Commonwealth Bank of Australia v Aspenview Productions and Ors

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 8085 of 1993

COMMONWEALTH BANK OF AUSTRALIA	Plaintiff
v
ASPENVIEW PRODUCTIONS PTY LTD (Trading as St Martin's Garage) ALEXANDER JOHN MCLEAN, LANA DOROTHY MCLEAN AND KRYSTYNA REGINA MASLUK	Defendants

And:

No. 6398 of 1994

COMMONWEALTH BANK OF AUSTRALIA	Plaintiff
v
ALEXANDER JOHN MCLEAN, PETER LESLIE O’BRIEN, DARREL STEPHEN DRIEBERG, LANA DOROTHY MCLEAN AND KRYSTYNA REGINA MASLUK	Defendants

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JUDGE:	McDonald J
WHERE HELD:	Melbourne
DATE OF HEARING:	20, 21, 22, 23, 26, 27, 28 February, 1, 2, 5, 6, 7, 8, 9, 13, 14, 15, 16 and 19 March 2001
DATE OF JUDGMENT:	5 December 2001
CASE MAY BE CITED AS:	Commonwealth Bank of Australia v Aspenview Productions and Ors.
MEDIUM NEUTRAL CITATION:	[2001] VSC 444

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Mortgage: mortgage given to bank to secure moneys provided to company; “all moneys” clause - one mortgagor guaranteeing payment to bank of the debts of another company; liability of other mortgagor to the bank for debts of second company; bank able to recover against each mortgagor debts of each company to it.

Estoppel, representation and promise to discharge mortgage insofar as it affected part of property secured; representation and promise acted on to detriment of mortgagor, mortgagee estopped from enforcing mortgage with respect to property, mortgage in part to be discharged.

Recovery of possession of land the subject of registered mortgage.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms M. Loughnan	G.S. Ray
For the Defendant	Mr G. Parncutt	Comlaw

HIS HONOUR:

The proceedings in this court numbered 6398 of 1994 had their origin in the County Court at Melbourne and were commenced by a writ filed in the County Court on 14 January 1992 in action number MC.921134 of 1992 between the plaintiff, Commonwealth Bank of Australia, and the defendants, Alexander McLean, Peter O’Brien and Darrel Drieberg. The plaintiff’s claim against those three defendants was for the sum of $75,394.02 which it alleged was due and owing by the defendants jointly and severally pursuant to a guarantee in writing dated 2 November 1989 whereby the defendants allegedly jointly and severally guaranteed payment to the plaintiff, of the debts of Whiteboards of Australia Pty Ltd (“Whiteboards of Australia”). On 27 February 1992 there was filed on behalf of the defendant, Alexander McLean, a defence denying liability to the plaintiff.

On 10 March 1992 in those proceedings a default judgment in favour of the plaintiff was entered against the third defendant, Drieberg, in the sum of $77,802.70 which included interest on the sum claimed, together with costs.

On 4 October 1992 in those proceedings a default judgment was entered in favour of the plaintiff against the second defendant, O’Brien, for the sum of $84,551.78 which included interest on the sum claimed together with costs against that defendant.

On 1 June 1994 it was ordered by the Registrar of the County Court that those proceedings in the County Court be transferred to this Court pursuant to s. 21(1) of the Courts (Case Transfer) Act 1991. At that time the only remaining defendant to the proceeding, against whom judgment had not been entered, was Alexander McLean.

On 6 October 1997 an order was made in this Court adding as defendants to those proceedings the fourth and fifth defendants, Lana Dorothy McLean and Krystyna Masluk. The defendants, Alexander McLean and Lana McLean, are husband and wife. The defendant, Krystyna Masluk, is the mother of Lana McLean.

On 6 October 1997 it was further ordered that the plaintiff have leave to amend its statement of claim. Pursuant to the amended statement of claim the plaintiff alleged that by an agreement in writing dated 1 November 1989 the plaintiff agreed to grant to Whiteboards of Australia financial accommodation and that on 2 November 1989 the defendants, Alexander McLean, Peter O’Brien and Darrel Drieberg, executed and gave to the plaintiff a guarantee in writing whereby they jointly and severally guaranteed to the plaintiff payment of all moneys due and payable by Whiteboards of Australia to the plaintiff. It was alleged that on or about 2 October 1991, pursuant to the guarantee, the plaintiff gave to the defendants, Alexander McLean, O’Brien and Drieberg, a written demand for payment of the amount outstanding by Whiteboards of Australia as at 2 October 1991 and that such defendants had refused or neglected to pay the amount outstanding to the plaintiff. The plaintiff claimed against the defendants, Alexander McLean, O’Brien and Drieberg (notwithstanding that judgment had been entered against O’Brien and Drieberg), payment of the sum of $152,088.27 together with interest then accruing. The plaintiff further alleged that at all material times Alexander McLean and Lana McLean were the registered proprietors of and in possession of land described in Certificates of Title being Volume 9956 Folio 761, Volume 9956 Folio 762, Volume 9956 Folio 763 and Volume 9956 Folio 764. The properties the subject of those Certificates of Titles are situate at 1 Alfred Street, Prahran (“the Prahran Property”). The property described in Certificate of Title 9956 Folio 761 is known as Unit 1, 1 Alfred Street Prahran (“Unit 1”). The property described in Certificate of Title Volume 9956 Folio 762 is known as Unit 2, 1 Alfred Street, Prahran (“Unit 2”). The property described in Certificate of Title Volume 9956 Folio 763 is an accessory unit to Unit 1 and referred to as Unit 3. The property described in Certificate of Title Volume 9956 Folio 764 is an accessory Unit to Unit 2 and referred to as Unit 4. The plaintiff alleged that by a mortgage in writing dated 10 December 1986 the defendants, Alexander McLean and Lana McLean, for valuable consideration, granted to the plaintiff a mortgage over the Prahran Property and that pursuant to the terms of that mortgage Alexander McLean and Lana McLean agreed to pay to the plaintiff on demand all moneys then or thereafter payable to the plaintiff by Aspenview Productions Pty Ltd (“Aspenview Productions”), Alexander McLean and Lana McLean or any of them either alone or on joint or partnership account or on any other account and whether as principal or surety and, further, to pay to the plaintiff all moneys the payment or repayment of which Aspenview, Alexander McLean and Lana McLean or any of them had guaranteed or may thereafter guarantee to the plaintiff. The plaintiff alleged that by notice in writing dated 12 August 1996 it demanded repayment by Alexander McLean and Lana McLean of the moneys secured by the Prahran Property mortgage, but that in breach of the mortgage they had failed, refused and neglected to pay the sums outstanding and secured by that mortgage. The plaintiff alleged that it was entitled to possession of the Prahran Property pursuant to the terms of the mortgage. Further, the plaintiff alleged that by a caveat dated 6 December 1991 and lodged at the Office of Titles the fifth defendant, Krystyna Masluk, had claimed an equitable estate in fee simple of that part of the Prahran Property described in Certificates of Title Volume 9956 Folio 762 and Volume 9956 Folio 764 (Units 2 and 4) on the grounds that she was the transferee of that property and, further, forbidding registration of any person as a transferee of such part of the Prahran Property. It was alleged by the plaintiff that the fifth defendant, Krystyna Masluk, did not have the interest or any interest in the Prahran Property as claimed by her or alternatively, if she was entitled to the interest claimed, that interest was postponed to the interests of the plaintiff under the terms of the Prahran Property mortgage and that it was adversely affected by that caveat. The plaintiff further alleged that Krystyna Masluk was in possession of Units 2 and 4 of which it was entitled to possession.

In those proceedings the plaintiff claimed against Alexander McLean and Lana McLean payment of the sum of $152,088.27 together with interest accruing and possession of the Prahran Property. As against Krystyna Masluk the plaintiff claimed a declaration that any interest that she had in Units 2 and 4 of the Prahran Property was postponed to the interest of the plaintiff, or alternatively, an order for removal of the caveat in respect of Units 2 and 4 and possession of the property being Units 2 and 4.

By her defence in those proceedings, Krystyna Masluk admitted lodging the caveat in respect of the property being Units 2 and 4, she denied that she did not have the interest alleged in Units 2 and 4, she admitted that she was in possession of that property but denied that the plaintiff was entitled to possession of the same. She further alleged that in or about August 1988 she and Alexander McLean and Lana McLean agreed that in consideration of her selling her property at 17 Written Avenue, East Brighton and using the proceeds of the sale of the property to contribute to the purchase by Alexander McLean and Lana McLean of the Prahran Property and to the sub-division and renovation costs of that property they would transfer Units 2 and 4 to her. She alleged that it was a term of the agreement which she had with Alexander McLean and Lana McLean that the agreement would be subject to the plaintiff’s consent and to the plaintiff agreeing to a proposed sub-division of the Prahran Property (into four units) and providing to her clear title of Units 2 and 4. She alleged that in or about August 1988 Alexander McLean informed the plaintiff that she wanted to purchase free of all encumbrances Unit 2 following a strata sub-division of the Prahran Property and requested the plaintiff’s consent to the same. She alleged that in or about mid-August 1988 the plaintiff represented to Alexander McLean that it would consent to the agreement and that it would be prepared to discharge its mortgage over the proposed Unit 2 to enable registration of a transfer of that unit and accessory Unit 4 to her and that on or about 28 August 1988 Alexander McLean and Lana McLean informed her of that which the plaintiff had so represented to Alexander McLean. She alleged that acting on the faith of the representation of the plaintiff she signed a contract of sale of her East Brighton home on or about 26 September 1988; that she agreed with Alexander McLean and Lana McLean to pay $160,000 towards the purchase of the Prahran Property; that on or about 24 November 1988 she paid $13,000 towards the renovation of the Prahran Property; that in December 1988 she moved into Unit 2 of the Prahran Property; that on 9 February 1989 she paid $160,000 being the purchase of a two thirds interest in Units 2 and 4 of the Prahran Property and that during the period from January to April 1989 she paid $7,000 in cash for work to be done to complete Unit 2 of the Prahran Property. It was further alleged by Krystyna Masluk that in or about mid-1989 Alexander McLean informed the plaintiff that she had paid her two thirds share in Units 2 and 4, that in or about late June 1989 the plaintiff informed Alexander McLean that the title for Unit 2 would need to be released so that the transfer to her could be completed, and requested Alexander McLean to let it know when the title was required as the plaintiff would then arrange for a discharge of the mortgage in respect of Units 2 and 4. Krystyna Masluk further alleged that on 7 December 1989 an application for approval of strata sub-division for the Prahran Property was lodged and that the plaintiff made available the Certificates of Title relevant to the Prahran Property and thereafter the strata sub-division was approved and registered. Further, Krystyna Masluk alleged that the plaintiff had refused when requested to make available a discharge of its mortgage over Units 2 and 4 of the Prahran Property. She alleged that the plaintiff was estopped from denying that she was entitled to be registered as the proprietor of Units 2 and 4 of the Prahran Property. By its reply to the defence of the fifth defendant the plaintiff denied that it had any dealings with Krystyna Masluk and alleged that if there was any arrangement to the effect, as contended for by her, such arrangement did not constitute an enforceable agreement. Further, the plaintiff alleged that if it did state that it would be prepared to discharge its mortgage over the proposed Units 2 and 4, to enable registration of the transfer to Krystyna Masluk, the statement made was to the effect that the plaintiff was prepared to do that, provided that the value of the security retained by the plaintiff at the time of the discharge was in excess of the amounts of money then secured by the mortgage and was sufficient to satisfy the plaintiff’s security requirements. The plaintiff further alleged by its reply that Krystyna Masluk had failed to take steps to obtain the discharge of the mortgage insofar as it related to Units 2 and 4 when her entitlement arose, promptly or at all, that she permitted the plaintiff to continue to provide banking accommodation in reliance upon the mortgage over the whole of the land the subject of the mortgage and that Krystyna Masluk was guilty of laches and delay in failing to act or to promptly act to obtain a discharge of the mortgage. Further, the plaintiff by its pleading, alleged that Krystyna Masluk did not pay any sums to Alexander or Lana McLean to obtain any interest in Units 2 and 4 and that the purported transfer of two thirds of their interest in Units 2 and 4 to Krystyna Masluk was in consideration of natural love and affection of her.

By their amended defence and counterclaim, Alexander McLean and Lana McLean, while not admitting that Alexander McLean had entered into a guarantee guaranteeing payment to the plaintiff of Whiteboards of Australia’s debts, further alleged, in the alternative, that in or about October and November 1989 the plaintiff represented to the defendant, Alexander McLean, that the guarantee to be given by him to the plaintiff in respect of the indebtedness of Whiteboards of Australia would be limited to one-third of the indebtedness of Whiteboards of Australia to the plaintiff by reason that the plaintiff would also obtain guarantees from O’Brien and Drieberg which would cover their potential exposure of the indebtedness of Whiteboards of Australia to the plaintiff. They alleged that such representations were false and untrue as known to the plaintiff, that they were made to induce Alexander McLean to execute the guarantee and in reliance on the same he was induced to enter into the guarantee. They alleged that the plaintiff was estopped from enforcing the guarantee against Alexander McLean save to the extent of one-third of the alleged debt owing by Whiteboards of Australia. They further alleged that in or about July 1988, Alexander McLean, on behalf of himself and Lana McLean, informed a manager of the plaintiff, Murray, that Krystyna Masluk was considering selling her home and wished to live in part of the Prahran Property which was to be the subject of a strata title sub-division and, that she would do so on the basis of purchasing a unit or major interest therein and, that he asked the manager would the plaintiff agree to release Units 2 and 4 from the mortgage should Krystyna Masluk decide to live with him and his family. It is alleged that the manager, Murray, informed Alexander McLean that at the relevant time the plaintiff would release the title of the property for the purpose of a strata title sub-division being registered and that he would make arrangements for the discharge of the mortgage insofar as it related to Unit 2. Alexander McLean and Lana McLean alleged that acting on the faith of such representations they agreed that in consideration of Krystyna Masluk selling her property at East Brighton and using the proceeds of sale to contribute towards the purchase of the Prahran Property they would transfer to her proposed Units 2 and 4 from the same and that they informed Krystyna Masluk of these matters. They alleged that acting on the faith of such representations Krystyna Masluk sold her property in East Brighton and from the proceeds of sale contributed to the purchase of the Prahran Property and, further, made payments towards renovation, in particular, of Unit 2. It was further alleged by Alexander McLean and Lana McLean that on informing the manager of these matters the manager of the plaintiff confirmed the agreement to release, as security under the mortgage, title to proposed Units 2 and 4 that they carried out substantial renovations and alterations to the Prahran Property, that the plaintiff made the relevant Certificates of Title available for the strata sub-division to be approved and registered and thereafter the manager confirmed that the security under the mortgage was to be restricted to Unit 1 (which would include Unit 3), but the plaintiff had refused to release the title to enable Krystyna Masluk’s interest in Units 2 and 4 to be registered and it had refused to discharge the mortgage insofar as it related to Units 2 and 4. The defendants, Alexander and Lana McLean, alleged that the plaintiff was estopped from enforcing the mortgage save in respect as it related to and provided security for a housing loan to Alexander and Lana McLean and security for advancements to Aspenview Productions insofar as it related to a business known as St Martins Garage. Alexander McLean and Lana McLean alleged that the plaintiff was estopped from enforcing the mortgage save for those limited securities, that it would be unconscionable for the plaintiff to enforce the mortgage save in respect of such secured indebtedness. They denied that the plaintiff was entitled to possession of the Prahran Property. Further, by counterclaim, they alleged that the plaintiff was estopped from recovering against them any sum more than one-third of the alleged debt of Whiteboards of Australia. Alexander McLean and Lana McLean sought orders that the guarantee be set aside, in the alternative a declaration that the plaintiff was estopped from enforcing the guarantee save as to one-third of the alleged liability of Whiteboards of Australia, and a declaration that any sum owed by Whiteboards of Australia to the plaintiff was not the subject of the mortgage. Further, Alexander McLean and Lana McLean sought a declaration that the plaintiff was estopped from enforcing the mortgage save in respect of the property being Units 1 and 3 of the Prahran Property. By its reply the plaintiff joined issue with the defence and counterclaim of Alexander McLean and Lana McLean.

Proceedings 8085 of 1993 were commenced in this Court by the plaintiff against Aspenview Productions (trading as St Martin’s Garage), Alexander McLean and Lana McLean. Those proceedings were commenced by a writ filed on 18 August 1993. By order of a Master made 6 October 1997, Krystyna Masluk was joined as a fourth defendant to the proceedings and leave was granted to the plaintiff to amend its statement of claim. By the plaintiff’s further amended statement of claim, made pursuant to leave granted on 5 February 1999 and on 2 March 2001, the plaintiff alleged that pursuant to an agreement made on 21 November 1986 between the plaintiff and Aspenview Productions it agreed to provide financial accommodation to Aspenview Productions from time to time and, pursuant to the agreement, it continued to grant accommodation under an overdraft account being account number 3170-120-375 (the first account), that it continued to grant an increase accommodation under account number 3170-132-173 (the second account) and it opened account number 3170-146-647 (the third account) and that at the request of Aspenview Productions it lent moneys to it from time to time and performed work and labour and incurred expenses in relation to the operation of such accounts. The plaintiff alleged that as at 11 December 1992 Aspenview Productions was indebted to it under these accounts in the total sum of $176,096.86 and that on that day by notice served on Aspenview Productions it demanded payment of that sum, but that in breach of the agreement Aspenview Productions refused, failed and neglected to pay the sum owing to the plaintiff. The plaintiff further alleged that at all material times Alexander McLean and Lana McLean were the registered proprietors of and in possession of the Prahran Property and by the mortgage dated 10 December 1986 for valuable consideration they granted to the plaintiff a mortgage over that property. Again, the plaintiff alleged, as previously referred to, that the mortgage was an “all moneys” mortgage and that by its terms, Alexander McLean and Lana McLean agreed to pay to the plaintiff on demand all moneys which they or any of them had agreed or thereafter agreed to pay to the plaintiff whether as a principal or a surety. The plaintiff in these proceedings alleged that pursuant to the provisions of the Transfer of Land Act 1958 it had demanded repayment by Alexander McLean and Lana McLean of the moneys secured by the mortgage over the Prahran Property, that they had failed and neglected to pay the same and that it was entitled to possession of the Prahran Property. They further alleged that although serving notice on Alexander McLean and Lana McLean for payment of the sum of $176,096.86 as due and owing by Aspenview Productions they had failed and neglected to pay that sum. The plaintiff further made allegations against the fourth defendant, Krystyna Masluk, relating to Units 2 and 4 of the Prahran Property, of the same nature and kind as referred to in the other proceedings. Against Aspenview Productions the plaintiff claimed payment of the sum of $191,636.39 together with interest accruing. Against Alexander McLean and Lana McLean it sought an order for possession of the Prahran Property and payment of the aforesaid sum, and against Krystyna Masluk it sought a declaration that any interest that she had in the land being Units 2 and 4 was postponed to the interest of the plaintiff, or alternatively, an order for removal of the caveat and possession of the land being Units 2 and 4.

By her defence filed on 19 December 1997 Krystyna Masluk sought a declaration that the plaintiff was estopped from denying that she was entitled to be registered free of all encumbrances as the proprietor of the property being Units 2 and 4 of the Prahran Property and an order that the plaintiff deliver to her a signed discharge of the mortgage insofar as it related to and affected that property. In seeking such relief Krystyna Masluk relied on pleadings in much the same terms as in Action No. 6398 of 1994.

By the further amended defence and counterclaim of Aspenview Productions, Alexander McLean and Lana McLean, amended pursuant to leave granted during the course of the trial on 14 March 2001, they admitted that Aspenview Productions had maintained the aforesaid accounts with the plaintiff. They alleged that from mid-1988 and thereafter a substantial proportion of the funds advanced to Aspenview Productions, to the knowledge of the plaintiff, was used to pay expenses relating to the establishment and conduct of the business of Whiteboards of Australia, which business was formerly part of a stand-alone business conducted by Aspenview Productions and known as “Whiteboards Office and Domestic”. They alleged that in or about March 1988 Alexander McLean for and on behalf of Aspenview Productions had discussions with Murray a manager of the plaintiff at its South Yarra branch during which Murray was informed that Aspenview Productions was selling its business “Whiteboards Office and Domestic” to the company Whiteboards of Australia which company was to be owned as to 50% by a company (the shareholding of which was to be held as to 75% by him and Lana McLean and as to 25% by O’Brien and Drieberg), 33¹/₃ % by an investment company which would invest $133,000 and as to 16²/₃ % by a guarantee company. They alleged that Alexander McLean informed the manager that the purpose of setting up the guarantee company was to ensure that his potential liability would be limited to one-third. It was alleged that Alexander McLean informed the manager that Aspenview Productions would continue to run and conduct the business, St Martin’s Garage, that he was concerned that moneys expended in establishing and conducting Whiteboards of Australia would, as directed by the plaintiff’s manager, be borne initially by them and then by Whiteboards of Australia following its incorporation. It was further alleged that Alexander McLean informed the manager that they had very little experience in business finance. By this further amended defence it was further alleged that the manager for and on behalf of the plaintiff advised Alexander McLean that he was very experienced in arranging and conducting the finance of businesses such as Whiteboards of Australia and that after Whiteboards of Australia was incorporated the plaintiff would arrange procedures and transactions necessary for effecting a transfer of the amount expended by Aspenview Productions in establishing and conducting the Whiteboards of Australia’s business to an account in the name of Whiteboards of Australia which would limit Alexander McLean’s exposure to that of one-third of the debt of Whiteboards of Australia. It was alleged that in reliance on the representations made by the plaintiff, Aspenview Productions expended substantial sums of money, pursuant to accommodation provided by the plaintiff, in establishing and conducting Whiteboards of Australia’s business. It was further alleged that in reliance on the representations made by the manager, Murray, Aspenview Productions by Alexander McLean in conjunction with O’Brien and Drieberg caused bank accounts to be established with the plaintiff and caused Whiteboards of Australia’s banking business to be conducted through such accounts and that Aspenview Productions expended moneys provided by financial accommodation provided by the plaintiff to it to fund the conduct of Whiteboards of Australia’s business until 17 May 1990. It was alleged that contrary to the representations of the manager, Murray, made on behalf of the plaintiff it failed and refused to take measures to effect a transfer of the debt from Aspenview Productions to Whiteboards of Australia notwithstanding that the defendants and Whiteboards of Australia requested the plaintiff to do so.

The defendants further alleged that on 18 July 1991 Whiteboards of Australia was insolvent and Alexander McLean resigned as a director thereof and in or about December 1991 it ceased to conduct business. They alleged that by reason of the plaintiff’s failure and or refusal to allow and or to institute measures and transactions necessary to effect a transfer of the debt from Aspenview Productions to Whiteboards of Australia, Aspenview Productions had been left with a debt as alleged to be outstanding to the plaintiff and that Alexander McLean and Lana McLean had been left with an alleged outstanding debt under the mortgage registered over the Prahran Property. The defendants alleged that it would be unjust and unconscionable for the plaintiff to be entitled to recover from Aspenview Productions moneys provided to it by way of financial accommodation by the plaintiff or to recover from Alexander McLean and Lana McLean, pursuant to the Prahran Property mortgage, such amounts allegedly owing thereunder being the total amount of moneys expended by the defendants in establishing and conducting the Whiteboards of Australia’s business during the period from late 1987 to July 1991 and that the plaintiff was estopped from doing so.

As to the title to and possession of Units 1 and 3, and Units 2 and 4 of the Prahran Property, the alleged acquisition by Krystyna Masluk of an interest in Units 2 and 4 and the rights for her to be registered as the proprietor of the same and to have possession of the same, the first, second and third defendants pleadings in these proceedings were much the same as in the other proceedings referred to. Alexander McLean and Lana McLean alleged in these proceeding that they held Units 2 and 4 of the Prahran Property on trust for Krystyna Masluk. Further, Alexander McLean and Lana McLean alleged that the plaintiff failed to disclose to them that by the terms of the mortgage any debt of Alexander McLean under any security that he might enter into with it would affect the rights of Lana McLean under the mortgage and so affect her obligations to the plaintiff pursuant to the mortgage. It was further alleged by Alexander McLean and Lana McLean that by the plaintiff failing to disclose this matter to them and that, in consequence of representations made by the plaintiff’s manager, they acted to their detriment in that they executed the mortgage, signed Letters of Acknowledgment of the debt of Aspenview Productions to the plaintiff and failed to recover from Whiteboards of Australia moneys owing to Aspenview Productions and transferred Units 2 and 4 to Krystyna Masluk. The defendants, Alexander McLean and Lana McLean, alleged that in the circumstances as existing it would be unconscionable to permit the plaintiff to enforce the mortgage save in respect of that referred to as “the secured indebtedness” which they identified as a housing loan to Alexander McLean and Lana McLean and as security for the business of Aspenview Productions so far as it related to the garage business conducted by it. It was further alleged on behalf of Lana McLean that subsequent to her executing a Letter of Acknowledgment of the debt of Aspenview Productions a servant or agent of the plaintiff fraudulently altered that document. By this pleading the defendants denied liability to the plaintiff and by way of counterclaim they sought a declaration that the plaintiff was not entitled to enforce the mortgage, save in respect of the property being Unit 1 and accessory Unit 3 of the Prahran Property, or alternatively a declaration that the plaintiff was estopped from enforcing the mortgage save and in respect of that property. It was further sought by way of declaratory relief that it be ordered that the plaintiff is estopped from recovering from Aspenview Productions any moneys which constituted expenditure by it in the establishment and conduct of the Whiteboards of Australia’s business during the period 1987 to May 1990. Further, by such pleading, the defendants sought a declaration that the plaintiff was estopped from exercising any right under the mortgage in relation to Units 2 and 4 of the Prahran Property.

At the outset of the trial, on application by the solicitor for Krystyna Masluk, it was ordered that such solicitor have leave to file a notice that he had ceased to act for that defendant. Thereafter she was not represented by counsel or any legal practitioner at the trial. In proceeding numbered 8085 of 1993 the defendants, Aspenview, Alexander McLean and Lana McLean, were represented by counsel as was the plaintiff. In proceeding numbered 6398 of 1994 the first defendant, Alexander McLean, and the fourth defendant, Lana McLean, were represented by counsel as was the plaintiff.

The witness, Kathleen Ledney, a manager in the Group Credit and Market Risk Department of the plaintiff, a credit manager of the plaintiff, gave evidence that she was responsible for the plaintiff’s recovery of the indebtedness of Aspenview Productions and Whiteboards of Australia to the plaintiff. She gave evidence and there was tendered through her statements of account details of the amounts owed by Aspenview Productions to the plaintiff as follows:

¨    On 11 December 1992 Aspenview Productions owed the plaintiff on accounts numbered 3170-0012-0375, 3170-0013-2173 and 3170-0014-6647, amounts totalling $176,096.86.
¨    On 23 July 1993 Aspenview Productions owed the plaintiff on such accounts amounts totalling $190,679.13.
¨    On 18 August 1993 Aspenview Productions owed the plaintiff on the aforesaid accounts amounts totalling $191,636.39.
¨    On 12 August 1996 Aspenview Productions owed the plaintiff on the aforesaid accounts amounts totalling $277,038.11.
¨    On 19 February 2001 Aspenview Productions was indebted to the plaintiff in the sum of $443,460.78 as follows and on which interest continued to be incurred as follows:

Account Amount Daily Interest

3170-0012-0375 $252,762.10 $78.94

3170-0013-2173 $19,304.02 $6.03

3170-0014-6647 $171,394.66 $53.53

Ms Ledney further gave evidence and produced a statement as to the indebtedness of Whiteboards of Australia to the plaintiff on its overdraft account 3170-0014-7287, on the following dates and for the amounts stated:

2 October 1991                    - $72,181.80

12 August 1996  - $137,526.00

28 May 1997  - $152,088.27

25 August 1997  - $156,303.12

19 February 2001                 - $222,236.42
She further gave evidence that interest was accruing and would continue to accrue on the amount outstanding on that account at the rate of $69.41 per day.

It was the plaintiff’s case that the mortgage furnished by Alexander McLean and Lana McLean over the Prahran Property secured the amount of $443,460.78 owing by Aspenview Productions to the plaintiff and that the guarantee executed by Alexander McLean with respect to the debts of Whiteboards of Australia to the plaintiff secured the debt in the sum of $222,236.42 as owing by Whiteboards of Australia on 19 February 2001 and that, in turn, the mortgage provided security for that amount owing under the terms of the guarantee.

In the cross-examination of the witness, Ledney, the accuracy of these figures was not challenged. I accept her evidence as to the indebtedness of each of Aspenview Productions and Whiteboards of Australia to the plaintiff as at 19 February 2001 and the interest accruing daily on the identified accounts.

The witness, Fairweather, gave evidence that he was a manager employed by the plaintiff. He was the manager of the plaintiff’s branch at South Yarra between April 1986 and February 1988. He said that, having had the benefit of reading a number of documents, he could recall that during his time as a manager of the branch there was in place a mortgage given by Alexander McLean and Lana McLean to the bank over their property at 146 Rae Street, North Fitzroy to secure moneys owed to the plaintiff by Aspenview. That mortgage was dated 20 August 1984 and it was an unregistered second mortgage. At this time Aspenview Productions carried on business as St Martin’s Garage. In May 1986 Alexander McLean and Lana McLean sought to have the plaintiff extend the financial facilities provided by the plaintiff to Aspenview Productions by providing, in addition to an overdraft limit of $8,000, a small business loan of $20,000. Fairweather said that at the time of this application he was advised by the McLeans that they had $70,000 invested in the name of Kingcurry Investments and that it was put aside to provide for Mrs Masluk. The application was approved and funded on 29 May 1986. The authority providing for periodic repayments, was signed by Alexander McLean and Lana McLean.

On 12 November 1986 a diary note of the loans officer of the plaintiff at its South Yarra branch recorded that at that time the situation of Aspenview Productions’ account, with the plaintiff, was that the overdraft account was overdrawn in the sum of $3,326 and the small business loan was in debt in the sum of $18,018. On that day Alexander McLean informed the loans officer that he was about to bid for the purchase of property in Prahran which comprised two units. He advised that he wished to write a cheque for $18,000 for the deposit on that property, should he be successful at the sale. The request was agreed to.

On 18 November 1986 Alexander McLean informed the plaintiff that the Prahran Property had been purchased for $180,000 and that the home of he and Lana McLean at 146 Rae Street, North Fitzroy was to be sold on 22 November 1986. Application was made that day to increase the small business loan facility by $20,000 to $38,018. This application was approved. This increased the sum secured by the mortgage dated 20 August 1984, which increase was consented to by Alexander McLean and Lana McLean. On 21 November 1986 the property purchased at Prahran, the Prahran Property, was valued by the plaintiff at the sale price, $180,000. The property consisted of two self contained units. It was noted in a memorandum by the loans officer of the plaintiff that once the property was established on separate strata titles the value of the same should exceed $200,000. A written application for the increase of the small business loan was dated 21 November 1986. The common seal of Aspenview Productions was fixed to the application which was signed by Alexander McLean and Lana McLean as directors of that company. It is to be noted that by paragraph 2(c) of that application it was provided:

“It is clearly understood that the following terms and conditions shall apply to all accommodation granted to the applicant(s) by the Bank from time to time:
(c)the Bank may from time to time at its pleasure cancel or vary the limit of accommodation granted to the applicant(s) and/or vary the rate of interest and/or rate of discount and the charge for accepting or endorsing bills of exchange applicable to accommodation granted to the applicant(s).”

On 3 December 1986 the Commonwealth Savings Bank of Australia approved a home loan to be made to Alexander McLean and Lana McLean in the sum of $60,000. This loan was secured by a first mortgage over the Prahran Property purchased by Alexander McLean and Lana McLean. Once the Rae Street mortgage, which secured accommodation provided by the plaintiff to Aspenview, was discharged an unregistered second mortgage over the Prahran Property was taken to secure financial accommodation provided by the plaintiff to Aspenview. On 5 December 1986 the plaintiff approved the transfer of the security provided in respect of financial accommodation made to Aspenview Productions from the Rae Street property to the Prahran Property. The mortgage dated 10 December 1986 granted by Alexander McLean and Lana McLean to the plaintiff over the Prahran Property, described in the mortgage as the land in Certificate of Title Volume 6368 Folio 489 was given, “in consideration of certain advances and accommodation granted or to be granted at the request of the mortgagor to” Aspenview Productions, by the plaintiff, “for the purpose of securing to [the plaintiff] the payment of the moneys, interest and liabilities hereinafter mentioned and intended to be hereby secured mortgages” to the plaintiff. The mortgagors identified by the mortgage were Alexander McLean and Lana McLean. It was signed by them and also sealed with the common seal of Aspenview Productions. The fixing of the seal was witnessed by Alexander McLean and Lana McLean as directors of Aspenview Productions.

By cl. 39 of the mortgage it was provided in part:

“Except to the extent that such interpretation shall be excluded by or be repugnant to the context whenever the same are used herein the word[s] the mortgagor shall mean and include the mortgagor and the executors, administrators and assigns of the mortgagor and when two or more mortgagors are parties hereto shall mean and include the mortgagors or any of them or any of their executors, administrators and assigns…”

By the terms of the mortgage, Aspenview Productions was identified as “the Debtor”.

By paragraphs 1 and 3 of Part A of the mortgage it was provided as follows:

“A.The Mortgagor hereby covenants with the Mortgagee (hereinafter called the Bank) and it is hereby agreed and declared as follows:
The Mortgagor will at such time or times and in such manner as may at any time and from time to time be agreed in writing between the Mortgagor and the Bank and in the absence of any such agreement on demand pay to the Bank:
1.All moneys (including moneys advanced by way of loan for fixed term or provided by way of overdraft) now or hereafter to become owing or payable to the Bank by the Debtor and the Mortgagor or either of them either alone or on joint or partnership account or on any other account whether as principal or surety; also
2.…
3.All moneys which the Bank shall lend or pay or become liable to lend or pay or may have advanced or may hereafter advance the payment or repayment to which the Debtor and the Mortgagor or either of them has guaranteed or may hereafter guarantee to the Bank;”

It was submitted on behalf of the plaintiff, as is relevant to these proceedings, that by the terms of that mortgage, if one of the mortgagors to the mortgage dated 10 December 1986 gave a guarantee to the bank in relation to an entity other than Aspenview Productions then the mortgage provided security to the plaintiff for any amount owing pursuant to such guarantee.

The Commonwealth Savings Bank provided the home loan to Alexander McLean and Lana McLean in the sum of $60,000 which was secured by a registered mortgage over the Prahran Property. That mortgage ranked ahead of the mortgage given by Alexander McLean and Lana McLean to the plaintiff dated 10 December 1986, to which I have referred. That ranking as between the plaintiff and the Commonwealth Savings Bank was recognised by each body by a document dated 10 December 1986. In consequence of the settlement of the sale of the property at 146 Rae Street, North Fitzroy and the purchase of the Prahran Property, the registered first mortgage on the former property was discharged and the mortgage granted by Alexander McLean and Lana McLean to the Commonwealth Savings Bank to secure the home loan provided to them was registered over the Prahran Property.

On 1 July 1987 Fairweather recorded in a diary memo concerning the Aspenview Productions account that the overdraft balance exceeded the limit for that account. The memo recorded the conversation that Fairweather had with Alexander McLean in which Alexander McLean informed him that although the account was under pressure the business was running well and that the “last month” was the best ever with a turnover exceeding the previous peak by $4,000. In the course of that conversation Alexander McLean informed Fairweather that he had been channelling funds from St Martin’s Garage into the “Whiteboards business” which was said “to be booming”. The “Whiteboards business” as referred to at this time was the business being conducted at this time separate from the motor car garage business being conducted by Aspenview Productions. By this business Alexander McLean was manufacturing and selling whiteboards. It was the predecessor of Whiteboards Australia. The business was conducted by Alexander McLean using moneys generated and made available, in part, to Aspenview Productions. McLean informed Fairweather that debtors currently stood at $50,000 but those funds were generally expended for working capital as soon as received. Fairweather said that, in substance, Alexander McLean was informing him that he did not have any money to reduce the overdraft account. At that time it was decided by Fairweather that as Aspenview Productions had been banking with the plaintiff for 11 years and that the plaintiff was well secured it had agreed to the excesses, subject to an excess interest rate being paid with respect to the overdraft debt which exceeded $8,000, and the third party mortgagors consenting to the peak debt of $58,623 and the mortgage being “up-stamped” to cover the peak debt and that there was paid an establishment fee of $50.00. On 3 July 1987 the directors of Aspenview Productions, Alexander McLean and Lana McLean, were advised of the decision made by Fairweather. Forms were enclosed in the letter for signing and sealing and returning to the plaintiff’s office at South Yarra as soon as possible. That which was sought was the consent of Aspenview Productions to a temporary increase of the overdraft facility to $14,752 causing the total debts of it, to the plaintiff, at that time, to be $58,623. On 23 October 1987 a letter was written by the relieving manager of the South Yarra branch requesting the directors of Aspenview Productions to sign and seal the documents previously sent to them and to return them to that office as soon as possible. On 11 November 1987 a diary note was made by Richard Cullen, a bank officer, that he had seen Alexander McLean in the banking chamber and that McLean had said that he wanted to speak to Fairweather, on Fairweather’s return, to increase the overdraft facilities on a permanent basis.

On 26 November 1987 a review of the Aspenview Productions account was made at the South Yarra branch of the plaintiff. The overdraft account which had a limit of $8,000 was then overdrawn to the sum of $29,960.66 and the small business loan showed a debit balance of $32,388.70.

On 26 November 1987, in consequence of Fairweather having an interview with Alexander McLean, Fairweather completed a “Preliminary Application for Company and Business Advances”, with respect to Aspenview Productions, whereby the overdraft limit was to be increased from $8,000 to $25,000 thereby limiting the excess on the overdraft account of Aspenview Productions to $4,961. On that document the small business loan then existing was noted to be a debit amount of $32,389 and that sought was to remain the same. In the document Fairweather noted that the security was the existing mortgage by the directors of Aspenview Productions, Alexander McLean and Lana McLean, over the “two apartments” being the Prahran Property. He noted that the owners estimated the value of the same to be $300,000. In a further part of that document Fairweather recorded his discussion with Alexander McLean in which sought an increase of the overdraft limit of Aspenview Productions from $8,000 to $25,000, “acting on advice from his accountant”. Fairweather recorded that he was told by Alexander McLean that the turnover for the 1987/88 financial year was estimated at $250,000 and that the financial statements for the year 30/6/87 were not yet available and did not look like being finalised until “Jan/Feb next year”. He further noted that he was told that the financial statements were expected to disclose a small loss similar to the previous year and this had been part of a strategic plan for taxation purposes. It was noted that Fairweather said to Alexander McLean that the profit history and past account conduct did not instil confidence from a banking viewpoint, which he acknowledged, but that Alexander McLean went on to demonstrate “profitability” by detailing “expenditure” which included, $6,000 spent on renovations to the “second apartment” which would be shortly rented and which would return $180 per week; stock for “Whiteboards Pty Ltd” being purchased during the year at a cost of $60,000; and additional machinery costing $12,000 being also purchased. It was also recorded that Alexander McLean informed Fairweather that $53,000 had been repaid from the original $60,000 Commonwealth Savings Bank loan, which had been approved in November 1986 and which had been “given priority on accountant’s advice as repayments are an after tax expense”. Fairweather noted that at that time, all in all the business account had financed approximately $130,000 of outside activities and that this had caused a “hardcore” content of the overdraft account. Fairweather recorded that following his discussion with Alexander McLean he was prepared to accept that on face value, “in view of the future potential of the connection”. He noted further that he had been informed that the McLeans had “sold a 49% interest in “Whiteboards” to a joint venture and that this should yield $300,000 over the next three years” and “$100,000 of this being due in 12 months time”. Fairweather further noted that he was informed by Alexander McLean that in the meantime excesses above $25,000 would be cleared, the home loan of $7,000 would be repaid from the sale of a motor vehicle which would net $11,000 with payment arranged on 7 December 1987. Fairweather noted that “CBA will then gain first mortgage position which will strengthen an already strong aspect”. Fairweather further noted, after interpreting abbreviations made by him, that an increased overdraft limit of $17,000 was approved taking the total commitment to $64,350 on the bank’s usual terms and conditions and subject to the temporary excess over the formalised arrangement of $25,000 being cleared by 8/12/87 from the proceeds of a motor vehicle sale; the limit $25,000 being respected at all times and the financial statements for year ending 30/6/87 being produced by February 1988 at the latest at which time a usual review was to be undertaken.

On 3 December 1987 a letter was written by the plaintiff under the name of Fairweather to the directors of Aspenview Productions, Alexander McLean and Lana McLean confirming the plaintiff’s apparent to increase the overdraft account of Aspenview Productions by $17,000 from $8,000 to $25,000. It stated that the approval was on the plaintiff’s usual terms and conditions and subject to, inter alia, the security consisting of the “existing mortgage by AJ and LD McLean over their property at 1 Alfred Street, Prahran”. That letter enclosed forms to be executed by Alexander McLean and Lana McLean. The letter requested that they be signed and sealed where appropriate and returned to the plaintiff’s office. By a note on the copy letter retained by the plaintiff it was noted that the forms sent to Alexander McLean and Lana McLean were returned on 4 January 1988. Fairweather identified the forms that were sent to Alexander McLean and Lana McLean as a request by Aspenview Productions to increase the overdraft facility from $8,000 to $25,000 resulting in the approved facility to be made available by the plaintiff to Aspenview Productions being $62,350 and a certificate pursuant to s. 230(8)(a) of the Companies (Victoria) Code, together with a further covering letters. The covering Letters of Consent in part stated that each of Alexander McLean and Lana McLean, prior to signing the documents, should satisfy themselves that they fully understood the full nature and extent of their liabilities to the plaintiff and that they should obtain legal or other advices if they were uncertain as to their positions. The documents received by the plaintiff at its South Yarra branch from Alexander McLean and Lana McLean were the certificate pursuant to the Companies Code which was signed by each and dated 24 December 1987, a Letter of Acknowledgment dated 4 January 1988 signed by Alexander McLean acknowledging that the plaintiff had granted or may grant from time to time to Aspenview Productions accommodation permitting it to incur liabilities to the bank not to exceed $62,350 secured by the mortgage dated 10 December 1986 over the property, “situated at 1 Alfred Street, Prahran” and a like Letter of Acknowledgment signed by Lana McLean and dated 4 January 1988. Each of the last two documents bore the stamp of the plaintiff indicating that the document was received by the plaintiff at its South Yarra branch on 4 January 1988. There was also received by the plaintiff at its South Yarra branch on 4 January 1988 the letter addressed to the plaintiff bearing the common seal of Aspenview Productions and signed by each of Alexander McLean and Lana McLean whereby Aspenview Productions requested the plaintiff to increase its accommodation to $62,350 and which also contained the consent of each of Alexander McLean and Lana McLean to the increase of such facility to be secured by the aforesaid mortgage dated 10 December 1986.

On 6 January 1988 the acting manager of the plaintiff’s South Yarra branch wrote to Aspenview Productions drawing attention to the fact that the overdraft account was currently overdrawn in the sum of $29,801.26 and requesting that it be reduced to the limit of $25,000. On 11 January 1988 Fairweather wrote to Aspenview Productions drawing attention to the fact that the overdraft account currently stood in debt in the sum of $33,346.75 and requested that it transfer funds to reduce the account to $25,000. A further letter was written by Fairweather to Aspenview Productions on 22 January 1988 informing it that its overdraft account was in debt in the sum of $33,002.93 and requesting that funds be transferred to reduce it to its limit of $25,000.

In February 1988 Fairweather ceased to be manager of the plaintiff’s branch at South Yarra taking up the position of manager at the South Melbourne branch of the plaintiff, since which time he has continued in the employment of the plaintiff. Bernard Murray took over the position of manager of the South Yarra branch of the plaintiff after Fairweather vacated that position. Fairweather said that he thought that he and Murray had, perhaps, three days together, which he could not specifically recall. He said, that as to the account of Aspenview Productions, it was irregular constantly, but there was no great reason why he would make a point of calling in Alexander McLean to introduce him to the new manager. He said he did not recall that he had introduced Alexander McLean to Murray. He said that he did not recall introducing Murray to Alexander McLean as a highly capable financial adviser who would assist McLean with financial advice regarding his business interests and the development of the “Whiteboards” interests. He said that he would suggest that he did not say that, at any stage, for two reasons, being that the bank had a policy that they did not suggest that they were financial advisers and that he had no idea of Murray's background. He said that in 1988, to his knowledge, the plaintiff had no section which dealt with giving financial advice. It was put to him that it was going to be said by Alexander McLean that at such meeting Alexander McLean had spoken to him about a report that he had prepared in relation to his “Whiteboards interest” and that he would be giving that to Murray. Fairweather was asked whether that rang “any bells” to which he replied that it did not and that he really had no interest in “Whiteboards”. He said he knew there was an account in its name which was not causing him any concern and that he knew that it was apparently a source of draining funds from the garage, that is, St Martin’s Garage.

In cross-examination Fairweather agreed that Alexander McLean and Lana McLean were third party mortgagors of the debt of Aspenview Productions and, as such, were guaranteeing, to the plaintiff, the debt of Aspenview Productions. As to Letters of Acknowledgment sought by and obtained by the plaintiff from the third party mortgagors, he said that the purpose of obtaining such letters was to have an acknowledgment from the company that it was seeking to borrow certain amounts of funds and also it provided consents of the guarantors that they were aware that the security that they had already provided to the plaintiff would, in fact, support the increase in borrowing. He agreed that the consent of the guarantors was required before he had a “transaction”. He agreed that before picking up the Court Books in preparation for the trial he virtually had no memory of what had occurred in the years in respect of which he had given evidence. He said that in the late 80s he was aware of the policy known as ICES, which was the acronym for “Individual Commitment to Excellence in Selling”. Fairweather said he did not see himself as a sales person. The witness said that he was aware that there was an account in the name of “Whiteboards” but he had no idea what the operation of “Whiteboards” was all about. He said that he and McLean did not discuss the operation of “Whiteboards” other than the fact that he had spent a lot of money in setting it up. The witness said that he was in the habit of recording conversations that he had with a client and that any document that he returned to the bank over the counter during the day the first thing the officer would do would be to go and put the letter received stamp on it. Fairweather further said that although he had no recollection of introducing Murray to Alexander McLean, he could not exclude the possibility that he did in fact introduce McLean to Murray. The witness said that he did not discuss anything about “Whiteboards” with Murray and of that he could be positive because he knew nothing about “Whiteboards” and that he had nothing to discuss. Fairweather further said that he had no recollection of a discussion between himself, Murray and McLean concerning Drieberg. Further, he said that he had no recollection of a meeting in which McLean explained that a report, regarding the future of “Whiteboards”, was being prepared and that he would bring it and show it to Murray when it had been prepared.

The witness, Bernard Murray, gave evidence that he was employed by the plaintiff from 1968 to June 1994 and that at the time of giving evidence he was employed as a “mobile lender” for the company, Members Equity. He said that he was the manager of the plaintiff’s South Yarra branch from February 1988 to July 1991 and that when he took over from Fairweather they probably went through most of the loan accounts but he could not precisely say that he discussed anything about Aspenview Productions with Fairweather. He said that he could not recall a meeting with Alexander McLean and Fairweather and himself in which he was introduced by Fairweather as a person who had special financial knowledge. When asked whether he was a person with a special financial knowledge he replied, “No. I was a bank manager with no special financial knowledge apart from being able to operate accounts and run accounts at a branch”. He said he did not recall Fairweather telling McLean, in his presence, that he was going to help McLean with financial advice regarding his business interest generally. He said that he did not recall Fairweather saying in a meeting with McLean that he would help McLean with an entity called “Whiteboards”. He said that he could not remember having a meeting with McLean shortly after Fairweather left, and McLean giving to him a report about “the Whiteboards business”. He said that if that had happened the report would be on the file. It should be noted at this point, as a matter of time sequence, that Whiteboards of Australia commenced to operate in July 1988. There was produced a letter dated 2 September 1988 from Murray to the secretary of Aspenview Productions drawing attention to the fact that the overdraft account was in debt to the amount of $32,458.05 which exceeded its limit of $25,000. The letter made suggestions as to how the accounts of the company could be rearranged. In a diary note made by Murray on 11 January 1989 it was recorded that the overdraft debt of Aspenview Productions, trading as St Martin’s Garage, had peaked at $48,537 on 23 November 1988. On 12 January 1989 Murray wrote to Aspenview Productions addressing the letter “Dear Mr and Mrs McLean”. The letter referred to a discussion had in November when it had been indicated on behalf of the company that the debt would be within normal limits by November and suggesting that either the small business loan be increased or adequate funds be placed in the overdraft account to allow it to operate within the approved limit. Murray said that to this point of time he had not been informed by Alexander McLean that “there was something they had to affect the security of the mortgage at 1 Alfred Street Prahran” (the Prahran Property). On 10 March 1989 Murray wrote to Alexander McLean and Lana McLean requesting that they call at his office to discuss the clearance of the excess on the overdraft account. On 16 March 1989 Murray made a diary note of a telephone conversation had that day with Alexander McLean. The diary note recorded that McLean had advised that the garage had $47,000 outstanding and that it was expected that 70% would be received over the next four months and that all accounts were being closed and that they were moving to credit cards which would improve their cash flow. The note also recorded that he was informed by McLean that there was $30,000 due to him from “Whiteboards Pty Ltd”, that he was to meet with the other directors the following Monday and that he was hopeful that those funds would be received progressively over the next two to three months. The note recorded further that Alexander McLean was reluctant to increase the overdraft but was happy for the account to be reduced within the order of three months. The note further recorded, as a comment by Murray, “We are well secured and will allow to stand at the present time and will keep a watch on it through the daily Reference Report”. On 15 June 1989 Murray wrote a letter to Aspenview Productions directed to Alexander McLean and Lana McLean stating that the overdraft account was then in debt to the sum of $48,489 and requesting them to contact the office to discuss the matter. On 30 June 1989 a “Diary memo” was made by Murray relating to a lunch meeting he had the previous day with Alexander McLean. It recorded that they had discussed a number of things including excesses on the account. It recorded that Alexander McLean was well aware of them and had advised that a lot of funds from the business had been used to do renovations to his property at “Alfred Street, Prahran”. The memo further recorded, “They now have two properties on the title and one has been sold to his mother and the other one they will retain themselves. Strata title will be carried out shortly and the value of each property is in the vicinity of $300,000”. The memo further recorded that Alexander McLean had requested that $55,000 be transferred from the business account to a small business loan with interest only for 12 months, that the existing small business loan be allowed to run as it was and that the approved advance limit of $25,000 be allowed to continue which, if agreed to, would give a total commitment of $102,317. Murray noted on the memo that at that stage “Security is U/M [unregistered mortgage] by directors over the property mentioned above and we have an extended valuation figure of $180,000 with Normal Lending Margins $126,000. At this stage until we receive Strata Plan we will not revalue the property”. Murray recorded, “Please fund this loan as soon as possible”. The memo further recorded that McLean discussed “the Whiteboards situation” and that he had informed Murray that it currently banked with the National Australia Bank, that they were very unhappy with the service they were getting, that the business was starting to proceed along “very nicely” and that they expected to have a turnover of somewhere in the vicinity of $2.5M in the next financial year. The reference to Whiteboards at this point must be a reference to Whiteboards of Australia. Further, the memo recorded that McLean would like Murray to meet the other directors with a view to transferring that account to the Commonwealth Bank and said that if that was successful possibly one of the other directors would transfer his account also as he was unhappy with the National Australia Bank. Murray said that he did remember having lunch with McLean, that a number of things were discussed at the lunch, and that, subsequently, the diary note had been made. Murray said that before the meeting he knew nothing about Whiteboards of Australia. Murray gave evidence that with respect to the sale of one of the Prahran properties to the mother of Lana McLean, the bank would have to approve the release of the title and that had not been sought at that stage. On 6 July 1989, Thurgood, the acting manager of the plaintiff’s South Yarra branch, wrote to Aspenview Productions, a letter addressed to Alexander McLean and Lana McLean, informing them that the bank had approved a small business loan of $55,000 to clear the excess on the overdraft account. The letter set out the terms on which the loan had been approved. The letter made provision for Alexander McLean and Lana McLean to sign the same agreeing to the terms and conditions set out in the letter. The security as referred to in the letter was, “Security already held by the bank in connection with advances to yourselves”. At that time the security held by the bank was the unregistered mortgage over the Prahran Property. The letter further noted that the advance would not be made available until “security documentation has been completed”.

On 6 July 1998, Cullen, a loans officer of the bank, wrote a letter to Alexander McLean concerning Aspenview Productions enclosing a Letter of Acknowledgment for execution in relation to the new small business loan. In the letter it stated – “Prior to signing the acknowledgment you should satisfy yourself that you understand the full nature and effect of your liabilities to the bank and obtain appropriate advice, legal or otherwise, if you are at all uncertain of your position”. On the same day a letter in the same terms was sent by Cullen to Lana McLean. Each letter advised that the signature, the acknowledgment, should be witnessed by an adult person who was not the debtor or co-mortgagor under the security concerned.

On 10 July 1998 Cullen wrote a letter to Aspenview Productions, directed to Alexander McLean and Lana McLean, advising that the bank had funded the small business loan of $55,000. The letter enclosed an authority for periodical payments to be signed. The letter requested that it be returned together with the documents which had been forwarded on 6 July 1989. On 10 July the plaintiff credited to the overdraft account of Aspenview Productions, noted as a “miscellaneous credit”, the sum of $55,000. That sum was debited to the small business loan account of Aspenview Productions on the same day.

On 2 August 1989 an officer of the bank wrote a letter to Aspenview Productions addressed to Alexander McLean and Lana McLean requesting that they return the authority for the “interest only periodical payments”.

There was tendered a “Preliminary Application for Company and Business Advances” dated 2 October 1989 signed by Thurgood, then acting manager of the South Yarra branch of the plaintiff, addressed to the appropriate regional department of the plaintiff. The applicant was Whiteboards of Australia. It was noted that the shareholders of that company were Alexander McLean, who held 50% of the shares and O’Brien and Drieberg who each held 25% of the shares. The application was for a loan of $25,000. In that section of the document headed “Background” it stated in part – “Security for these borrowings is an UM by Alex McLean and wife ESV [Extended Security Valuation] $180,000”. In the section headed “Security” it was stated – “Guarantee unsupported (unlimited) 3rd party by Alexander John McLean; Peter O’Brien and Darrel Stephen Drieberg (directors of applicant co)”. There was received by the plaintiff a statement of account of the assets and liabilities of Drieberg showing net assets of $906,000 as at 31 August 1988 and a similar statement of account for Peter O’Brien and Associated Trusts dated 31 August 1988 which showed net assets in the amount of $1,290,500. Further, there was received by the plaintiff an asset and liability statement of Alexander McLean showing total assets to be $605,200 and total liabilities to be $82,000. The assets of Alexander McLean included a house - $400,000, two pieces of land - $35,000, business - $60,000 and debtors - $45,000. Murray said that he could not specifically recall any discussion that he had with directors concerning the application by Whiteboards of Australia for a loan of $25,000.

On 9 October 1989 Murray wrote to the secretary of Whiteboards of Australia advising that the bank had approved an overdraft limit of $25,000 to assist with its working capital requirements. The letter advised that the advice was subject to the bank’s usual terms and conditions which included that the security was to comprise, “guarantee unlimited as to amount by Alex McLean, Darrel Drieberg and Peter O’Brien”. The final sentence of the letter stated that if the offer was acceptable the duplicate copy of the letter should be signed and returned to the bank. There was provision made for the signatures of McLean, Drieberg and O’Brien. On 30 October 1989 the bank at its South Yarra branch received back the duplicate copy of that letter signed by McLean, Drieberg and O’Brien. It is to be noted that in that letter there was no reference to security being the unregistered mortgage given by Alexander McLean and Lana McLean over the Prahran Property.

On 30 October 1989 Cullen sent to each of Drieberg, O’Brien and McLean a letter enclosing a guarantee to be signed by them. In that letter it stated, in part, that prior to signing the document the recipient must satisfy himself that he understood the full nature and effect of his liabilities to the bank and obtain appropriate advice, legal or otherwise, if the recipient was at all uncertain of his position.

There was tendered a guarantee signed by each of Alexander McLean, O’Brien and Drieberg and dated 2 November 1989. The guarantee guaranteed to the plaintiff payment on demand of the debts of Whiteboards of Australia to the plaintiff. By paragraph 4 of such guarantee it was provided –

“Every security already executed or which may at any time and from time to time be executed by the guarantor in favour of the Bank shall also be and remain continuing security to the Bank for the payment by the guarantor to the Bank of the moneys hereby secured.”

On 7 December 1989 Wisewould Schilling Cohens, solicitors, for Alexander McLean and Lana McLean wrote to Murray referring to a telephone conversation had with him that day and enclosing an application to “Register Strata Plan”. The letter requested that he endorse the “necessary Order to Register thereon and return it” to them. The letter further requested that he advise when the relevant certificate of title would be available at the Titles Office. Murray gave evidence that at that time the bank did not oppose the request to register a strata title plan. The strata title plan was with respect to the Prahran Property. He said that the bank did not, at any stage, oppose the request. On 15 December 1989, Cullen, for the manager, by letter, returned the application to Wisewoulds Schilling Cohens, duly endorsed as requested, stating that the relevant certificate of title would be made available at the Titles Office on receipt of a production fee of $60. That fee was sent to the plaintiff at its South Yarra branch by the solicitors on 19 December 1989 requesting that the certificate of title be made available at the Titles Office before Christmas in order that they may lodge the application. That letter was received at the bank’s South Yarra branch on 27 December 1989. On 23 January 1990 the solicitors, on behalf of Alexander McLean and Lana McLean, sent to the bank the Application to register Strata Plan to be signed by the bank’s Attorney. Cullen attended to that matter sending the document to the Branch Lending Support Division for the bank’s attorney to endorse the strata plan application.

On 1 February 1990 Cullen sent to the Branch Lending Service Division of the plaintiff the Certificate of Title for the Prahran Property together with the unregistered mortgage over the Prahran Property requesting that the mortgage be registered and then to action the plan to sub-strata sub-division of the property. In evidence Cullen said that the mortgage was to be registered before the sub-division went through. On 20 February 1990 Cullen sent to the solicitors, for Alexander and Lana McLean, the application to register the strata plan signed by the bank’s Attorney.

On 21 February 1990 Murray wrote to Aspenview Productions a letter, addressed to Alexander McLean and Lana McLean, concerning the St Martin’s Garage overdraft account which had a limit of $25,000 and on which there was a debit balance at that time of $37,693.82. The letter requested that they communicate with the bank as soon as possible to discuss their requirements and arrange clearance of the excess on the account.

On 5 March 1990 the solicitors for Alexander McLean and Lana McLean advised that the dealings, relevant to the application to registered the strata-plan, had been finished at the Titles Office. There were tendered diary notes of Andrew Pickard, a loans officer of the plaintiff made on 5 March 1990. Cullen, in evidence, explained such notes and the events that occurred, which were that the solicitors for Alexander and Lana McLean sought to lodge the application of the strata-plan sub-division in the dealing of the bank which was to register the mortgage over the Prahran Property, but by the time they lodged their application the dealing had been finished, that is, the mortgage had been registered, and the documents returned to the bank with the consequence that the solicitors, at that time, were unable to have the strata-plan of sub-division registered. The final note of Pickard was that he had spoken to the solicitors, for Alexander McLean and Lana McLean, and they had requested them not to send the title back as the bank “may be getting paid out”.

On 5 April 1990 Murray wrote to Alexander McLean and Lana McLean concerning Aspenview Productions - St Martin’s Garage – enclosing additional consent forms for their signature “following the payment of cheques drawn on” the account respect to that account. The letter advised that prior to signing the document they should understand that their “maximum liability under the documents is $113,000” and stating, “We suggest that you obtain legal advice should you not understand the full implications of the documents”. The debt of $133,000 represented the debt of Aspenview Productions, trading as St Martin’s Garage, on its overdraft account and the two small business loans.

On 27 April 1990 Wilson, on behalf of the manager of the South Yarra branch of the bank, wrote to Alexander McLean and Lana McLean, with reference to Aspenview Productions, requesting their early attention to the matter referred to in the letter of 5 April 1990. There was produced and tendered in evidence a diary note of Murray dated 2 May 1990 concerning Aspenview Productions – St Martin’s Garage and Whiteboards of Australia. The diary memo recorded that the overdraft account of Aspenview Productions, which had a limit of $25,000, was overdrawn having a debit balance of $49,599 and that the small business loans were in order providing the payments were being made. The security noted against the overdraft account was an “unregistered” third party mortgage by Alexander McLean and Lana McLean, “$180,000”. The diary memo relevant to Whiteboards of Australia showed a limit of the loan account of $25,000 being overdrawn to the amount of $60,729. The security noted was a guarantee, unsupported, unlimited. The memorandum recorded that Murray had had a number of discussions with Alexander McLean regarding the excesses on both accounts and that he had made arrangements to visit the business premises of Whiteboards of Australia in Moorabbin. Further, on 9 May 1990, Cullen wrote to Alexander McLean and Lana McLean concerning Aspenview Productions – St Martin’s Garage - referring to previous correspondence and requesting their urgent attention to the return of the consent forms that had been forwarded to them originally. A further diary memo of Murray dated 11 May 1990 was tendered which set out the financial position of Aspenview Productions – St Martin’s Garage - and Whiteboards of Australia showing that Aspenview’s overdraft account, with a limit of $25,000, was overdrawn then to $50,926 and the Whiteboards of Australia account with a limit of $25,000 was overdrawn then to $62,198. The memo recorded the visit of Murray to the factory premises of Whiteboards of Australia at which Alexander McLean and O’Brien were present. The memo recorded that excesses on the account were discussed and that O’Brien suggested that the bank take a registered equitable mortgage over the business. It further recorded that O’Brien was also the accountant for St Martin’s Garage and excesses on that account were able to be discussed. Further, the memo recorded –

“A lot of funds were used from St Martin’s to finance Whiteboards and the partners will be injecting capital into this to clear the excesses. This should happen over the next month to six weeks.
Peter has asked us to write to him setting out exactly what securities we hold to secure the debts on St Martin’s and Whiteboards.”

On 17 May 1990 Cullen wrote a letter to O’Brien enclosing a Letter of Acknowledgment for execution in relation to the excesses in the overdraft limit on the Whiteboards of Australia account. The letter gave directions to O’Brien relevant to advice that he may seek to obtain before signing the document. The letter further stated –

“As a separate matter, we advise securities held supporting debts as follows:
Aspenview Productions Pty Ltd trading as St Martin’s Garage –
Registered first mortgage by Alexander John McLean and Lana Dorothy McLean over property situated at 1 Alfred Street, Prahran.

Whiteboards of Australia Pty Ltd -
Unlimited Guarantee by Alexander John McLean, Peter Leslie O’Brien and Darrel Stephen Drieberg.”

On 17 May 1990, Cullen wrote to each of Alexander McLean and Lana McLean regarding Aspenview, enclosing Letters of Acknowledgment for execution in relation to the excesses on the overdraft limit for the account of that company. Each letter contained a statement as follows:
“Prior to signing the acknowledgment you should satisfy yourself that you understand the full nature and effect of your liability to the Bank and obtain appropriate advice, legal or otherwise, if you are at all uncertain of your position.
Your signature to the acknowledgment should be witnessed by an adult person who is not the debtor or co-mortgagor under the security concerned.”

On that day separate letters were also sent to Drieberg and Alexander McLean concerning Whiteboards of Australia enclosing a Letter of Acknowledgment for execution in relation to the excesses on the overdraft limit. Each letter contained advice in the same terms as that contained in the advice to each of Alexander and Lana McLean in the letter addressed to them dated 17 May 1990.

On 1 June 1990 Cullen sent a letter to each of Alexander McLean and Lana McLean referring to the correspondence of 17 May 1990 requesting each of them to sign and return the Letters of Acknowledgment. On that day Cullen wrote letters to each of Drieberg, O’Brien and McLean regarding Whiteboards of Australia requesting each of them to sign and return the Letters of Acknowledgment previously sent to them on 17 May 1990.

As on 7 June 1990 the Aspenview Production, St Martin’s Garage, overdraft account with a limit of $25,000 was overdrawn to $53,321, the Whiteboards of Australia account with a limit of $25,000 was overdrawn to an amount of $69,652.

There was tendered an undated note signed by Cullen which stated –

“Form S34 was handed to Lana Dorothy McLean and I clearly advised her not to sign the document until she understood the full nature and effect of her liabilities, if necessary by obtaining independent advice. The mortgagor wished to sign the document immediately notwithstanding such explanation.”

There was also tendered a “Letter of Acknowledgment” dated 14/6/90 on which was stamped “received” with the date “27 Jul 1990”. The Letter of Acknowledgment was signed by Lana McLean. Cullen’s signature was affixed to the document as a witness. By its terms the letter stated –
“The Manager
Commonwealth Bank of Australia
South Yarra Vic
I hereby acknowledge that the Bank has granted or may be granting from time to time to Aspenview Productions Pty Ltd (The Debtor) accommodation and otherwise permitting the Debtor to incur liabilities to the Bank not exceeding an aggregate amount at any one time and from time to time of $122,230 against the security of my mortgage(s)/guarantee(s) to the Bank referred to in the schedule below.
I clearly understand that my mortgage(s)/guarantee(s) will also secure the payment to the Bank of interest and any costs, charges and expenses with which the Bank shall be at liberty to debit and charge the account of the Debtor or for which I am liable under my mortgage(s)/guarantee(s).
Schedule
Mortgage dated 10/2/86 over a property at 1 Alfred Street, Prahran.”

The words, “South Yarra Vic”, “Aspenview Productions Pty Ltd”, and “Mortgage dated 10/2/86 over a property at 1 Alfred Street Prahran” were in handwriting.

Murray was asked whether he handed the “Letter of Acknowledgment” to Lana McLean and he was asked whether he had any recollection of that matter at all. He said he had a recollection that she came into the branch and the document was given to her and that Richard Cullen took over getting it signed. Murray gave evidence that the handwritten parts on that document were on the document when he was with Cullen and before it was handed to Lana McLean for signing. It was put to Murray that Ms McLean was going to say that the writing under the typed part “Schedule” was not on the document when she signed it. He was asked whether he was able to comment on that. He replied, “I disagree with that”. He was asked, “Was there any reason at that time to omit that information before having Mrs McLean sign the document”. He replied, “No, there wouldn’t have been because the document would have been made out prior to her – Lana McLean – coming in, and we weren’t in the habit of asking clients to sign documents that were not completed”. He was asked whether there was any reason to keep the information from Mrs McLean at that time? He replied, “None whatsoever”.

I shall return to the note of Cullen and the Letter of Acknowledgment further when dealing with the evidence of Cullen and Lana McLean as the documents are relevant with respect to issues to be determined.

There was also tendered a “Letter of Acknowledgment” in the same terms signed by Alexander McLean. All parts of the document were typed. Stamped on the document was a “Received” stamp dated 18 June 1990. The date on the document was “14.6.90” which was handwritten.

On 14 June 1990 there was received at South Yarra branch of the bank the Letter of Request of Whiteboards of Australia requesting and authorising the bank to increase its accommodation to it from $25,000 to $66,508. On the letter was affixed the seal of Whiteboards of Australia and it was signed by two directors. On 18 June 1990 there was received at the plaintiff’s South Yarra branch Letters of Acknowledgments signed by each of McLean, O’Brien and Drieberg acknowledging that the plaintiff may grant accommodation to Whiteboards Australia, from time to time, of $66,508. The security identified on each letter was, “Guarantee dated 2/11/89”.

There was also tendered a document addressed to the Manager, Commonwealth Bank of Australia and signed by each of Alexander McLean and Lana McLean. At the top right side of the document it was dated “12/7/1990” of which the 19 of the date 1990 was typed but it was otherwise in writing. The document stated as follows:
“The Manager
Commonwealth Bank of Australia
South Yarra Vic
Sale of Land Act 1962 – Victoria
I/We acknowledge that in connection with the mortgage dated 10/12/86 given to the Bank over my/our property at 1/1 Alfred Street, Prahran no sale of the said property or any part thereof has been effected by me/us on terms and no purchasers interest in the property or any part thereof exists, by way of option or otherwise. I/We also undertake not to sell on terms the property held as security by the Bank.”
Thereunder and on the left side were the signatures first of Alexander McLean and then beneath that, that of Lana McLean. Those parts of the document “South Yarra Vic”, “10/12/86” and “1/1 Alfred Street, Prahran” were handwritten and not in type as was the rest of the document. On the document below the addressee, “Commonwealth Bank of Australia”, there was typed, “Commonwealth Savings Bank of Australia”, and “Commonwealth Development Bank of Australia”. Each of those identities had lines ruled through them in ink. Murray gave evidence that none of the writing on the document was his handwriting. This letter also was the subject of evidence given by Cullen, each of Alexander McLean and Lana McLean and also that of a handwriting expert.

Clauses 1 of the mortgage contemplated that the security provided by the mortgage would include security for moneys owing to the plaintiff by the mortgagors (Alexander and Lana McLean); “or either of them, either alone or on joint partnership account or on any other account whether as principal or surety.” Further by cl. 3 of the mortgage it is contemplated that the obligation of the mortgagors was to pay to the plaintiff moneys which it
“’may advance’ the ‘payment or repayment of which the…. mortgagor or either of them has guaranteed or may hereafter guarantee to the Bank’.” (Emphasis added.)

In my view, clauses 1 and 3 of the mortgage secure the liabilities of Alexander McLean to the plaintiff arising out of the guarantee entered into by him, by which he guaranteed to the plaintiff payment of the debts of Whiteboards of Australia and by their terms give rise to an obligation on the part of Lana McLean to pay to the plaintiff moneys the payment of which Alexander McLean had subsequently guaranteed to the plaintiff. The debt of Whiteboards of Australia to the bank was of a similar nature and character to the debt by Aspenview Productions to the bank for which security was given by Alexander and Lana McLean by the mortgage. The guarantee provided by Alexander McLean to the bank for the debts of Whiteboards of Australia was for a commercial purpose of the same nature or kind as that secured by the terms of the mortgage. The plain meaning of the words provided by cll. 1 and 3 of the mortgage, in my view, contemplate that, by their terms, an event of the very nature that occurred in this case, that is, that subsequent to the mortgage being entered into that if one or other of Alexander or Lana McLean entered into a guarantee with the plaintiff to guarantee payment to it of the debts to it of another, that would give rise to an obligation on the other mortgagor to pay to the plaintiff the debt to it by the debtor and that the mortgage would secure that obligation. Accordingly, I conclude that the mortgage dated 10 December 1986, provided by Alexander and Lana McLean, secures the debt of Alexander McLean to the plaintiff pursuant to the guarantee entered into by him with the plaintiff, whereby he guaranteed to the plaintiff payment of the debts of Whiteboards of Australia to it and also by its terms Lana McLean is obliged to pay to the plaintiff the moneys the payment of which Alexander McLean guaranteed to the plaintiff.

I now turn to other issues in these proceedings. As is to be expected in a case of this nature when the facts to be determined which were the subject of evidence of witnesses related to events which occurred during the period from 1987 to 1992, it is to be expected that witnesses may have varying memories of events that occurred and that witnesses may have no direct memory of events which occurred so long ago. It is in such circumstances that contemporaneous diary notes and memos are likely to provide a record of events that occurred, conversations that took place, and information that was given to the person who made the diary note or memo. The witness, Fairweather, who was the manager of the South Yarra branch of the plaintiff from April 1986 to February 1988, impressed me as a careful and honest witness and a person who would accurately record events that had occurred, conversations that had taken place and actions to be undertaken. I have also reached the conclusion that Fairweather was probably a conservative and careful man in the conduct of his position as a bank branch manager and that he would and did adhere to bank policy and guidelines. The evidence of Alexander McLean was that it was Fairweather who introduced him to Murray in February 1988. Fairweather had no memory of this event.

Although Alexander McLean may be correct in his recollection that it was Fairweather who introduced him to Murray in February 1988, I do not accept that in introducing Murray to Alexander McLean he represented or told Alexander McLean that Murray was a highly capable financial adviser who could or would assist McLean regarding his business interests and the development of the “Whiteboards” interests. I accept the evidence of Fairweather that he would not do so for the reasons given by him, that is it would be against bank policy to make such a representation and further he had no knowledge of Murray’s background. I accept that his recollection was that at the time he was aware of “Whiteboards” and that he was aware that it was said, by Alexander McLean, to be a source of draining funds from the account of St Martin’s Garage. This was recorded in his diary note of 1 July 1987.

I accept the evidence of Fairweather that he said that before having reference to various documents in preparation for the trial he had virtually no memory of the events which had occurred relevant to his evidence. Such is to be expected. I am satisfied that he was a person who kept accurate notes recording events that had occurred and what was said to him. I accept that in the “Preliminary Application” written up by Fairweather and dated 26 November 1987, he accurately recorded what he was told by Alexander McLean. I do not accept that Fairweather sought to promote or did promote Murray to Alexander McLean as a person with business experience and able to give financial advice to Alexander McLean.

On the other hand Murray, who I am satisfied, had little actual recollection of events that occurred or what he was told, was prepared to give evidence as to what he said or did based on what he considered was the practice of the plaintiff. However, because a matter may have been the practice of the plaintiff I am not prepared to accept that Murray followed such practices on all occasions. From listening to his evidence and observing his manner and demeanour in the witness box and taking into account evidence of Alexander McLean, I am of the view that in his management of the South Yarra branch of the plaintiff and his dealings with the plaintiff he was probably entrepreneurial in nature and probably proffered financial and business advice from time to time. However, diary notes and diary memorandum recorded by him, in my view, were likely to accurately record events that occurred and what he was told. In his diary note of 30 June 1989, he recorded that he was told at the luncheon meeting with Alexander McLean on the previous day, that one of the properties of the Prahran Property had been sold to “his mother” and that a strata title subdivision would be carried out shortly. One of the issues in this case is whether, in 1988, Alexander McLean sought and obtained the consent of Murray, on behalf of the plaintiff, to sell one of the units of the Prahran Property to Mrs Masluk and for the release of the unit from the mortgage and that in reliance on the consent given by Murray, he and Lana McLean sold the major interest in Unit 2 and accessory Unit 4 to Mrs Masluk.

It was the evidence of Alexander McLean that in or about July, August 1988, he spoke to Murray and informed him that Mrs Masluk wanted to purchase the upstairs unit, (Unit 2) of the Prahran Property and asked whether they, which I take to be himself and his wife, could sell that part of the property to Mrs Masluk. He gave evidence that Murray said that there would be no problem with that at all. The evidence of Alexander McLean was that at this meeting with Murray they discussed the fact that he and Lana McLean were proceeding to strata title the property. It was the evidence of Alexander McLean that he was able to place a time on this conversation, it occurring before 23 August 1988, because that was the day of his wife’s birthday and it was on the day that they celebrated his wife’s birthday that he told Mrs Masluk of the meeting that he had had with Murray and that Murray had said that it was alright, that they could go ahead with her purchasing the second unit and that it could be released.

As to the conversation that Alexander McLean said that he had with Murray on this occasion, he gave further evidence that they discussed the fact that when Mrs Masluk had taken or purchased Unit 2, he and his wife would have no real rights on that unit and the only property that they would thereafter own would be Unit 1.

In her evidence, Lana McLean corroborated her husband’s evidence as to the events that occurred and what was said on the day on which she celebrated her birthday in August 1988. She gave evidence that on this occasion her mother, Mrs Masluk, was informed that Murray had said that there would be no difficulty with her purchasing, mortgage free, a significant portion, if not all, of “apartment 2” of 1 Alfred Street. In turn, Mrs Masluk gave evidence that, when celebrating the birthday of her daughter Lana McLean, she was informed that the new bank manager had accepted the proposal that she could move in to Unit 2 of the Prahran Property. In evidence Murray said that he could not recall before 12 July 1990 making a statement to the effect that the plaintiff would release a mortgage insofar as it affected Unit 2 of 1 Alfred Street Prahran. When asked whether it was possible he said something like that, he said, it could be possible or that he might have said something along those lines. It was evident that Murray had little or no real recollection of events the subject of these proceedings.

I turn in the course of considering this matter, to have regard to the signing of the Sale of Land Act document on 12 July 1990, as, in my view, it is relevant to this matter. I accept the evidence of Alexander McLean and Lana McLean as to the circumstances in which this document was signed by them. I am satisfied that Alexander McLean and Lana McLean signed the document in the presence of Murray, that he by his hand, added to the document as initially written, by writing “/1” and that he then handed his pen to Alexander McLean and Lana McLean to sign the same. I accept the evidence of Lana McLean generally as to the events that occurred in the office of Murray on 12 July 1990, and that which was said by her to Murray before he, by his hand, amended the document. The alteration of this document by Murray in the manner which he did, supports in my view the evidence of Alexander McLean that before this occasion Murray had informed Alexander McLean in substance that Unit 2 of the Prahran Property could be sold to Mrs Masluk and that the property would be released from the mortgage. It is for that reason that he readily amended the “Sale of Land” document on that occasion.

As to the document signed by Lana McLean, the Letter of Acknowledgment, dated 14 June 1990, bearing the “received” stamp dated “27 Jul 1990”, I accept the evidence of Cullen as to the completion and signing of that document by Lana McLean. I accept his evidence that, although he had no direct memory of the events, he recorded in the undated note as to what he said to Lana McLean before she signed the document. I accept his evidence that he did put his signature to the document as a witness after witnessing Lana McLean’s signing the same and that the document was then complete. A document in the same terms, although typed, was signed by Alexander McLean which was stamped with the “received” stamp dated “18 Jun 1990”. Although it was put, in substance, that those documents as completed by each of Alexander and Lana McLean contradicted the case that by that time the plaintiff had agreed to release Unit 2 from the mortgage held by it over the Prahran Property and, on the face of such documents, that could be said, I am nevertheless satisfied that it was in July or August 1988 that Murray informed Alexander McLean, in substance, that he and Lana McLean could go ahead and sell a unit in the Prahran Property to the mother-in-law of Alexander McLean and the property would be released from the mortgage. I accept the evidence of Alexander McLean in substance as to this matter.

There were a number of documents produced from the file of the plaintiff relevant to the time during which Murray was the manager of the plaintiff’s branch at South Yarra which recorded that the security held by the plaintiff with respect to the debts of Aspenview Productions was Unit 1 of the Prahran Property. An example of such a document was the memorandum completed by Murray and dated 24 August 1990. Again another is the direction dated 3 September 1990. Notwithstanding the Letters of Acknowledgment signed by each of Alexander and Lana McLean and dated 14 June 1990 I am satisfied that in July or August 1988 Murray did inform Alexander McLean that Unit 2 would be released. I am satisfied that as a result of Alexander McLean’s conversation with Murray in July or August 1988 and before 23 August 1988 Mrs Masluk was told of this matter and thereafter she proceeded to sell her home in Brighton. Although the signed transfer by Alexander McLean and Lana McLean to Mrs Masluk was not tendered in evidence, I am satisfied that Lana and Alexander McLean agreed to sell and did sell a two-third interest in Unit 2 and accessory Unit 4 of the Prahran Property to Mrs Masluk. I accept her evidence that she paid to Alexander McLean and Lana McLean $160,000 and also paid a further $20,000 towards the renovation of Unit 2. Notwithstanding it was referred to in evidence that the transfer of part of the interest of Alexander and Lana McLean to Mrs Masluk recorded the consideration as being “for love and affection” I am satisfied that the aforesaid sums were paid by Mrs Masluk to Alexander McLean and Lana McLean for the purchase of a two-third interest in Unit 2 together with a like interest in accessory Unit 4. Before the sale of the major portion of the interest in Unit 2 and accessory Unit 4 of the Prahran Property to Mrs Masluk they owned this property. It, in part, secured the debt to the plaintiff. I am satisfied that in selling a major interest in the property to Mrs Masluk, Alexander and Lana McLean acted on the representation and promise made by Murray which was, in substance, that they could sell this property to Mrs Masluk and that the property would be released from the mortgage. To the extent that Alexander McLean and Lana McLean sold a substantial interest in Unit 2 and accessory Unit 4 to Mrs Masluk disposing of part of the assets which they had and would otherwise have continued to hold and which they would have as a resource in the conduct of their business and private affairs, they acted to their detriment.

It was the promise of the plaintiff by its agent, Murray, to permit part of the property held by the plaintiff, by way of security, to be sold to Mrs Masluk which encompassed the discharge of the plaintiff’s mortgage over that property that was the root and cause of Lana and Alexander McLean selling a major portion of their interest in that property to Mrs Masluk. The promise or representation of Murray, as to the release of part of the property held by the plaintiff from the security of the mortgage, was a promise as to a future event. The fact that such was the case does not prevent the principles of estoppel being applied in such circumstances – Waltons Stores (Interstate) Ltd v Maher and Anor[15] and Commonwealth of Australia v Verwayen[16]. In the manner in which this issue was conducted during the trial no distinction was made between Alexander and Lana McLean selling and transferring to Mrs Masluk the whole of their interest in Unit 2 and accessory Unit 4 of the Prahran Property and them selling and transferring to her two-thirds of their interest in that property. The issue as contested in this case was whether Mrs Masluk paid for the purchase of an interest in Unit 2 and accessory Unit 4 and whether the plaintiff, in the circumstances, is estopped from enforcing the mortgage held by it and registered on the title of such properties. Accordingly, I do not seek to draw any distinction between these matters in this case. In the circumstances of this case I am satisfied that the plaintiff is estopped from enforcing the mortgage insofar as it relates to Unit 2 and accessory Unit 4 of the Prahran Property. I am satisfied that Mrs Masluk has an estate and interest in the property being Unit 2 and accessory Unit 4 of the Prahran Property as the purchaser of two-thirds interest in those units which supports the caveat lodged by her and recorded on the title with respect to those properties. Alexander and Lana McLean are entitled to receive from the plaintiff a signed discharge of the mortgage entered into by them with the plaintiff insofar as it relates to and has been registered on the title to Unit 2 and accessory Unit 4 of the Prahran Property in order that they may lodge a transfer of two-thirds of such property to Mrs Masluk.
[15](1988) 164 CLR 387.
[16](1990) 17 CLR 394.

I turn next to consider the issue in these proceedings whether the plaintiff is now estopped from enforcing against Alexander McLean and consequently Lana McLean the Whiteboards of Australia guarantee beyond the extent of one-third of the indebtedness of Whiteboards of Australia to the plaintiff. It was the case of Alexander McLean, in substance, that Murray promised to him that the plaintiff would only seek to recover under any guarantee given by him to the plaintiff, guaranteeing payment to it of the debts of Whiteboards Australia to it, ¹/₃ of the debts of Whiteboards of Australia to the plaintiff that he acted on that promise, by entering into the guarantee and the plaintiff was now estopped from recovering against him and Lana McLean pursuant to the terms of the guarantee which he executed, more than ¹/₃ of the debts of Whiteboards of Australia to the plaintiff.

It was apparent from the evidence of Murray that he had little or no recollection of this matter. When it was put to him in cross-examination that evidence would be called that he said, relating to this matter, “We don’t have guarantees that limit each director’s liability to one-third”, Murray agreed that that was the sort of thing that he would have said to McLean. He denied, however, that he said to Alexander McLean that the directors’ O’Brien and Drieberg were people of substance and that in the wash-up of things he would only ever have to pay ¹/₃ because of their asset situation.

Even accepting the evidence of Alexander McLean relevant to this matter, in my view, it goes no further than Murray informing him that it was bank policy that a joint and several guarantee was required from the three directors of Whiteboards of Australia and that the plaintiff would look to each of the guarantors if the guarantee was called on. I do not accept that it was represented by Murray or promised by him, on behalf of the plaintiff, that in the event of Alexander McLean executing the guarantee with the other two directors of Whiteboards of Australia that if the guarantee was called on by the plaintiff the liability of Alexander McLean (and thereby Lana McLean) under the same as would be enforced by the plaintiff would be limited to one-third of the debts of Whiteboards of Australia to the plaintiff regardless of that which the plaintiff was able to recover from the other two directors. I am satisfied that it was explained to Alexander McLean that his obligation under the guarantee to be executed by him was both joint and several with the other two directors, O’Brien and Drieberg, who also executed the guarantee. There was no representation or promise made by Murray which was acted on by Alexander McLean which would now estop the plaintiff from enforcing the guarantee executed by Alexander McLean on 2 November 1989 beyond the extent of one-third of the indebtedness of Whiteboards of Australia to the plaintiff.

The evidence was that although judgment was entered against each of Drieberg and O’Brien, pursuant to the guarantee which they gave guaranteeing to the plaintiff payment of the debts of Whiteboards of Australia to it, the plaintiff has not been able to recover any part of its judgment against those persons. In the result Alexander McLean is liable to the plaintiff under the guarantee for the debts of Whiteboards of Australia to the plaintiff. For the reasons previously expressed Lana McLean is likewise liable to the plaintiff for the debts of Whiteboards of Australia and the mortgage given by each to the plaintiffs as it affects Unit 2 and accessory Unit 4 of the Prahran Property secures such liability.

I next turn to the claim by the defendants, Aspenview Productions, Alexander McLean and Lana McLean, that it would be unjust and unconscionable for the plaintiff to recover against them the entire amount of the debt owed by Aspenview Productions to the plaintiff as the plaintiff had agreed to transfer to Whiteboards of Australia a considerable part of Aspenview Productions’ indebtedness and increasing indebtedness to the plaintiff, it being recognised and accepted by the plaintiff that facilities, provided by the plaintiff to Aspenview Productions, were used by it to meet costs incurred in the setting up and conducting of Whiteboards of Australia. Murray had little recollection of this matter, although he said he could recall a discussion about making a loan of $100,000 to Whiteboards of Australia to clear the debts of the McLeans. I accept the evidence of Alexander McLean that there were discussions had by him with Murray seeking to have the plaintiff transfer part of Aspenview Productions’ debt to the plaintiff to Whiteboards of Australia and that at times Aspenview Productions, by Alexander McLean, agreed to the increase of facilities provided by the plaintiff to Aspenview Productions in order to meet debts incurred by Aspenview Productions in the establishment and conduct of Whiteboards of Australia. It was in consequence of such discussions that on 1 November 1990 the plaintiff offered to provide to Whiteboards of Australia a Bill Discount Facility of $100,000 to “repay $100,000 to Alexander McLean to reduce the debt on St Martin’s Garage”. Although there was produced and tendered a document signed by Lana McLean, Drieberg and O’Brien which purported to accept the offer not only was there no agreement reached between the directors of Whiteboards of Australia, Alexander McLean, O’Brien and Drieberg as to this matter, but there was positive disputation between O’Brien and Alexander McLean and Drieberg and Alexander McLean as to this offer proceeding. That this was so is evident from letters passing between O’Brien and Alexander McLean and Drieberg and Alexander McLean to which I have previously referred. Eventually the offer was withdrawn by the plaintiff to Whiteboards of Australia and the matter proceeded no further. Other than a reference to this amount, on the evidence before the court, no calculation could be made as to the amount of any debt of Aspenview Productions which may be said to be attributed to Whiteboards of Australia.

For any debt of Aspenview Productions to the plaintiff to be transferred to Whiteboards of Australia and to become a debt of that company to the plaintiff it needed the agreement of Whiteboards of Australia. Without such agreement no such transfer could take place. Notwithstanding that from time-to-time Alexander McLean sought to have the plaintiff transfer part of the debts of Aspenview Productions to Whiteboards of Australia and, to the extent that Murray agreed to that or represented that that would be done, Murray could not effect such promise without agreement of Whiteboards of Australia. In my view, to the extent that Murray made representations of this nature, they could amount to no more than the plaintiff was prepared to make such transfer if there was agreement with Whiteboards of Australia. It must have been appreciated by Alexander McLean that such was the case. I am not satisfied that Whiteboards of Australia at any time agreed to such a transfer.

Although Alexander McLean gave evidence that he had limited education and limited comprehension of business matters, it was while he was working for Pitsop Motors, before acquiring the business of St Martin’s Garage, that Aspenview Productions was incorporated in order that he may split the income and bonuses received from such employer with his wife. He also had sufficient business acumen and skill to ensure that when he commenced making whiteboards he obtained a patent in respect of the whiteboards produced. In my view it would be folly to conclude, and I do not, that there was a promise or representation of the nature contended for by the plaintiff which was acted on by Alexander McLean which would either estop the plaintiff from recovering against Aspenview, Alexander McLean and Lana McLean the entire debts of Aspenview Productions to the plaintiff or that it would be unjust and unconscionable to permit the entire debts of Aspenview Productions to be recovered against such parties.

I accept the submission, made on behalf of the plaintiff, that although it was claimed that Aspenview Productions sold to Whiteboards of Australia the business of Aspenview Productions, being Whiteboards Office and Domestic, no document was ever produced or tendered evidencing such sale. I reject this defence on behalf of Aspenview Productions and Alexander and Lana McLean.

The evidence of Ms Ledney, which I accept, was that at 19 February 2001 Aspenview Productions was indebted to the plaintiff in the sum of $443,460.78 with interest accruing at the rates that I have set out in paragraph 16 of this judgment. Each of Aspenview Productions, Alexander McLean and Lana McLean are liable to the plaintiff in this amount together with the interest as accrued. As at this day that amount totals $483,625.78.

In proceeding 8085 of 1993 the plaintiff is entitled to judgment against Aspenview Productions, Alexander McLean and Lana McLean in such sum. Further, the plaintiff is entitled to judgment for possession of the property being Unit 1 and accessory Unit 3 of the Prahran Property. On the counterclaim of Mrs Masluk, I propose to order and declare that the plaintiff is estopped from denying that she is entitled to be registered with Alexander and Lana McLean as proprietors of the property comprising Unit 2 and accessory Unit 4 of the Prahran Property. In such proceedings I propose to further order that the plaintiff deliver to Alexander McLean, Lana McLean and Krystyna Masluk a discharge of the mortgage registered by it on the title to the property comprising Unit 2 and accessory Unit 4 of the Prahran Property.

In proceedings 8085 of 1993 I propose to make orders in accordance with the following minutes:

1.That Aspenview Productions Pty Ltd, Alexander McLean and Lana McLean pay to the plaintiff the sum of $483,625.78.
2.That the plaintiff recover possession of the property being that situate and known as Unit 1 and accessory Unit 3, 1 Alfred Street, Prahran and being the property more particularly described in Certificates of Title Volume 9956 Folio 761 and Volume 9956 and Folio 763.
3.That the plaintiff’s claim against the defendant, Krystyna Masluk, be dismissed.
4.That on the counterclaim of the defendant, Krystyna Masluk, it is ordered and declared that the plaintiff is estopped from denying that she is entitled to be registered with Alexander McLean and Lana McLean as proprietor of the property situate and known as Unit 2 and accessory Unit 4, 1 Alfred Street, Prahran and being the property more particularly described in Certificates of Title Volume 9956, Folio 762 and Volume 9956 Folio 764 and that the plaintiff deliver to the defendants, Alexander McLean, Lana McLean and Krystyna Masluk a signed discharge in proper form of the mortgage registered by it on such titles to each of those properties.

I shall give counsel the opportunity to make submissions relevant to the form of the orders.

In the proceedings numbered 6398 of 1994 I am satisfied that as at 19 February 2001 Whiteboards of Australia was indebted to the plaintiff in the sum of $222,236.42 and that interest accrued thereon at the rate of $69.41 per day. As calculated to this day and taking interest into account, the amount of that indebtedness is $242,365.10. For the reasons expressed I am satisfied that the plaintiff is entitled to judgment in those proceedings against Alexander McLean and Lana McLean in that sum. In those proceedings the plaintiff is further entitled to an order for possession of the property being Unit 1 and accessory Unit 3 of the Prahran Property. In such proceedings I am also satisfied that it should be declared that the plaintiff is estopped from denying that Krystyna Masluk is entitled to be registered with Alexander and Lana McLean as proprietors of Unit 2 and accessory Unit 4 of the Prahran Property. In such proceedings I propose to make orders in accordance with the following minutes:

1.That Alexander McLean and Lana McLean pay to the plaintiff the sum of $242,365.32.
2.That the plaintiff recover possession of the property being that situate and known as Unit 1 and accessory Unit 3, I Alfred Street, Prahran and being the property more particularly described in Certificates of Title Volume 9956, Folio 761 and Volume 9956, Folio 763.
3.That the plaintiff’s claim against the defendant Krystyna Masluk be dismissed.
4.it is further ordered and declared that the plaintiff is estopped from denying that Krystyna Masluk is entitled to be registered with Alexander McLean and Lana McLean as proprietors of the property situate and known as Unit 2 and accessory Unit 4, I Alfred Street, Prahran and being the property more particularly described in Certificates of Title Volume 9956 Folio 762 and Volume 9956 Folio 764.

I shall given counsel the opportunity to make submissions relevant to the form of such orders.

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Account	Amount	Daily Interest
3170-0012-0375	$252,762.10	$78.94
3170-0013-2173	$19,304.02	$6.03
3170-0014-6647	$171,394.66	$53.53

2 October 1991 -	$72,181.80
12 August 1996 -	$137,526.00
28 May 1997 -	$152,088.27
25 August 1997 -	$156,303.12
19 February 2001 -	$222,236.42

[2001] VSC 444

5 December 2001