Commonwealth Bank of Australia v Hollier
[2001] NSWSC 805
•13 September 2001
CITATION: Commonwealth Bank of Australia v Hollier & Ors [2001] NSWSC 805 revised - 27/09/2001 CURRENT JURISDICTION: Equity Division
Commercial ListFILE NUMBER(S): SC 50098/98 HEARING DATE(S): 7/8/00-10/8/00,14/8/00,26/2/01-28/2/01,1/3/01,5/3/01-8/3/01,12/3/01-15/3/01,19/3/01-22/3/01,26/3/01-29/3/01, 2/4/01-5/4/01, 9/4/01, 3/5/01, 5/7/01, 18/7/01 JUDGMENT DATE:
13 September 2001PARTIES :
Commonwealth Bank of Australia (Plaintiff)
William Edward Hollier (1st Defendant)
Janifer Lee Hollier (2nd Defendant)
George Smith Holliday (3rd Defendant)
George William Sanders (4th Defendant)
Stephen David McCloy (5th Defendant)
Cancarra Pty Ltd (6th Defendant)
Cloudgard No 43 Pty Ltd (7th Defendant)
Ninot Pty Ltd (8th Defendant)
Miltup Pty Ltd (9th Defendant)
Walenora Pty Ltd (10 Defendant)
Stenoak Pty Ltd (11th Defendant)
Ian Allibon Plumbing Pty Ltd (12th Defendant)
Bruce John Sanders (13th Defendant)
Ian Paul Allibon (14th Defendant)
Caron Grace Allibon (15th Defendant)
Graham Erland McCloy (16th Defendant)
Jennifer Joan McCloy (17th Defendant)
Reginald Patrick Flannery (18th Defendant)
Victoria Boyd (19th Defendant)
James Mercer Anderson (20th Defendant)
Yvonne Lillian Anderson (21st Defendant)
Matthew James Bliss (22nd Defendant)
Catherine Margaret Bliss (23rd Defendant)
WE Hollier & JL Hollier (1st Cross Claimants)
GJ Leonard & Leonard Consultants Pty Ltd & CJ Sneddon & CJ Sneddon & SN Roxby t/as Maxim Consulting Corporate Advisors (Cross Defendants to 1st Cross Claim)
WE Hollier and JL Hollier (2nd Cross Claimants)
Cancarra Pty Ltd (Cross Defendant to 2nd Cross Claim)
GS Holliday, GW Sanders, SD McCloy, Cancarra Pty Ltd, Cloudgard No 43 Pty Ltd, Ninot Pty Ltd, Miltup Pty Ltd, Walenora Pty Ltd, Stenoak Pty Ltd, Ian Allibon Plumbing Pty Ltd, BJ Sanders, IP Allibon, CG Allibon, GE McCloy, JJ McCloy, RP Flannery, VBoyd, JM Anderson, YL Anderson, MJ Bliss, CM Bliss (3rd Cross Claimants)
WE Hollier, JL Hollier (Cross Defendants to 3rd Cross Claim)
GJ Leonard & Leonard Consultants Pty Ltd & CJ Sneddon & CJ Sneddon & SN Roxby t/as Maxim Consulting Corporate Advisors (4th Cross Claimants)
S Madden & Madden & Associates Pty Ltd (Cross Defendants to 4th Cross Claim)
WE Hollier and JL Hollier (5th Cross Claimants)
Commonwealth Bank of Australia (1st Cross Defendant to 5th Cross Claim)
S Madden and Madden & Associates Pty Ltd (2nd Cross Defendants to 5th Cross Claim)
JUDGMENT OF: Brownie AJ
COUNSEL : M Walton SC; R S Hollo (Plaintiff)
P W Larkin (1st & 2nd Defendants)
No appearance (6th Defendant)
A L McVoy (Various other defendants)
No appearance (18th & 19th Defendants)
G Inatey SC; W V McManus (Cross defendants to Amended Third Cross Claim)
I D Faulkner (Cross Defendants to Fourth Cross Claim)
J B Simpkins; I G Roberts (Cross Claimants)
J C Kelly SC; D A Casperson (Respondent to Motion)
D L Williams (Respondent to Motion)
SOLICITORS: L E Taylor (Plaintiff)
Robinson Creais (1st & 2nd Defendant)
Harris Wheeler (3rd - 5th, 8th - 17th, 20th - 23th Defendants)
No appearance (6th Defendant)
Sparke Helmore (7th Defendant)
No appearance (18th & 19th Defendant)
Phillips Fox (Cross Defendants to 1st Cross Claim)
Colin Biggers & Paisley (Cross Defendants to Amended Third Cross Claim)
Minter Ellison (Cross Defendants to Fourth Cross Claim)CATCHWORDS: The case involves a number of separate disputes of fact, and the application of settled rules of law to those factual disputes. LEGISLATION CITED: Trade Practices Act 1974 (Cth)
Fair Trading Act 1987 (NSW)
Environmental Planning and Assessment Act 1979 (NSW)
Supreme Court Act 1970 (NSW)CASES CITED: Pym v Campbell (1856) 6 E & B 370; 119 ER 903
Bleyer v Neville Jeffress Advertising Pty Limited (unreported, 15 December 1987, NSWCA)
Macedone v Collins (1996) 7 BPR 97,628
Maguire v Makarounis (1997) 188 CLR 449
Fitzpatrick v Waterstreet (unreported, 17 December 1998, NSWCA)
Beach Petroleum N L v Kennedy (1999) 48 NSWLR 1
Farrington v McBride [1985] 1 NZLR 83
O'Halloran v RT Thomas & Family Pty Limited (1998) 45 NSWLR 262
Ryde Municipal Council v The Royal Ryde Homes (1970) 19 LGRA 321
Eaton & Sons Pty Ltd v Warringah Shire Council (1972) 172 CLR 270
Pearson v Leichardt Municipal Council (1993) 93 LGERA 206
Kavanagh v Akhtar (1998) 45 NSWLR 588
Medlin v State Government Insurance Commission (1995) 182 CLR 1DECISION: See paragraph 318 of the judgment
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LISTBROWNIE AJ
13 SEPTEMBER 2001
JUDGMENT50098/98 - COMMONWEALTH BANK OF AUSTRALIA V HOLLIER
1 Brownie AJ: Pursuant to an arrangement conventionally called “the bill facility”, the plaintiff advanced money to the members of a syndicate, the first to twelfth defendants. They repaid most, but not all of the money advanced, and the plaintiff now sues them, as well as certain guarantors, for the balance outstanding and interest; and it also seeks to enforce a security it took. Although many issues were litigated, no party challenged any aspect of the plaintiff’s case in chief.
The Background Facts
2 The facts constituting the background to the substantive defences and the cross-claims are complex. In 1995, the eighth defendant, Ninot Pty Ltd (“Ninot”) conducted a motel business from one part of a building at Nelson Bay, then called Nelson Tower, and now called Nelson Towers I, to distinguish it from the building the subject of this litigation, Nelson Towers II. At that time, the land on which Nelson Towers II now stands was vacant land, adjacent to Nelson Towers I, and it was owned by a company in receivership. When the receiver put the land on the market for sale, the directors of Ninot (the fourth defendant, Mr George Sanders and his children, namely the thirteenth defendant, Mr Bruce Sanders, and the latter’s sisters, Ms Statham and Ms Carroll) considered that it was in the interests of Ninot that Ninot acquire the land, in part to forestall the possibility of a development involving unwelcome competition to Ninot’s motel business; and Ninot in fact bought the land, for $450,000. It seems that the zoning of the land was such that if a multistorey building was constructed, the lower two floors of that building might be used for commercial purposes, but the upper floors might be used for residential purposes.
3 Ninot considered various proposals for the possible development of the land, retaining an architect, Mr Laing, and a builder, Cancarra Pty Ltd (“Cancarra”, the sixth defendant). Cancarra traded under the name of Flannery Constructions. Its directors appear to have been the eighteenth defendant, Mr Flannery, and the nineteenth defendant, Ms Boyd; and it employed Mr Harkin, an accountant by training, as its financial controller. In time, a project was promoted, by Cancarra, to this general effect: a syndicate of investors would be formed; the syndicate would buy the land from Ninot, and would then employ Cancarra to construct a six storey building there; the syndicate members would initially contribute a sum sufficient to enable the syndicate to buy the land and to pay various preliminary expenses, and then the syndicate would borrow from the plaintiff the funds necessary to finance the construction of the building; after completion of the construction work, a Strata Plan would be registered; and the land would be partitioned between the syndicate members.
4 Persons wishing to become syndicate members chose a unit (or units) “from the plans.” Each unit had a value attributed to it, and the values varied between different units. Each syndicate member was required to pay a “first payment”, followed by a “second payment”, calculated as a fraction of the value of the unit, and upon completion of the building work, a “final payment”, again calculated by reference to the value of the unit. The aggregate of the sums payable by way of final payment was to be used to repay the money advanced by the plaintiff to the syndicate, that is, the money used to pay Cancarra for the construction of the building.
5 Plans were prepared, showing a proposed building. The plans were varied from time to time, but at an early stage, they showed the ground floor, or Level 1, containing parking spaces, and an area for use as a shop. Level 2 contained three units, known as Units 1, 2 and 3, which were generally fit for use as motel accommodation or holiday letting. For zoning purposes that was regarded as commercial use. The four upper floors contained three units on each floor (Units 4, 5 and 6 on Level 3; Units 7, 8 and 9 on Level 4; Units 10, 11 and 12 on Level 5; and Units 13, 14 and 15 on Level 6), fit for residential use.
6 Initially, the sum that the syndicate proposed to borrow from the plaintiff was some $3.1 million, but ultimately it was about $3.5 million including some capitalised interest.
7 The first and second defendants, Mr and Mrs Hollier (“the Holliers”), conducted a retail business from leased premises, situated nearby. They became aware of the proposed project, and they (or, at least, Mr Hollier on their behalf) took the view that they would be better off if they acquired an interest in some part of the proposed building, acquiring owned premises rather than leased premises from which to conduct their business, and avoiding an expected sharp rise in the rent that they were then paying at their existing premises. Initially, they were interested in only Units 2 and 3, on Level 2 of the proposed building, but eventually they wanted to take, and did take an interest in all of the three units on Level 2. Their doing that resulted in a number of significant changes to the then design of the building: instead of Cancarra constructing a building, Level 2 of which would be fully fitted out for generally residential use (as distinct from “residential” for zoning purposes), rather than commercial use, that level was now to be constructed as “an empty shell”, suitable for use for commercial purposes. The Holliers themselves were to fit it out, after taking possession of it from Cancarra.
8 In the meantime, it proved difficult to attract a sufficient number of investors for the project as a whole. The plaintiff said in effect (as did at least one other potential lender to the syndicate) that it would not agree to advance the money needed for the construction phase of the project, unless all units in the proposed building had been pre-sold, that is, unless the membership of the then proposed syndicate was complete. After some months of effort, the position was reached where four units remained unsold. A little later, the persons who had by then agreed to become syndicate members agreed to take up another two units, sharing the cost of buying those two units between themselves in agreed proportions, and Cancarra agreed to take up a third of the unsold units; and there was then one unit left unsold. Much of what is now litigated resulted from what happened in relation to that last unit.
9 By this time, either Cancarra or Ninot had incurred a liability for fees in connection with the project, to five persons or entities, called collectively “the professionals”. The first of these five was Nelson Bay Real Estate Pty Ltd. Mr Alymer was associated with this company, in a way not clearly explained by the evidence. The second was Mr Laing, Ninot’s architect, already mentioned. The third was a solicitor, Mr Blakemore, a partner in the firm of McDonald Johnson. The fourth was an accountant, Mr Sneddon, and persons or entities associated with him, the detail of which no longer matters: I will refer to Mr Sneddon and these others collectively, where it is not necessary to be more precise, as “the Sneddon interests”. The fifth was at least nominally Kim Harkin, the wife of Mr Michael Harkin of Cancarra: perhaps she acted only on behalf of and/or instead of her husband, but if so, it does not matter. As a group, these five “professionals”, or persons or entities associated with them, were owed fees, and there was a chance that if the project did not proceed, their fees would not be paid.
10 Against this background, a proposal was made to the general effect that the professionals, through a unit trust, would participate in the project. In short, each professional would take up units in the unit trust; the trustee of that trust would acquire the last unsold unit in the building; each professional would defer the payment of its outstanding fees, until the building work had been completed, when the professionals’ unit would be sold; at that time, expected to be about a year or more later, each professional would be paid its outstanding fees plus the equivalent of 15% interest; and the professionals would have no further or other interest in the project. This proposal was ultimately put into effect, the trustee of the trust being a company called Cloudgard No. 43 Pty Ltd (“Cloudgard”, the seventh defendant). A consequence of this was that the plaintiff agreed to proceed as if all the units had been pre-sold, so that it was prepared to advance the money sought, and the venture was therefore able to proceed.
11 Amongst themselves, the syndicate members (including Cancarra) entered into a Development Deed. That deed required its parties to enter into a building contract, the parties to which were the syndicate members (including Cancarra) as “the Principal”, and Cancarra as “the Builder”. The syndicate members (including Cancarra) agreed upon a mechanism for checking progress claims made by Cancarra as builder, and for the payment of those progress claims. In brief, at this stage, Madden Associates Pty Ltd (“Madden Associates”) was appointed as the syndicate’s quantity surveyor; it was to check each progress claim, as it was made by Cancarra, and to tell the Sneddon interests its views; and the Sneddon interests were then, on behalf of the syndicate, to draw down from the plaintiff, out of the funds agreed to be advanced under the terms of the bill facility, the sum needed to pay Cancarra what was then due, and to pay that sum to Cancarra.
12 At the date of the deed, 24 June 1996, the design of the building had not been finalised, and the deed provided for possible variations. Clause 5.4 provided:-
(i) the price of $525,000.00 is an estimated price and may vary having regard to final architectural and engineering design.“The Builder and the purchasers acknowledge the following in relation to lot 31 which is being sold to William Edward Hollier and Jennifer (sic) Lee Hollier (“Hollier”):-
(ii) the final price for lot 31 will be determined and agreed upon by the Builder and Hollier as soon as possible after architectural and engineering designs and costing are available.
(iii) nothing in this Clause 5.4 will increase or decrease the price of any other lot in the Development.”
13 “Lot 31” was a reference to the Strata Plan mentioned at [3] above. It equates to Units 2 and 3. At an early stage, the Holliers wished to buy only those two units, but in fact they bought Units 1, 2 and 3, and they and Cancarra never reached any agreement of the kind contemplated by clause 5.4(ii).
14 In June 1997, Cancarra asserted that it had brought the building to practical completion, and it made a 14th and final progress claim. Madden Associates recommended to the Sneddon interests that a certain sum be paid; the Sneddon interests arranged for the plaintiff to advance a further sum to the syndicate; and when the syndicate had received the proceeds of this advance, it made a last payment to Cancarra.
15 By about this time, Mr Hollier had become dissatisfied with various aspects of what Cancarra had done, and what it claimed in respect of the Holliers’ units, that is, the work done in respect of Level 2. After various protests, the Holliers refused to pay the sum asked of them by the Sneddon interests, as being a calculation of the “final payment” payable upon completion of the building work, apportioned amongst the various syndicate members. The other syndicate members all paid the sums asked of them, so that there was paid to the plaintiff all that the plaintiff asked for, except the sum asked of the Holliers, who paid nothing. The plaintiff now sues for this sum, that is, the amount originally apportioned as being payable by the Holliers, as calculated by the Sneddon interests, and interest. No question arises about the calculation of this sum, as distinct from questions about the value of the work done by Cancarra.
16 In a practical sense, the defendants may now be divided into three groups: first, the Holliers; secondly, a group of defendants who did not appear on the hearing; and thirdly, a group who have come to be known as “the general defendants”. The defendants in the second group are Cancarra, Cloudgard, Mr Flannery, and Ms Boyd. Cancarra is in liquidation, and Mr Flannery and Ms Boyd, who were guarantors, entered into a composition with their creditors; and the plaintiff did not proceed against these three defendants. Cloudgard apparently has no assets at this stage, but the plaintiff did proceed against it. The fifth defendant, Mr Stephen McCloy, was formerly one of the general defendants, but before the end of the trial he had left that group, presumably because he was unable or unwilling to fund the further conduct of the litigation. He made two witness statements, and he attended for cross-examination on those statements, but otherwise he took no part in the hearing. I will treat him as if he was one of the defendants who did not appear.
17 The Holliers eventually took up Units 1, 2 and 3; Cloudgard took up Unit 7; Cancarra Unit 12; and Mr Stephen McCloy Unit 14.
18 The general defendants comprise the following: the third defendant, Mr George Holliday, who took up the shop on Level 1 of the building, not given a Unit number; Ninot, which eventually took up Units 4 and 6; the fourth defendant, Mr George Sanders, who took up Unit 5; the ninth defendant, Miltup Pty Ltd (“Miltup”), which took up Unit 11; the tenth defendant, Walenora Pty Ltd (“Walenora”), which took up Unit 13; the eleventh defendant, Stenoak Pty Ltd (“Stenoak”), which took up Unit 15; the twelfth defendant, Ian Allibon Plumbing Pty Ltd (“Allibon”), which took up Unit 8; the thirteenth defendant, Mr Bruce Sanders, who was a director of Ninot, and a guarantor; the fourteenth and fifteenth defendants, Mr and Mrs Allibon, who were directors of Allibon, and guarantors; the sixteenth and seventeenth defendants, Mr Graham McCloy (a brother of Mr Stephen McCloy) and his wife, who were directors of Miltup, and guarantors; the twentieth and twenty first defendants, Mr and Mrs Anderson, who were directors of Walenora, and guarantors; and the twenty second and twenty third defendants, Mr and Mrs Bliss, who were directors of Stenoak, and guarantors.
19 Units 9 and 10 were taken up by the following syndicate members, as a group, in the following proportions: Mr George Holliday 7.69%; Mr George Sanders 7.69%; Mr and Mrs Hollier 23.09%; Ninot 15.39%; Allibon 7.69%; Mr Stephen McCloy 7.69%; Miltup 7.69%; Stenoak 7.69%; Walenora 7.69%; and Cancarra 7.69%.
20 After the completion of the construction of the building, Cancarra arranged for the sale of Unit 7. It seems that each of the professionals was then paid its outstanding fees, plus 15%. Certainly, McDonald Johnson was.
21 The precise legal mechanism by which McDonald Johnson took part in all this was as follows: McDonald Johnson had a “service company”, Huntlaw Pty Ltd (“Huntlaw”); Huntlaw took up 8,000 units of $1 each, representing, it seems, a debt owed to McDonald Johnson of $8,000, in a unit trust called Nelson Towers II Unit Trust; the trustee of that trust was Cloudgard; additionally, Huntlaw held 10 shares in Cloudgard from June 1996 to August 1997; neither Mr Blakemore nor any of his partners were ever directors of Cloudgard, which appears to have been administered at all times by the Sneddon interests; and after the sale of Unit 7, Huntlaw’s units in the trust were redeemed for $1.15 per unit. It seems that the other “professionals” were involved by a generally similar mechanism, but this is assumed rather than proved.
22 I will deal with the issues litigated in this sequence:-
- (a) The issues between the plaintiff and the Holliers.
(b) The issues between the plaintiff and the general defendants.
(c) The issues between the general defendants and McDonald Johnson - in short, claims for breach of fiduciary duty and in negligence.
(d) The issues between the Holliers and “the Maddens”, that is, Mr Madden who controlled Madden Associates, and that company.
(e) The issues between the Holliers and the general defendants.
23 Earlier, there were various cross-claims brought involving the Sneddon interests. These were abandoned during the trial, with some outstanding questions about costs adjourned until after judgment. Some of the allegations made in various pleadings were also abandoned during the trial.
The issues between the plaintiff and the Holliers
24 A number of defences to the plaintiff’s claim, originally taken, have been abandoned, and need not be mentioned now. As against the plaintiff, the Holliers now rely essentially upon only one set of facts, as supporting both a substantive defence, and also cross-claims against the plaintiff. In the Amended Fifth Cross-claim they pleaded that the plaintiff represented:-
- “... that in providing the Bill Facility, progress claim inspections would be undertaken by the Bank and that funds released to the Builder would not exceed:
(i) 90%; or
(ii) alternatively, 100% of
the value of the works completed to the date of such inspection, less progress claims already made.”
25 The making of this representation was said to ground the tort of negligence, and also to constitute a breach of the provisions of section 52 of the Trade Practices Act resulting in an entitlement to damages under section 82, as well as being the basis for a substantive defence, under section 87. (At various points in the case, the provisions of the Fair Trading Act were also invoked. Since both statutes are, relevantly, in the same terms, I will not again mention the latter statute.)
26 The plaintiff had a policy that, where it agreed to advance money in respect of a project like this one, it would not actually pay over to a borrower a greater sum than the present estimated value of its primary security. That is, before the time of any actual advance, it wished to satisfy itself that the sum then advanced did not exceed the then value of the mortgaged land, with a partly constructed building on it. For this purpose it assumed that the value of the land and the partly constructed building approximated to the value of the vacant land, plus the cost to that date of the work actually carried out on that building. It assumed that, if the borrower defaulted, the plaintiff itself could eventually have the outstanding building work carried out for approximately the balance it had agreed to advance, but had not yet actually advanced, and that upon completion of the building work, it could if necessary then sell the property, remaining at all times fully secured. This policy, not itself the subject of contention, forms the backdrop to the representation that the Holliers rely upon.
27 They say that the representation pleaded was constituted by three matters: first, a statement made orally by Mr Handley of the plaintiff at a meeting of potential syndicate members on 3 April 1996; secondly, by Mr Handley’s letter to Mr Sneddon of 27 May 1996; and thirdly, by an amended version of that letter, dated 12 June 1996. The letter of 27 May is quite lengthy, but central to some of the issues in the case, and I append a copy of it to these reasons for judgment. The part of the letter that is relevant now appears on page 3:-
- “Progress payment inspections will be undertaken by the Bank’s valuer, with funds released being assessed on the basis of 90% of the value of the work completed to date, less any previous progress payments.”
28 On 12 June 1996, Mr Handley made some manuscript alterations on a copy of this letter, and sent the amended copy to Mr Blakemore. The amendment presently relevant consisted of his marking with an asterisk the sentence just quoted, and writing against that passage the words:-
- “Progress payments will be paid against full assessment of ‘work completed to date’”.
29 It is not easy to say, with any confidence, just what it was that was said at the meeting of 3 April 1996, by whom, or in what context: no two witnesses said the same thing. Nobody made any (relevant) contemporary record of what was said, and no witness seems to have been asked to remember what it was that was said, or the context in which it was said, until 1999, or later. If what the Holliers contend for was said, it must be disappointing to them that no other witness supports that version, either in pleadings or in evidence, particularly as, if their version is accepted, it would give the general defendants a defence to the plaintiff’s claim, and a cross-claim against the plaintiff.
30 In his evidence in chief, Mr Hollier described what happened at this meeting. An agenda distributed before the meeting contained an item referring to the appointment of a Project Liaison Officer. The chairman of the meeting, Mr Sneddon, said:-
- “Only one written submission has been received, that of a Mr Gary Carlin submitted by Bill and Jan Hollier.”
He continued:-
“Bill can you indicate the costs of this person for the duration of the project.”
- “Yes, I can. It would be approximately $30,000.00 and while some of you may not agree I believe that given the value of the project we as joint venturers need someone independent to look after our interests.”
- “This is only a small project. We don’t need to waste money.”
Mr Harkin said:-
- “I want to introduce Stephen Madden to the gathering as the quantity surveyor who would if elected independently value and lodge the progress claims with the joint venturers’ accountants. Also don’t forget the Commonwealth Bank will have its own people inspecting the works. Isn’t that so Phil [Handley] ?”
Mr Handley said:-
- “Michael [Harkin] is correct. The bank will have its own people inspecting and valuing the works before progress claims are paid.”
Mr Sneddon said:-
- “There seems to be no support for the appointment of Mr Carlin because of costs so I call for nominations of a Project Liaison Officer from the floor.”
Mr Bruce Sanders said:-
- “I’ll do it. I’m there all the time anyway and my office is close by.”
31 There was no support for Mr Hollier’s motion for the appointment of Mr Carlin, and Mr Bruce Sanders was elected to the position of Project Liaison Officer. As well, Mr Madden was elected as the quantity surveyor for the syndicate. (No party questioned the validity or efficacy of these appointments, made before the syndicate was actually constituted.)
32 In her evidence in chief, Mrs Hollier described the discussion. She said that Mr Sneddon introduced Mr Madden, who offered to do the syndicate’s quantity surveying work for $3,000. Mr Graham McCloy commented on the discrepancy between this sum and the amount quoted on behalf of Mr Carlin, $30,000; and Mr Sneddon said that Mr Madden was just starting his business and was prepared to do the work for $3,000 “to keep his name out in the field”. She said that Mr Handley then said: “The bank will also have their valuer checking the costing of the job before the money is paid to the builder”; then either Mr Graham McCloy or Mr Stephen McCloy said: “How many checks do we need, for heaven’s sake?”; and Mr Handley said: “Yes, you will have the bank and Stephen Madden checking us. Remember Reg Flannery is buying one of the units himself, so that he will be wanting everything to be okay.” (In fact, it was Cancarra that was buying one unit, but this is significant only to the extent that it throws light on the accuracy or otherwise of what was said, or remembered by Mrs Hollier.)
33 The first point that the plaintiff makes in answer to this defence and these cross-claims is that, on none of these four versions (Mr Hollier, Mrs Hollier, the original letter of 27 May, and the amended letter) did the plaintiff make the representation pleaded, quoted at [24]. There are two separate strands to this submission: first, that the plaintiff released the funds to the syndicate rather than to Cancarra, as had always been the proposal; and secondly, that the plaintiff did not represent that it would not release funds exceeding 90%, or 100%, of the value of the works completed; rather, it said that the amount released would be assessed on the basis of the value of the works completed.
34 Whilst I think that the first of these points is correct, it does not seem to be to be decisive, and I put it aside. At least arguably, the result of the release of the funds to the syndicate would result in a payment to Cancarra of a sum in excess of the sum to which Cancarra was entitled, to the detriment of the Holliers.
35 The second point seems more significant: on either version of the letter, the plaintiff’s point seems to be a good one, and the evidence of Mr Hollier does not detract from that point. The statement that Mrs Hollier attributes to Mr Handley (“The bank will also have their valuer checking the costing on the job before money is paid to the builder”) is closer to the representation pleaded, but does not go far enough: she does not attribute to Mr Handley the statement that the plaintiff would not release the funds before the builder had done the work, as distinct from the statement that the plaintiff’s valuer would check the costing before the syndicate paid the builder.
36 But the plaintiff’s case, on this point, is stronger than that. At the meeting of 3 April 1996, the syndicate members decided to appoint Mr Madden as their quantity surveyor, so that he would check the progress claims made by Cancarra, and report to the Sneddon interests; and the Sneddon interests were then, on behalf of the syndicate, to draw down from the plaintiff an appropriate sum, and pay what ever amount was then properly payable to Cancarra as a progress claim; and the syndicate members decided not to appoint Mr Carlin as the syndicate’s Project Liaison Officer to check the claims made by Cancarra.
37 Further, Mr Handley said that he made a statement to the meeting to the effect that the inspection and valuation of the partly completed building work was for the benefit of the plaintiff only, and not for the benefit of the syndicate members. I doubt that any of those present at this meeting has any truly accurate recollection of any of the detail of what was actually said, either as to the supposed representation, or the supposed qualification to that representation. In this context, it does not seem to be without significance that the Holliers did not raise the allegations now made, for some years. It is true that they made witness statements in 1999 and June 2000, but in those statements they dealt with this topic only in passing, and their then pleadings did not make the allegation now made.
38 I am satisfied that, more likely than not, Mr Handley said something to the general effect that the plaintiff would have its own inspections carried out when assessing requests for the draw down of funds by the syndicate, but I am not satisfied that he said words to the effect pleaded. I think that, more likely than not, he did say words to the general effect of the qualification of which he gave evidence. Although Mr Hollier generally denied it, Mrs Hollier effectively acknowledged having had an understanding to that general effect; they each seem to have understood, at least in an imprecise way, the reason why it was that the plaintiff had the policy I have mentioned; and Mr Hollier acknowledged that he did not understand the plaintiff to be undertaking a responsibility on behalf of the Holliers to look after their interests.
39 Mrs Hollier also said that she inferred that, although the plaintiff was going to be looking after its own interests, it would also be looking after the Holliers’ interests. However, she drew this inference not from what Mr Handley said, but from what some unidentified people said at the meeting. That does not seem to me to be significantly different to the evidence on this point of Mr Handley, who said that the topic of the plaintiff’s inspections was raised, “and perhaps it was implied at the time that the bank would be looking after the interests of the syndicate members”. However, he could not recall who said this, and later he described his words of qualification as “basically only a one-line conveyance.”
40 Nor do I think that the Holliers have established reliance, in any relevant sense, upon the supposed representation. Really, they have asserted no more than that they were comforted by the making of the representation.
41 Both the substantive defence and the cross-claims therefore fail, at a factual level, and I need not deal with the further arguments advanced by the plaintiff. I should however observe that the matters set out in paragraphs 23 and 24 of the plaintiff’s written submissions appear to present an insurmountable discretionary barrier to the Holliers’ defence under section 87: Mr Hollier conceded, in substance, that his real dispute was with Cancarra, and not the plaintiff, that the Holliers owed the plaintiff the sum claimed, and that he was really only seeking time to pay the plaintiff, whilst he resolved his difficulties with Cancarra. Cancarra is, as already mentioned, now in liquidation.
The issues between the plaintiff and the general defendants
42 All of the various defences pleaded by the general defendants, as well as the cross-claims brought by them against McDonald Johnson, depend essentially upon one set of facts. In the plaintiff’s letter to Mr Sneddon of 27 May 1996, the plaintiff said that certain security “must be” provided, and it identified 13 securities: a mortgage by the syndicate over the land, guarantees unlimited in amount by named persons, and then, at pages 2 and 3 of the letter (attached):-
- “8. A guarantee, limited to $48,000 from GJL Developments Pty Limited;
9. A guarantee, limited to $48,000 from Ron Laing;
10. A guarantee, limited to $48,000 from Kim Harkin;
11. A guarantee, limited to $48,000 from Michael Alymer;
12. A guarantee, limited to $24,000 from Brian Blakemore ...”
43 The aggregate of the five sums just mentioned is $216,000. It will be recalled that the group called “the professionals” had agreed to take up, between them, Unit 7 in the proposed building. The value assigned to that unit was $299,250. The evidence does not establish how the plaintiff arrived at the figure of $216,000, or how it apportioned this sum between the five proposed guarantors, although presumably it bore some relationship to the fees owing to the five professionals. The company GJL Developments Pty Ltd was within the group I call the Sneddon interests.
44 Mr Blakemore refused point blank to give the guarantee sought from him, and, after some negotiations between Mr Handley and Mr Sneddon, Mr Handley sent to Mr Blakemore a copy of the letter of 27 May, with manuscript alterations. Relevantly, he put asterisks beside each of items 8 to 12, just quoted, and then wrote:- “Proposed securities No’d 8, 9, 10, 11 and 12 are not required and will be substituted with guarantee $216,000 by [Cloudgard]”. (sic)
45 There are a multitude of disputed circumstances, but some things are clear. Generally speaking, either Mr Sneddon or Mr Harkin communicated with the plaintiff on behalf of the syndicate members about obtaining the bill facility, and negotiating its terms. The plaintiff’s letter of 27 May was sent to Mr Sneddon, as the representative of the syndicate. He sent copies of the letter to all (or almost all) of the persons affected, whether as borrowers or guarantors, and he faxed a copy to Mr Blakemore on the afternoon of 27 May, under cover of a note reading: “Copy of CBA finance approval for your information”.
46 Mr Blakemore says, and I accept, preferring his evidence to that of Mr Handley, that at about this time, Mr Handley asked Mr Blakemore when Mr Blakemore was going to sign the guarantee, and Mr Blakemore replied:-
- “You have got to be joking. I’m not giving a guarantee. I’m a lawyer not a developer. The investment is to help the syndicate. I am only in this for my unpaid fees.”
47 This was said, after two earlier conversations, the first between Mr Blakemore and his partners, and the second when Mr Blakemore had told Mr Sneddon and/or Mr Harkin that McDonald Johnson would not participate in the project except to recover its unpaid fees, and that the firm would not give any guarantee.
48 On 12 June 1996 Mr Handley faxed to Mr Blakemore a copy of the letter of 27 May, altered, with the alterations signed. Thereafter, a number of documents, mostly dated 24 June 1996, were executed, including the Development Deed, a supplementary deed, the mortgage and a number of guarantees, and various banking documents. In short, the plaintiff took on settlement the securities mentioned in the letter of 12 June rather than the securities mentioned in the letter of 27 May. The general defendants say that by reason of these circumstances, coupled with their lack of knowledge that the plaintiff acted in this way, they are entitled to relief against the plaintiff on one or more of the following bases:-
- (a) A condition precedent to their being liable to repay to the plaintiff the money advanced was not fulfilled.
(b) The terms of the letter of 27 May were express terms of the mortgage.
(c) The terms of the letter of 27 May were implied terms of the mortgage.
(d) So many of the general defendants who are guarantors rather than principal debtors are entitled to equitable relief.
49 The various defences taken by the general defendants depend upon disputed questions of fact, which overlap, and which also overlap with the issues between the general defendants and McDonald Johnson: what was said during a series of meetings; what the authority of Mr Sneddon was, and in what capacity he negotiated with the plaintiff from time to time; what the authority of Mr Blakemore was, and in what capacity he dealt with the plaintiff from time to time; what authority Mr Handley had from the plaintiff to vary the terms of the plaintiff’s offer of 27 May, and if he lacked the relevant authority, whether the plaintiff ratified his conduct; and what the general defendants believed to be the position as to the respective positions of the plaintiff, Mr Sneddon and Mr Blakemore.
50 On the case of the general defendants, they were led to believe and they believed that they and the professionals “were all in this together”, and that the persons mentioned in paragraphs numbered 8 to 12 of the letter of 27 May were all going to give guarantees. The details of the asserted beliefs and understandings of the general defendants and their witnesses varied, but broadly speaking, they said that if they had known that Cloudgard was giving a guarantee rather than the persons named in paragraphs 8 to 12 of the letter of 27 May, they would have acted differently.
51 McDonald Johnson pleaded the facts they relied upon, and the witness statement of Mr Blakemore of 16 May 2000 spelt out the detail of the basis upon which McDonald Johnson, through Huntlaw, took an interest in the project: see [21]. Surprisingly, most of the general defendants said that they were unaware of this, often saying words to the general effect that they thought the professionals were investors, just as the other syndicate members were, and that there was no reason why the professionals should not have given unlimited guarantees, as the general defendants did. One is left to wonder how it came about that the general defendants, having embarked upon the litigation, came to continue with the litigation, and what issues they came to court expecting to fight.
52 There were at least three meetings of proposed syndicate members: the first on 30 November 1995, the second on or about 1 February 1996, and the third on 3 April 1996. There may have been other meetings, as well as various discussions between the persons concerned.
53 I will start with the position of Ninot, and two of its directors, Mr George Sanders and Mr Bruce Sanders. In the events that happened, Ninot took Units 4 and 6, and Mr George Sanders took Unit 5 in his own name, although he said that he took that unit on behalf of Ninot; and he is still living in that unit. Buying Unit 5 in his own name, he was one of the syndicate members, and a principal debtor of the plaintiff. Mr Bruce Sanders became a guarantor, since he was one of the directors of Ninot. As late as 21 June 1996 his sister Ms Statham was described as a member of the syndicate. How and why this situation changed is unexplained, as is the failure of the plaintiff to seek securities from Ms Statham and Ms Carroll, both of whom were directors of Ninot, and the failure of the general defendants to observe, or to do anything about the failure of the plaintiff to ask for or to take guarantees from them.
54 Ninot purchased the vacant land for $450,000, and some few months later it entered into some arrangement with Cancarra, the detail of which is not proved, to the general effect that Ninot would sell the land to the syndicate for $500,000, later changed to $550,000, on terms that Ninot (or, perhaps, its nominee) would take up three units in the project then proposed, obtaining in respect of each such unit a discount of about $100,000 off the price otherwise payable. This arrangement was not recorded in any document put into evidence, but it was carried into effect when Ninot and Mr George Sanders took up their three units, each at a discounted price. On the face of the evidence, some stamp duty was thereby improperly avoided, and some capital gains tax was improperly deferred and/or avoided. There is a question whether the other syndicate members had any or any adequate notice of these arrangements, and it may be that they were adversely affected by the transaction being structured in this manner.
55 These matters are relevant, not merely to questions of credit, but also in a more direct sense: one question to be answered is what Ninot, Mr George Sanders and Mr Bruce Sanders would have done if they had known of the change in the securities required by the plaintiff; and this unusual arrangement between Ninot and Cancarra has to be taken into account. Ninot had secured advantages, which might have been lost or at least put in jeopardy if the proposed project had not proceeded. Apart from this concealed or partly concealed profit, Ninot wished to control the development of the site, situated next door to its existing motel business, or at least to be in a position where it could exercise some measure of control over the possible use of the site.
56 Mr George Sanders and Mr Bruce Sanders said, in summary, that Ninot was in a position to exercise this control. The explanation was not fully developed, but was to the general effect that the Nelson Towers I site and the vacant land, upon which the Nelson Towers II now stands, was then the subject of a single title; that a Strata Plan had been registered in respect of that title; and they said that Ninot’s ownership of other Strata Titles meant that Ninot could effectively control any decision made by the Strata Title body corporate concerning the future use of the site.
57 Another aspect of the matter is that Ninot was, in about June 1996, the owner of the site; it had financed its purchase of the site by bank overdraft; it was incurring significant holding charges in respect of the site, and the site was producing no income; Mr Bruce Sanders told Mr Hollier, apparently in 1995, that Ninot did not have sufficient capital to develop the site by itself; and months of work had gone into working out a way to develop the site to Ninot’s advantage. In June 1996, Ninot could expect that, if it sold the site, it would be able to pay off its bank overdraft out of the proceeds of the sale of the site.
58 There were other reasons why, it was said, Ninot, Mr George Sanders and Mr Bruce Sanders would have been content to proceed with the transaction, if told of the plaintiff’s changed security requirements. At an early stage, Ninot proposed to take the three units on Level 2, perhaps for use in conjunction with its existing motel business at Nelson Towers I. Later, it was arranged that the Holliers would take Units 2 and 3, and that Ninot would instead take two units on Level 3. Later still, it was arranged that the Holliers would take Units 1, 2, 3, and that the Ninot interests would take Units 4, 5, and 6. These exchanges resulted in changes in the designated values of the various units, and, it seems, the Ninot interests thereby obtained a further advantage of $70,000.
59 Additionally, the project seems to have been regarded by all concerned as a good one, viewed commercially, with investors expecting to make a profit on their investments of the order of 20%, over a period of a little more than a year; and so far as the evidence shows, this expectation would have been met but for the events giving rise to this litigation.
60 In his evidence in chief, Mr George Sanders spoke of the meeting of 30 November 1995. He said that Mr Bliss raised a question about one of the provisions in the draft of the Development Deed then in circulation, and in the course of dealing with this Mr Blakemore said: “Everybody in the deed is giving cross guarantees …”. (This, I find, is not accurate.) He said that at the meeting in early February 1996, Mr Sneddon said that the professionals, whom Mr Sneddon then identified as Mr Blakemore, Mr Laing, Mr Alymer and himself, had agreed to take one unit, and that it was proposed and then agreed that the other investors take up one other unsold unit. (This is also inaccurate, both as to the identity of the professionals concerned, and as to the sequence of events. In particular, I accept that the proposal that the professionals take up a unit was not put to Mr Blakemore before the meeting of February 1996.) Mr Sanders said that at the meeting of 3 April 1996 Mr Blakemore said: “We are all in this together. The professional advisers are giving guarantees to the bank. Everything should be all right”. In late May or early June 1996 Mr Sneddon showed him a copy of a letter of 27 May. He described in detail how he read it, and what he thought about some of its terms. He knew that G J L Development Pty Ltd was a company associated with the Sneddon interests because, as a former solicitor, he had arranged for the incorporation of that company.
61 In contrast to this apparently careful examination of the letter of 27 May, he signed each of the documents placed in front of him by “someone from the bank”, without reading them. He said that if he had been told that there had been any change in the names of the guarantors listed in the letter of 27 May he would not have signed the Development Deed or the mortgage, but would have discussed the matter with his fellow investors and sought an explanation as to why he was personally liable, but those buying through Cloudgard were not, and he would not have been prepared to go through with the purchase of Unit 5, unless the persons named in paragraphs 8 to 12 of the letter of 27 May gave personal guarantees. He said that he would not have signed the documents in question “because I believed we all had to sign”. He said the same, in relation to his execution of the documents on behalf of Ninot.
62 His cross-examination destroyed this facade. It emerged (eventually) that he had been struck off the roll of solicitors for dishonest conduct, more than twenty years ago. Time is a great healer, but he displayed no sign of discomfort when taxed with these matters. He said at one stage that he regarded the risk of guarantors being called upon as a slight risk. Later, he denied that this was so, but by reference to the transcript, he was compelled to withdraw this denial. His explanation about his state of mind lacked credibility. He is an experienced businessman, and it does not seem uncharitable to describe his and Ninot’s dealings in relation to the project as Machiavellian.
63 On 28 May 1996 Mr Blakemore wrote to various potential syndicate members, seeking instructions whether to proceed to settle the contract for the purchase by the syndicate of the site from Ninot, before the plaintiff gave final (as distinct from conditional) approval to the proposed bill facility, and before the execution of the Development Deed. Mr George Sanders signed a letter of authority, seemingly with such alacrity, enthusiasm and lack of attention to detail that he left it to Mr Blakemore to work out which of two inconsistent sets of instructions he was giving, but as he acknowledged, he intended at that stage to proceed with the sale. So far as I can tell, by about the end of May 1996, he had manoeuvred himself and Ninot into a position that was so favourable that he and it would have been extraordinarily reluctant to let the project falter, particularly as the chance that the plaintiff would ever actually call upon a guarantor to pay was a slim one.
64 He said that, from the terms of the letter of 27 May, he understood that the professionals were being asked to give limited guarantees; and he said that this was the first time it had been suggested to him that anyone was to give a limited, as distinct from an unlimited guarantee. Asked how he reconciled that understanding with the statement he attributed to Mr Blakemore at the meeting of 3 April, he acknowledged that he understood that the position of the professionals was different to that of the other investors: the professionals were seeking to recover their fees, and “to clinch the deal”, by buying the last unsold unit. The matter had been discussed at the meeting of 3 April, when Mr Sneddon had explained the position. Nevertheless, he asserted a belief that the professionals would make a profit on the ultimate sale of the unit, and he adhered to his version that Mr Blakemore had said, on 3 April: “We are all in this together”. His evidence generally was unconvincing, and his evidence about his mental processes quite unconvincing. In particular, I do not believe what he says he would or would not have done, had he been told of the plaintiff’s changed attitude about the securities it sought.
65 Mr Bruce Sanders described himself as the general manager of the Sanders Group of companies, which includes Ninot. He said, and I accept, that he left the legal and financial aspects of the development to his father. He described his reading and understanding of the terms of the letter of 27 May, and his subsequent thought processes, in terms similar to the terms his father used. Cross-examined about his thought processes, his evidence carried no conviction; and my strong impression is that he regarded the overall transaction as very much in Ninot’s interest, and that he would not have willingly put the project in jeopardy, had he been told about the change in the plaintiff’s security requirements. I consider that, more likely than not, he would have regarded the transaction as so favourable from the point of view of Ninot and himself that the changes would have seemed unimportant. I do not accept what he says about his thought processes.
66 The first witness called in the case of the general defendants was Mr Anderson. He was so unimpressive a witness that, at the time, the decision to call him as first witness seemed surprising. However, three weeks later, that decision did not seem particularly surprising. Mr Anderson was a plumber by trade, later a publican, and at the time of the events in question was retired, but somehow involved in construction work involving home units in the Terrigal area. He had a firm of accountants acting for him, and he knew Mr Harkin of Cancarra, as Mr Harkin had previously been employed by that firm.
67 Mr Harkin telephoned Mr Anderson, to suggest that Mr Anderson invest in the then proposed project. Mr Anderson travelled to Nelson Bay, considered the proposal, and decided that he did not want to be involved, because he thought that the units then planned were too small. Some time later, Mr Harkin again contacted Mr Anderson, and again suggested that the Andersons become involved as investors. By then, the plans for the proposed building had been changed, and the units were to be larger in size. In addition, Mr Harkin offered Mr Anderson two further inducements: a price discount of $20,000; and an opportunity for Mr Anderson’s son, who is a bricklayer, to obtain the bricklaying subcontract from Cancarra, in respect of the construction of the building. Mr Anderson satisfied himself that the proposed investment would be a good one, and he told Mr Harkin that he (or Walenora) would become involved.
68 Just how Mr Anderson satisfied himself about these matters is not entirely clear, but his accountant (a partner in the firm that had formerly employed Mr Harkin) advised him against the investment, on the basis that the accountant thought that the unit Walenora purchased was over-priced. Notwithstanding that advice Mr Anderson decided to proceed, because he thought that the price asked was reasonable. By May 1996, he was keen to proceed with the project, and intended to live in Unit 13, after completion of the construction work.
69 It seems that Mr Anderson attended some meetings of proposed syndicate members, including the meeting of 3 April 1996, but he gave no evidence suggesting that anything significant was said on these occasions. He seems to have had virtually no recollection of what happened on these occasions. He made it plain that he trusted Mr Harkin, and that he relied very extensively upon what Mr Harkin told him about the proposed investment. He apparently appointed Mr Harkin as his delegate in respect of one or more of the meetings. As far as I can tell, he did not pay any attention to any of the details of the project before receiving from Mr Sneddon a faxed copy of the letter of 27 May. It seems that he had had several discussions with Mr Harkin, who had told him in general terms what was going on, and it seems certain that whatever understanding Mr Anderson had, prior to his receipt of a copy of the letter of 27 May, was gained from what Mr Harkin had told him. He said that his understanding, before reading this letter, was to the effect that a group of professionals were to take up one unit between them, as investors, and that all of the investors were to be equally liable to the plaintiff to repay the money which the plaintiff was to advance to the syndicate. I think it is clear that he had no accurate understanding of the difference between the position of a principal debtor and the position of a guarantor, or about the liability of the persons concerned being a joint and several liability, and that what he said about these matters was unreliable.
70 He described in detail what he gleaned from reading the letter, and what he thought about it. In short, believing that the persons buying through Cloudgard were investors, investing for profit, he believed that they should be equally liable with all the other investors, and he would not have signed any of the relevant documents later on, had he known of the plaintiff’s changed requirements about the securities it required.
71 Long before the end of his cross-examination, this last proposition had been completely discredited. In the first place, his starting point, that he gave careful consideration to the terms of the letter of 27 May, seems unlikely to be true: he gave little attention to any aspect of the matter before seeing that letter, except the purely commercial question whether the venture was commercially attractive; he appears to have accepted without question what Mr Harkin told him, and to have relied entirely upon Mr Harkin; he signed various documents on at least two separate occasions, one in an office in the building at Newcastle where Mr Sneddon had his office, and the other on the bonnet of Mr Harkin’s car at Liverpool, without attempting to understand what it was that he was signing, much less its detail.
72 He remembered that Walenora took an interest in Unit 10, together with the other body of general investors, but either never understood or had forgotten that Walenora also took an interest in Unit 9. He disclaimed any idea that the professionals took their unit as a mechanism for being paid outstanding fees, and could scarcely be persuaded whilst in the witness box to even consider this possibility. Until he read the letter of 27 May, he thought that only Mr Sneddon, Mr Blakemore and Mr Harkin were involved in the group now called the professionals. When he read that letter, he says that he saw that Mr Sneddon was not named as a guarantor, but he did nothing about that circumstance, and made no inquiries about it. He knew nothing about several of the other guarantors named.
73 He conceded that he thought that the risk that any of the guarantors would be called upon was a slight one, because he saw the project as being commercially sound, but when taxed with that concession and his statement that had he known of the change in the securities required by the plaintiff he would not have signed the relevant documents, his evidence became less and less persuasive. Nor could he give any satisfactory explanation as to what he had thought, when he read the letter of 27 May, as to why the persons named in paragraphs 8 to 12 were only giving limited guarantees. Until he saw the letter, no one had said anything to him about limited or unlimited guarantees; and he seems to have had only a vague perception that the investors, and the natural persons associated with the investor companies, would be equally liable to the plaintiff. He said that he surmised that the figures totalling $216,000, mentioned in paragraphs 8 to 12 of the letter, represented only the value of the unit that Cloudgard was buying, but could not reconcile this statement with his supposed belief that Cloudgard was an investor for profit, and no different to all the other investors who were giving unlimited guarantees, nor with his statement that he thought there was no risk of a default by Cloudgard.
74 He said that what was important to him was that the people named were giving guarantees, although he did not know who they were, or, in some cases, anything about their financial positions; and then he said that, if the letter of 27 May had said that the plaintiff required Cloudgard to give a guarantee limited to $216,000, instead of the five guarantees totalling $216,000 mentioned in paragraphs 8 to 12 of that letter, he did not know whether he would have been content with that. His case therefore fails, factually, at that point alone.
75 On 21 June 1996 the plaintiff sent a letter to Mr Anderson, enclosing a copy of the guarantee he was being asked to sign. Amongst other things, that letter named the various principal debtors, for whom he was to be a guarantor, including Mr Sneddon. He acknowledged having received and read this letter, and having noticed that Cloudgard was named. Asked about his assertion of the importance to him of the persons named in paragraphs 8 to 12 of the letter of 27 May, and those persons not being mentioned in the letter of 21 June as guarantors, he said: “It was translated into Cloudgard, I took it to be the guarantee”; and he said that at the time that was enough for him.
76 I am not sure that the letter of 21 June really should have put Mr Anderson on notice as to who was and was not giving a guarantee, but he did not attempt to defend his previously expressed views along these lines.
302 That proposition led to an examination of the detail of the financial affairs of the Holliers at about that time. They had arranged for their accountants, Priestley and Morris, to provide them with some profit and cash flow projections, dated 9 May 1997, for the period of 18 months ending on 31 December 1997, and for the financial years ending 30 June 1998 to 2001 inclusive. Mr Pfeiffer took those projections, and used them as the basis for his opinion that the maximum amount that the Holliers would have been able to borrow was about $450,000: a hypothetical financier would not have regarded the Holliers as being able to service a loan for a higher sum.
303 In cross-examination he was asked to deal with the capacity of the Holliers to service a loan during the year ending 30 June 1998. In his written statement, he dealt with the hypothetical situation of the Holliers borrowing $450,000, in additional to their then indebtedness to Colonial of $396,400. In summary, he took from the projected net income an allowance for income tax, assumed (because of a convention of which he spoke) to be at the rate of thirty percent, and deducted appropriate sums for the servicing of the loans, assuming a repayment of principal over a period of 15 years. He then performed a checking operation, deducing that the Holliers would then have some $35,600 per annum left to cover their ordinary living and personal commitments. He regarded that as adequate, and thought that his conclusions justified the view that the Holliers might borrow $450,000, but no more. For this purpose, he assumed, as I have said, an income tax rate of thirty percent, but added back into his calculation of the sum of money which the Holliers would have available for ordinary living expenses the amount which he had hypothetically allowed as being an income tax deduction for depreciation. That is, he treated depreciation as being a legitimate deduction for income tax purposes, but as being irrelevant in terms of assessing the likely cashflow of the Holliers.
304 He was asked to assume that the Holliers discharged their existing indebtedness to Colonial of $396,400, and then borrowed $617,000; and he was then taken through a calculation of the likely financial position of the Holliers, following the same general formula. In substance, he agreed with the calculation that appears at page 3B of Exhibit F11, in respect of the year ending 30 June 1998, subject to correcting the estimated tax figure of about $14,000 (on the same conventional approach, assuming an income tax rate of thirty percent of the assumed net income from the business), and showing a net annual figure available for living and personal commitments of about $48,500 (adjusting for the confusion that arose when the taxation figure of $14,000 was misstated as $16,000: see the transcript, page 1923, lines 50 to 58).
305 Challenged with the proposition that the only commercially sensible thing for the Holliers to have done in September 1997 was to act in this way - using the proceeds of the sale of their house to pay off their existing debts to Colonial, and borrowing $617,000 - he said: “It may have been”; and he agreed that if the Holliers had borrowed $617,000 using the proceeds of the sale of their home, they would have had the sum needed to repay the plaintiff, the sum then asked, less $29,000. At that time, the Holliers had no immediate need of an overdraft facility, but they would have needed one fairly soon thereafter; and then Mr Pfeiffer agreed that they may well have been able to borrow up to $10,000 against their business turnover, and perhaps a further $15,000 on the security of the yacht.
306 On this evidence, the Holliers may have been able to borrow $617,000, although it seems fair to say that they might very well have had a lot of trouble doing so, and perhaps found it impossible to borrow at a reasonable rate of interest. I think that the better view is that they would not have been able to borrow, sensibly, the whole of the $617,000 mentioned. On the other hand, these calculations assume that the yacht would not have been sold, and they leave substantially out of account the possibility that, if the Holliers had approached someone such as one of the lenders contemplated by Mr McLean, they might have been able to do business with a financier on a different basis to that outlined by Mr Pfeiffer.
307 In my judgment the claim for the increased interest loss fails, for want of a causal connection with the conduct of the Maddens, relied upon. It is perhaps easiest to consider the question first, in the context of the claim for damages for negligence, and to restate the circumstances in summary form. The circumstances which led to the Sneddon interests certifying that the Holliers should pay some $667,000, rather than about $450,000, to the Holliers deciding not to pay the plaintiff anything, and to the plaintiff now claiming from the syndicate members (including the Holliers) about $667,000 plus interest, producing a present debt of about $1,000,000, include the following:-
(a) The negligence of the Maddens.
(b) The conduct of the Sneddon interest in drawing down from the plaintiff, and paying to Cancarra, not just the sums certified by the Maddens, but greater sums. In particular, the Sneddon interests caused to be paid to Cancarra, prematurely, the money that should have been kept in the Retention Fund. But for this overpayment to Cancarra, the Holliers would have had an opportunity to deal with Cancarra from a stronger position than was in fact achieved: once Cancarra had been paid what it asked, it effectively fobbed the Holliers off. Had the Retention Fund been preserved, this may well not have happened. The money drawn down from the plaintiff was thereby increased. The extent of the Holliers’ liability to the plaintiff was increased, and the opportunity for the Holliers to deal with Cancarra from a stronger bargaining point of view was lost.
(c) The manipulation of events and prices by Mr George Sanders and Ninot. It seems likely that these events resulted in the distortion of the proportions payable by the various syndicate members, for example in relation to the contributions payable by the Holliers in relation to Units 9 and 10, thereby helping to deplete the available funds of the Holliers. I note that Unit 10 was sold in August 1997, at a capital loss, and that the Holliers contributed to the making up of this loss.
(d) The Bliss “contra” . I accept the submissions of the Holliers that this was at least one of the factors that resulted in Cancarra needing, in and about August 1997, to justify the payments that had been made to it; and the only obvious “targets” at that time were the Holliers. That is, the sequence of events meant that Cancarra unjustifiably claimed from the Holliers a Variation upwards of about $70,000, when a Variation downwards was appropriate.
(e) Notwithstanding the provisions of the Development Deed and the Building Contract, the Holliers and Cancarra had not reached agreement about the price to be paid for Units 1, 2 and 3. In this context - a question about causation - the circumstances can be stated quite neutrally, without enqiring why agreement had not been reached. The fact was that there was no agreement, contrary to the expectation of the parties in June 1996.
308 The precise events that led to the Holliers incurring a liability to the plaintiff was the drawing down of funds by the syndicate from time to time, which funds ultimately had to be repaid pursuant to arrangements made earlier. The Holliers refused to repay the monies asked of them. In part, this response was justified, at least in some sense if not legally, by Mr Hollier’s emotional response to the misconduct of others. At that stage, he did not know of all the misconduct. He just believed that he had been duped.
309 The loss with which I am concerned for the moment is the increased liability for interest. Proceeding on the basis that the Maddens were negligent in certifying that progress payments were due, when some of them were not, with the result that the syndicate (including the Holliers) drew down from the plaintiff more than was appropriate, the question arises whether the interest debt incurred in consequence of this, and repayable by the Holliers, is recoverable by the Holliers from the Maddens. If it is not, then, upon ordinary principles, interest under section 94 Supreme Court Act is payable, but that is calculated at a lower rate.
310 The principles relating to causation, so far as they are applicable to the circumstances of this claim, are reasonably well settled, but sometimes difficult to apply. For the purposes of considering this claim, I take the relevant law to be that stated by Mason P in Kavanagh v Akhtar (1998) 45 NSWLR 588 at 597 to 598. In my judgment the concatenation of the circumstances just outlined leads to the conclusion that the loss in question was not caused by the negligence of the Maddens; and I consider that the question is properly characterised as one of causation, rather than of foreseeability, or remoteness, or of failure to mitigate loss, or whether there was some intervening cause.
311 Viewing the question in this way, and approaching it by remembering the scope of the duty of care, owed by the Maddens to the Holliers, it seems to me that as a matter of common sense, it would not be right to say that the liability of the syndicate (including the Holliers) to the plaintiff for interest resulted from the negligence. Instead, it resulted from the collective mass of the circumstances just mentioned operating cumulatively. The Holliers would probably have been able to obtain the necessary funds to pay what was needed to be paid to the plaintiff, to avoid the interest debt now in question, if one or more of a number of things had happened: if they had made more determined efforts earlier, to reach agreement with Cancarra about the price to be paid for their Units; if Mr George Sanders and Ninot had not manipulated events and prices as they did, so as to increase the Holliers’ liabilities; if Unit 10 had not been sold at a loss; if Mr Bliss had not arranged the “contra” and/or if the Sneddon interests had kept the retention monies, with the consequence that Cancarra had the need and at the same time the opportunity to make an exorbitant claim upon the Holliers, to justify or purportedly justify the overpayments made to it; if Cancarra had not carried out its work badly, so that it felt obliged to give Stenoak a credit in this regard; if the Holliers had sold their yacht, or if they had made more determined efforts to borrow money, using the yacht as security; if the Holliers had had just a little more capital; or if the Holliers had chosen to pay to the plaintiff as much money as they reasonably had available at that time.
312 I should add a few words about the yacht. I regard it as entirely reasonable, from the point of view of the Holliers, that they did not want to sell it. Apart from any other consideration, it had taken Mr Hollier 11 years to build it. To sell it, in the circumstances in which the Holliers found themselves in about August or September 1997, would have been a wholly unattractive proposition. But that is not the correct question. Rather, one must examine what is reasonable as between the Holliers and the Maddens in the context of the negligence under consideration: Medlin v State Government Insurance Commission (1995) 182 CLR 1 at 11 and 13.
313 The syndicate (including the Holliers) would not have incurred the interest liability in question without the negligence of the Maddens, but of course this is not the critical question.
314 As to the claim for damages for misleading or deceptive conduct, I conclude that the interest loss in question was not sustained “by” the conduct in question. The reasoning is relevantly indistinguishable. As to the claim in contract, the loss cannot be said to have arisen naturally, according to the usual course of things, nor can it reasonably be supposed to have been in the contemplation of Madden Associates and the syndicate (including the Holliers) at the time of the making of the contract of retainer, as the probable consequence of the breach of contract, but in addition, the consequences of the breach of Madden Associates were overwhelmed by the other causes of the loss, mentioned above.
315 In summary, the damages recoverable by the Holliers from the Maddens will be limited to the total of the sums collected at [274] above, together with interest under section 94 of the Supreme Court Act.
The Issues Between the Holliers and the General Defendants
316 I invite submissions from these two groups of defendants, but as I see matters at the moment, the general defendants paid the amounts certified as being payable by them, and the Maddens did not; the contractual arrangements between these two groups of defendants appear to mean that that is the end of the matter; and that has the consequence that the Holliers must indemnify the general defendants for the whole of the liability of the general defendants to the plaintiff.
317 However, I invite further submissions, consistently with the pleadings, the conduct of the trial, and the above findings. It may be that some adjustment is appropriate.
Conclusion
318 I will adjourn the case for a short time to enable the parties to consider these reasons. I direct the plaintiff to provide to each of the other parties three working days before the matter is next listed, a draft set of Short Minutes of Order giving effect to these reasons. I direct the Holliers to complete that draft, so far as concerns the position between the Holliers and the Maddens, and the position as between the Holliers and the general defendants, and to circulate that amended draft to all other parties, at least 24 hours before the matter is next re-listed.
319 I invite submissions as to costs.
**********
0
9
4