‘a mistake’ was disingenuous.
(b)Mr Ellem of MV Anderson & Co had sought instructions from Mr Marsden on the preparation of the letter of advice concerning the restructure. Mr Ellem noted that the restructure under consideration would involve the movement of assets within the group that were the subject of a charge in favour of the bank. He expressly sought instructions from Mr Marsden as to the accuracy of his assumptions, one of which was that the plant was an asset of Stonevue. Mr Marsden’s attempt to attribute a mistake to Mr Ellem was disingenuous.
(c)The Deed of Confirmation, made between Stonevue and Monthill Investments, was designed in part to achieve a transfer from Stonevue to Monthill Investments of the business ‘Assets’, which included ‘Equipment’, which in turn was defined to mean ‘the items of plant, equipment, machinery, furniture, fixtures and fittings described in Schedule 3’. There was a significant overlap between the descriptions found in Schedule 3 and the plant and equipment purportedly transferred under the 27 June 2007 agreement. Thus, if the Deed of Confirmation is to be given effect, it transferred the legal and beneficial interest in Stonevue’s plant and equipment to Monthill Investments as at 1 March 2009.
(d)The Deed of Confirmation contained a representation and warranty by Stonevue to the effect that it was the legal and beneficial owner of the ‘Assets’. Mr Marsden’s attempt to explain these features of the Deed of Confirmation as ‘an obvious mistake’ was disingenuous.
(e)Financial statements and income tax returns of the group disclosed that the business plant and equipment was depreciated by Stonevue in the 2007 and 2008 financial years.
(f)Monthill Investments claimed a tax deduction for depreciation of plant and equipment in the 2008 and 2009 financial years. Mr Marsden suggested that these were also mistakes.
(g)A transfer of plant and equipment to Terravue on 27 June 2007 was inconsistent with the insurance policies effected by the group over assets. Terravue was not named as the insured or as an interested party. This was described by Mr Marsden as ‘another mistake’.
(h)In advance of preparing their report, the administrators wrote to Mr Marsden noting that they had been advised that the business and assets of Stonevue had been transferred to Monthill Investments with the consent of the secured creditor. They sought full particulars of the transfer. In response, Mr Kingwell sent a copy of the Deed of Confirmation to the administrators.
(i)In their report to creditors dated 1 May 2009, the administrators of Stonevue noted that, under the Deed of Confirmation, the business assets of the Stonevue paving operation had been transferred to Monthill Investments. The information upon which the administrators based their report included ‘discussions with the companies management, staff and directors’. At that time Mr Marsden was the sole director of Stonevue.
(j)There was other conduct of Mr Marsden, and others on behalf of the group, that was inconsistent with a transfer of plant and equipment having taken place pursuant to the agreement dated 27 June 2007. That conduct included the content of an affidavit sworn by Mr Marsden in this court on 21 December 2010, in opposition to an attempt by the receivers to obtain access to books and records and the production site at Bacchus Marsh. In their defence filed 30 August 2011, the defendants admitted that Stonevue owned the plant and equipment as at 28 February 2009. At a meeting with Mr Ellem, at which the restructure was discussed in March 2009, Mr Marsden made no objection to the inclusion on a white board explanation provided by Mr Ellem of the business plant and equipment as an asset owned by Stonevue.

The plaintiff contended that the 27 June 2007 agreement was manufactured well after its given date, and that Mr Marsden falsely asserted that it predated the charges granted in 2007. Mr Marsden and Mr Kingwell said that the agreement was brought into its existence at or around its date. The plaintiffs’ challenged the credit of both witnesses.

Mr Marsden and Mr Kingwell were both unsatisfactory witnesses. In the case of Mr Marsden his evidence was so unsatisfactory that it became difficult to accept any part of it as credible unless corroborated by documents, other objective facts or the credible evidence of another witness. Mr Kingwell’s evidence did not wholly support the defendants’ case in some material respects, but when it did happen to coincide with the evidence of Mr Marsden, it lacked credibility.

The evidence of Mr Kingwell coincided with that of Mr Marsden on the outcome of the meeting of 13 July 2009 as well as the contemporaneous nature of the 27 June 2007 agreement. His evidence concerning the circumstances in which the bank reduced the amount initially sought by Mr Marsden during the pre contractual negotiations was inconsistent with that of Mr Marsden. Mr Kingwell, who was intimately involved in the restructure in early 2009, sought to place an innocent explanation on the restructure. So did Mr Marsden. Those explanations are rejected. The purpose of the restructure was to defeat known creditors, including the Commissioner of Taxation. Unfortunately, Mr Kingwell and Mr Marsden were assisted in their plan by Mr Ellem, Mr Luff and other members of his firm. That was not an isolated incident of impropriety by Mr Marsden, Mr Kingwell and other advisors. At and around the time of the appointment of the receivers, Mr Kingwell, Mr Marsden and his solicitors participated in a plan to divert assets from Monthill Investments. Ultimately, Mr Kingwell acknowledged some level of impropriety, although Mr Marsden did not.

The false evidence given by Mr Marsden included his evidence about the purpose of the restructure in 2009; the significance of the statutory demand to the restructure; his evidence that he requested a reduction in the amount of the facility from $4.4 million to $3.7 million; his evidence that he told Mr Fernandez at about the time of Mr Ellem’s letter in February 2009, of the proposal to appoint a Voluntary Administrator to Stonevue; his evidence about the meeting that took place on 13 July 2009 concerning the time that had been extended by the bank for the group’s exit and the state of the overdraft; and his evidence that he did not receive legal advice in respect of facility and security documents prior to execution.

There are a number of unexplored possibilities in relation to the provenance of the 27 June 2007 agreement. One possibility is that it was prepared at around the date it bears in anticipation of the appointment of receivers by Westpac. Other possibilities were not adequately explored. Mr Kingwell said that he was aware of the document at about the date it bears. It was not put to Mr Marsden or Mr Kingwell that the document had been prepared for another purpose.

Notwithstanding their mutually supporting evidence concerning the existence of the agreement in June 2007, I have real doubts that the agreement existed at that time. The plaintiffs’ contention that they ought not be believed when asserting that the agreement existed at around the time of its date, has real force. Nevertheless, there remained other reasons as to why such an agreement might have been prepared at about that time. Given the seriousness of the allegation that the agreement was fabricated in an attempt to defraud creditors, I am required to carefully consider the evidence, with the gravity of the allegation in mind, and be persuaded, with reasonable satisfaction, of the serious wrongdoing.[21]
[21]Briginshaw v Briginshaw (1938) 60 CLR 336, 362-3 per Dixon J.

Having regard to the fact that the other possible purposes for such an agreement at around the time of its date, were not explained, I am not persuaded, to that high standard, that the agreement was brought into existence well after the date it bears for the purpose of persuading this court or the receivers that Terravue has at all relevant times been the owner of the plant and equipment.

But I am persuaded, to a high degree of satisfaction, that Mr Marsden has now sought to opportunistically, employ the agreement for a dishonest purpose. Mr Marsden well understood that Stonevue and Monthill Investments had given charges in favour of the bank which covered the plant and equipment employed in the paving manufacturing business. Insofar as the 27 June 2007 agreement was in existence at the time, it was not regarded by him as having the effect of excluding the plant and equipment from any such charge. The bank was never provided with a copy of the agreement prior to the time the charges were given. At one point in his negotiations with the bank Mr Marsden complained that the bank had not attributed a value to the plant and equipment. If the agreement did exist, it was simply ignored as irrelevant to the security that was being given.

Appointment of receivers

Receivers were appointed by the bank under each charge and each mortgage on 7 December 2010. Mr Marsden had anticipated their appointment for some time. On 13 May 2010 Iain Palfrey, a consultant with his solicitors wrote to Mr Kingwell by email, with a copy to Mr Luff, in the following terms:

Euan advised he’d been speaking with you about trying to ensure that Terravue Pty Ltd (TV) & Stonevue I.P. Pty Ltd (IP) were better protected from any potential attack by BankWest should they see fit not to settle the refinance offer and try to enforce their securities and asked me to re-forward this earlier email which alluded to the potential vulnerability of IP.
…
It may be prudent to consider divesting Holdings of this shareholding to an entity which has not provided security to BankWest to put these two companies & their assets beyond BankWest’s reach – but it would have to be borne in mind that the consideration received by Holdings for the transfer of its shares in IP would be an asset available to Holdings’ receiver (unless it was legitimately disbursed before the appointment of the receiver); any transfer of the shares by Holdings for nominal consideration would no doubt be attacked by a receiver as an uncommercial transaction (as could Holdings’ disbursement of any payment it received for its IP shares for other than a legitimate purpose/transaction). Finally, there may be tax consequences of the transfer of the shares in IP on which the companies should take the appropriate tax advice.
Of course the same risks of access to the assets of TV do not apply since TV’s sole shareholder is Alan Marsden personally.

That Mr Marsden’s solicitors should have become involved in providing advice of the kind contained in this email is, to say the least, disappointing. By 9 October 2010, Mr Marsden had formed the view that the appointment of a receiver was imminent. He sent the following email to his solicitor, Mr Luff,

As advised our lease is up at the end of this month we have been consider our options.
Given next weeks events re banks. What about we say we are relocating due to office change and we are taking the opportunity to upgrade the server so we will be able to do to much next week.
This will give us the opportunity to get Terravue bank account up and running and allow me to get some money in.
The next 4 weeks I have 300 to 350k income for products either made sitting in the yard or being made only about 70k is from debtors.
Your job is to hold them out for at least 2 weeks.

When asked what he meant to convey to Mr Luff, Mr Marsden said that he was not too sure what he meant. He said the email wasn’t very clear. In my view the purport of the email is clear. Mr Marsden sought to engage Mr Luff’s assistance in a plan to divert income away from charged entities to defeat the bank’s rights under the charges. Mr Marsden, and presumably Mr Luff, knew that the receivers would claim the income as a charged asset. It was an improper plan defeat a creditor. The evidence revealed invoices reissued by Terravue in respect of amounts payable to charged entities.

The assets employed by Terravue in the paving manufacturing business since the appointment of the receivers included plant, equipment, fixtures, fittings, book debts, intellectual property, stock and work in progress, all previously owned or employed by Stonevue and transferred to Monthill Investments. The business that Terravue purported to take over and operate was initially the business of Stonevue, and subsequently Monthill Investments. Mr Marsden, who was instrumental in the formulation and implementation of the plan, well knew that the assets employed by Terravue were subject to charges in favour of the bank, and dishonestly attempted to place those assets beyond the reach of the bank. Mr Marsden controlled Terravue. Terravue must account to the bank for those assets and any profits generated from them. The defendants did not contend that if the charges granted by Stonevue and Monthill Investments were included the manufacturing plant, equipment and other business assets, the receivers would not be entitled to possession.

Conclusion

I reject the defendants’ estoppel case. While it seems likely that the bank conveyed to Mr Marsden, at the meeting on 31 May 2007, that it was interested in establishing a long term relationship with the Marsden group, and that it could be flexible in its future dealings, there was no reasonable basis upon which Mr Marsden could have interpreted what was said, or could have assumed that the relationship would not be determined by the terms and conditions of the facility that might be provided by the bank. Once the facility had been provided, the agreements executed and the securities given, Mr Marsden was under no misunderstanding about the facility limits, the terms and conditions upon which the advances were made and the default rights of the bank under the facility documents and the securities.

By his conduct following settlement of the advances in August 2007, Mr Marsden acknowledged the facility limits and the need for variations to be negotiated and agreed from time to time.

The conduct of Mr Marsden and his advisors, in procuring the bank to approve the restructure in 2009, and vary the facility to accommodate the restructure, was dishonest. There was a series of events of default that, even upon the defendants’ own scale would justify the bank exercising its contractual rights. The bank was not, however, inhibited as the defendants contended, from exercising those rights. The conduct of the bank in terminating the facility and calling in the debt, and exercising its default rights, was not unconscionable. Having regard to the deception practised upon it, the bank was fully justified in requiring Mr Marsden to find alternate finance, serve default notices in July 2009 and in January 2010 and appointing receivers in December 2010.

The paving manufacturing business assets utilised by Terravue are charged in favour of the bank under the charge granted first by Stonevue and then by Monthill Investments. The receivers are entitled to possession of those assets. The receivers are also entitled to possession of the Armadale property and the Moorooduc property.

Accordingly, I propose to make the following declarations and orders:

(a)       Declare that the second and third plaintiffs are entitled to possession of:
(i)       the Armadale property;
(ii)      the Moorooduc property;
(iii)the business assets employed by Terravue in the paving manufacturing business including all plant and equipment previously owned by Stonevue and Monthill Investments and all intellectual property and other business assets.

(b)Order that the first and second defendants provide to the second and third plaintiffs vacant possession of the Armadale property and the Moorooduc property.
(c)Order that Terravue account to the second and third plaintiffs in respect of any profits realised by its employment of the Business Assets.
(d)Judgment against the first and second defendants under each guarantee.
(e)The assessment of any profit derived by Terravue to be referred to an Associate Judge for assessment.

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[2012] VSC 607

11 December 2012