Commonwealth Bank of Australia v Ridout Nominees Pty Ltd
[2000] WASC 37
•28 FEBRUARY 2000
COMMONWEALTH BANK OF AUSTRALIA -v- RIDOUT NOMINEES PTY LTD & ORS [2000] WASC 37
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2000] WASC 37 | |
| Case No: | CIV:1456/1995 | 14-18, 21-25 JUNE, 22 & 23 SEPTEMBER 1999 | |
| Coram: | WHEELER J | 28/02/00 | |
| 77 | Judgment Part: | 1 of 2 | |
| Result: | Findings of fact made Parties invited to make submissions on form of orders | ||
| PDF Version |
| Parties: | COMMONWEALTH BANK OF AUSTRALIA RIDOUT NOMINEES PTY LTD CLOVERDALE PTY LTD RANLEIGH WARE PTY LTD PETER ALLAN RIDOUT as Executor of the Will of GEORGE EDWARD RIDOUT CHRISTOPHER JOHN RIDOUT as Executor of the Will of GEORGE EDWARD RIDOUT DOROTHY ELMA RIDOUT PETER ALLAN RIDOUT CHRISTOPHER JOHN RIDOUT JILLIAN RIDOUT LYNETTE RIDOUT VINERS SILVERWARE PTY LTD ESTELLE GIFTS PTY LTD WANATA HOLDINGS PTY LTD KAMBEROO PTY LTD KACANA PTY LTD FERGAL PTY LTD |
Catchwords: | Banking and financial institutions Banker and customer and business of banking Relationship between banker and customer Customer under special disability Corporations Directors and special disadvantage Whether corporation under special disability -Inter-company guarantees Director's duties Equity Undue influence Unconscionable conduct Enforcement of guarantees Guarantee and indemnity Guarantees The contract of guarantee Rights of surety Actions against surety Indebtedness of company Personal guarantees by directors Unconscionability Guarantee given by volunteers Failure to understand effect of guarantee Husband and wife Contracts Married women Whether wife in position of volunteer Whether principles in Yerkey v Jones applicable Mortgages Mortgages and charges Execution of mortgages and agency Remedies of mortgagor Trusts and trustees Construction of trust deeds Breach of trust |
Legislation: | Nil |
Case References: | Armstrong v Commonwealth Bank of Australia, unreported; SCt of NSW; Equity Division; 17 June 1999 Bank of New South Wales v Rogers (1941) 65 CLR 42 Berdoe v Dawson [1865] 34 Beav 603 (55 ER 768) Blomley v Ryan (1956) 99 CLR 362 Brooks v Sunlife Properties Pty Ltd, unreported; SCt of WA (Scott J); Library No 960071; 21 February 1996 Commercial Bank of Australia v Amadio (1983) 151 CLR 447 Commonwealth Bank of Australia v Khouri [1998] VSC 128 Cranfield Pty Ltd v Commonwealth Bank of Australia [1998] VSC 140 Garcia v National Australia Bank Ltd (1998) 155 ALR 614 Hobart Bridge Co Ltd v Federal Commissioner of Taxation (1951) 82 CLR 372 Macaura v Northern Assurance Co Ltd [1925] AC 19 Morgan v 45 Flers Ave Pty Ltd (1986) 10 ACLR 692 Morlend Finance Corp (Vic) v Luke (1991) ASCR 56-095 NZI Capital Corporation Ltd v Fulton, unreported; FCt Fed Ct of A, NG766/97; 10 June 1998 Sercombe v Sanders [1865] 55 ER 683 Tate Access Floors Inc v Boswell [1991] Ch 512 Yerkey v Jones (1939) 63 CLR 649 A H McDonald & Co Ltd v Wells (1930-1931) 45 CLR 506 AGC (Advances) Ltd v Breton Bay Land Ltd, unreported; SCt of WA; Library No 8682; 18 January 1991 Alati v Kruger (1955) 94 CLR 216 Alderton v The Prudential Assurance Company Limited (1993) 41 FCR 435 Aliotta v Broadmeadows Bus Service Pty Ltd (1988) 10 ATPR 40-873 Allcard v Skinner (1887) Ch D 145 ANZ Banking Group v Barry [1992] 2 Qd R 12 Armitage v Nurse (1997) 3 WLR 1046 Australia & New Zealand Banking Group Pty Ltd v Petrik [1996] 2 VR 638 Avon Finance Co Ltd v Bridger [1985] 2 All ER 281 Balls v Strutt (1841) 1 Hare 146; 66 ER 984 Bank of Credit & Commerce International SA v Aboody [1989] 2 WLR 759 Bank of Victoria Ltd v Mueller [1925] VLR 258 Barclays Bank plc v Kennedy [1989] 1 FLR 356 Barclays Bank v O'Brien [1993] QB 109 Barclays Bank v O'Brien [1994] 1 AC 180 Bawn v Trade Credits Ltd (1986) ANZ Conv R 709 Belmont Finance Corp Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 Bridgewater v Leahy (1998) 194 CLR 457 Cairncross v Paterson (1894) 20 VLR 258 Challenge Bank v Pandya (1993) 60 SASR 330 Charterbridge Corp Ltd v Lloyds Bank Ltd [1970] Ch 62 Clough v North Western Railway Ltd (1871) 7 LR Ex 26 Cockerill v Westpac Banking Corporation (1996) 142 ALR 227 Commonwealth Bank of Australia v ABC Property Planners Pty Ltd, unreported; SCt of NSW (Equity Division); 23 May 1991 Corozo Pty Ltd v Total Australia Ltd [1988] 2 Qd R 366 Crisp v Australia & New Zealand Banking Group Ltd (1994) ATPR 41-294 Daniels v Anderson (1995) 37 NSWLR 438 Devaynes v Robinson (1857) 24 Beav 86; 53 ER 289 Doneley v Doneley as executor of the Estate of Doneley [1998] 1 Qd R 602 Drozd v VAskas [1960] SASR 88 Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 Familiar Pty Ltd v Samarkos (1994) 115 FLR 443 Fry v Lane (1888) 40 Ch D 312 Gans v Riley (1912-1913) 15 CLR 731 Group 4 Industries Pty Ltd v Brosnan (1992) 8 ACSR 463 Guthrie v ANZ Banking Corporation (1989) NSW Conv R 55,463 Harkness v Harkness (1903) 20 WN (NSW) 269 Hawkins v Clayton (1988) 164 CLR 539 Hedley Byrne & Co Ltd v Heller and Partners Ltd [1964] AC 465 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 HFMF v Porteous [1999] WASC 55 HG & R Nominees Pty Ltd v Fava [1997] 2 VR 368 Holder v Holder [1968] 1 Ch 353 Johnson v Buttress (1936) 56 CLR 113 Kabwand Pty Ltd v National Australia Bank Ltd (1989) 11 ATPR 40-950 Kings North Trust Ltd v Bell [1986] 1 WLR 119 Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group Ltd [1998] 3 VR 16 Lancashire Loans Company Ltd v Black [1934] 1 KB 380 Langman v Handover (1929-1930) 43 CLR 334 Learoyd v Whiteley (1887) 12 App Cas 727 Lisciandro v Official Trustee in Bankruptcy (1996) 139 ALR 689 Mayfair Trading Co Pty Ltd v Dreyer (1958) 101 CLR 428 Maguire v Makaronis (1996) 188 CLR 449 Metal Manufacturers Ltd v Lewis (1986) 11 ACLR 122 Miles v Shell Company of Australia, unreported; FCA; 9 June 1998 Mills v Mills (1938) 60 CLR 150 Nolan v Westpac Banking Corporation (1989) 51 SASR 496 Norrish v Bostock [1921] 2 Ch 469; [1921] All ER 125 Partridge v Equity Trustees Executors & Agency Co Ltd (1947) 75 CLR 149 Permanent Building Society (In Liq) v Wheeler (1993) 11 WAR 187 Perre v Apand Pty Ltd (1999) 164 ALR 606 Powell v Powell [1900] 1 Ch 243 Public Trustee v Symon [1944] SASR 102 Radin v Commonwealth Bank of Australia, unreported; FCA; 23 October 1998 Re Pearce [1936] SASR 137 Rema Industries and Services Pty Ltd v Coad (1992) 107 ALR 374 Rhone-Poulenc Agrochimie SA v UIM Chemical Services (1986) 12 FCR 477 Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 2 All ER 1073 Sexton v Horton (1926) 38 CLR 240; 27 (NSW) 340; (1926) ALR 373 Shephard v Midland Bank plc [1987] 2 FLR 175 Southern Cross Commodities Pty Ltd (In Liq) v Ewing (1988) 14 ACLR 39 Spedley Securities Ltd (In Liq) v Greater Pacific Investments (In Liq) (1992) 7 ACSR 155 Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405 Story v Advance Bank of Australia (1993) 10 ACSR 699 Stroughill v Anstey (1852) 1 De GM & G 635; 42 ER 700 Sutherland Shire Council v Heyman (1985) 157 CLR 424 Swift v Westpac Banking Corporation (1995) ATPR 41-401 Teachers Health Investments Pty Ltd v Wynne (1996) ASC 56-356 The State Bank of New South Wales Limited v Vecchio (1998), unreported; SCt of NSW; 10 November 1998 Union Fidelity Trustee Co of Australia v Gibson [1971] VR 573 Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 Walker v Wimborne (1976) 137 CLR 1 Warburton v Whiteley (1989) NSW Conv R 58,283 Warner v Elders Rural Finance Ltd (1993) 41 FCR 399 Western Australia v Bond Corp Holdings (1991) ATPR 41-129 Westpac Banking Corporation v Bowden, unreported; SCt of NSW; 13 December 1993 Westwill Pty Ltd v Heath (1989) 52 SASR 461 Wickstead v Browne (1992) 30 NSWLR 1 Wilson v Metro Goldwyn Mayer (1980) 18 NSWLR 750 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
RIDOUT NOMINEES PTY LTD
First Defendant
CLOVERDALE PTY LTD
Second Defendant
RANLEIGH WARE PTY LTD
Third Defendant
PETER ALLAN RIDOUT as Executor of the Will of GEORGE EDWARD RIDOUT
CHRISTOPHER JOHN RIDOUT as Executor of the Will of GEORGE EDWARD RIDOUT
Fourth Defendants
DOROTHY ELMA RIDOUT
Fifth Defendant
PETER ALLAN RIDOUT
CHRISTOPHER JOHN RIDOUT
Sixth Defendants
(Page 2)
JILLIAN RIDOUT
Seventh Defendant
LYNETTE RIDOUT
Eighth Defendant
VINERS SILVERWARE PTY LTD
ESTELLE GIFTS PTY LTD
WANATA HOLDINGS PTY LTD
KAMBEROO PTY LTD
KACANA PTY LTD
FERGAL PTY LTD
Ninth Defendants
Catchwords:
Banking and financial institutions - Banker and customer and business of banking - Relationship between banker and customer - Customer under special disability
Corporations - Directors and special disadvantage - Whether corporation under special disability -Inter-company guarantees - Director's duties
Equity - Undue influence - Unconscionable conduct - Enforcement of guarantees
Guarantee and indemnity - Guarantees - The contract of guarantee - Rights of surety - Actions against surety - Indebtedness of company - Personal guarantees by directors - Unconscionability - Guarantee given by volunteers - Failure to understand effect of guarantee
Husband and wife - Contracts - Married women - Whether wife in position of volunteer - Whether principles in Yerkey v Jonesapplicable
Mortgages - Mortgages and charges - Execution of mortgages and agency - Remedies of mortgagor
Trusts and trustees - Construction of trust deeds - Breach of trust
(Page 3)
Legislation:
Nil
Result:
Findings of fact made
Parties invited to make submissions on form of orders
Representation:
Counsel:
Plaintiff : Mr C L Zelestis QC & Mr G H Murphy
First Defendant : Mr W S Martin QC & Mr A Atkinson
Second Defendant : Mr W S Martin QC & Mr A Atkinson
Third Defendant : Mr W S Martin QC & Mr A Atkinson
Fourth Defendants : Mr W S Martin QC & Mr A Atkinson
Fifth Defendant : Mr W S Martin QC & Mr A Atkinson
Sixth Defendants : Mr W S Martin QC & Mr A Atkinson
Seventh Defendant : Mr W S Martin QC & Mr A Atkinson
Eighth Defendant : Mr W S Martin QC & Mr A Atkinson
Ninth Defendants : Mr W S Martin QC & Mr A Atkinson
Solicitors:
Plaintiff : Corrs Chambers Westgarth
First Defendant : Solomon Brothers
Second Defendant : Solomon Brothers
Third Defendant : Solomon Brothers
Fourth Defendants : Solomon Brothers
Fifth Defendant : Solomon Brothers
Sixth Defendants : Solomon Brothers
Seventh Defendant : Solomon Brothers
Eighth Defendant : Solomon Brothers
Ninth Defendants : Solomon Brothers
Case(s) referred to in judgment(s):
Armstrong v Commonwealth Bank of Australia, unreported; SCt of NSW; Equity Division; 17 June 1999
Bank of New South Wales v Rogers (1941) 65 CLR 42
(Page 4)
Berdoe v Dawson [1865] 34 Beav 603 (55 ER 768)
Blomley v Ryan (1956) 99 CLR 362
Brooks v Sunlife Properties Pty Ltd, unreported; SCt of WA (Scott J); Library No 960071; 21 February 1996
Commercial Bank of Australia v Amadio (1983) 151 CLR 447
Commonwealth Bank of Australia v Khouri [1998] VSC 128
Cranfield Pty Ltd v Commonwealth Bank of Australia [1998] VSC 140
Garcia v National Australia Bank Ltd (1998) 155 ALR 614
Hobart Bridge Co Ltd v Federal Commissioner of Taxation (1951) 82 CLR 372
Macaura v Northern Assurance Co Ltd [1925] AC 19
Morgan v 45 Flers Ave Pty Ltd (1986) 10 ACLR 692
Morlend Finance Corp (Vic) v Luke (1991) ASCR 56-095
NZI Capital Corporation Ltd v Fulton, unreported; FCt Fed Ct of A, NG766/97; 10 June 1998
Sercombe v Sanders [1865] 55 ER 683
Tate Access Floors Inc v Boswell [1991] Ch 512
Yerkey v Jones (1939) 63 CLR 649
Case(s) also cited:
A H McDonald & Co Ltd v Wells (1930-1931) 45 CLR 506
AGC (Advances) Ltd v Breton Bay Land Ltd, unreported; SCt of WA; Library No 8682; 18 January 1991
Alati v Kruger (1955) 94 CLR 216
Alderton v The Prudential Assurance Company Limited (1993) 41 FCR 435
Aliotta v Broadmeadows Bus Service Pty Ltd (1988) 10 ATPR 40-873
Allcard v Skinner (1887) Ch D 145
ANZ Banking Group v Barry [1992] 2 Qd R 12
Armitage v Nurse (1997) 3 WLR 1046
Australia & New Zealand Banking Group Pty Ltd v Petrik [1996] 2 VR 638
Avon Finance Co Ltd v Bridger [1985] 2 All ER 281
Balls v Strutt (1841) 1 Hare 146; 66 ER 984
Bank of Credit & Commerce International SA v Aboody [1989] 2 WLR 759
Bank of Victoria Ltd v Mueller [1925] VLR 258
Barclays Bank plc v Kennedy [1989] 1 FLR 356
Barclays Bank v O'Brien [1993] QB 109
Barclays Bank v O'Brien [1994] 1 AC 180
Bawn v Trade Credits Ltd (1986) ANZ Conv R 709
Belmont Finance Corp Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393
Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256
Bridgewater v Leahy (1998) 194 CLR 457
(Page5)
Cairncross v Paterson (1894) 20 VLR 258
Challenge Bank v Pandya (1993) 60 SASR 330
Charterbridge Corp Ltd v Lloyds Bank Ltd [1970] Ch 62
Clough v North Western Railway Ltd (1871) 7 LR Ex 26
Cockerill v Westpac Banking Corporation (1996) 142 ALR 227
Commonwealth Bank of Australia v ABC Property Planners Pty Ltd, unreported; SCt of NSW (Equity Division); 23 May 1991
Corozo Pty Ltd v Total Australia Ltd [1988] 2 Qd R 366
Crisp v Australia & New Zealand Banking Group Ltd (1994) ATPR 41-294
Daniels v Anderson (1995) 37 NSWLR 438
Devaynes v Robinson (1857) 24 Beav 86; 53 ER 289
Doneley v Doneley as executor of the Estate of Doneley [1998] 1 Qd R 602
Drozd v VAskas [1960] SASR 88
Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218
Familiar Pty Ltd v Samarkos (1994) 115 FLR 443
Fry v Lane (1888) 40 Ch D 312
Gans v Riley (1912-1913) 15 CLR 731
Group 4 Industries Pty Ltd v Brosnan (1992) 8 ACSR 463
Guthrie v ANZ Banking Corporation (1989) NSW Conv R 55,463
Harkness v Harkness (1903) 20 WN (NSW) 269
Hawkins v Clayton (1988) 164 CLR 539
Hedley Byrne & Co Ltd v Heller and Partners Ltd [1964] AC 465
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83
HFMF v Porteous [1999] WASC 55
HG & R Nominees Pty Ltd v Fava [1997] 2 VR 368
Holder v Holder [1968] 1 Ch 353
Johnson v Buttress (1936) 56 CLR 113
Kabwand Pty Ltd v National Australia Bank Ltd (1989) 11 ATPR 40-950
Kings North Trust Ltd v Bell [1986] 1 WLR 119
Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group Ltd [1998] 3 VR 16
Lancashire Loans Company Ltd v Black [1934] 1 KB 380
Langman v Handover (1929-1930) 43 CLR 334
Learoyd v Whiteley (1887) 12 App Cas 727
Lisciandro v Official Trustee in Bankruptcy (1996) 139 ALR 689
Mayfair Trading Co Pty Ltd v Dreyer (1958) 101 CLR 428
Maguire v Makaronis (1996) 188 CLR 449
Metal Manufacturers Ltd v Lewis (1986) 11 ACLR 122
Miles v Shell Company of Australia, unreported; FCA; 9 June 1998
Mills v Mills (1938) 60 CLR 150
Nolan v Westpac Banking Corporation (1989) 51 SASR 496
Norrish v Bostock [1921] 2 Ch 469; [1921] All ER 125
(Page 6)
Partridge v Equity Trustees Executors & Agency Co Ltd (1947) 75 CLR 149
Permanent Building Society (In Liq) v Wheeler (1993) 11 WAR 187
Perre v Apand Pty Ltd (1999) 164 ALR 606
Powell v Powell [1900] 1 Ch 243
Public Trustee v Symon [1944] SASR 102
Radin v Commonwealth Bank of Australia, unreported; FCA; 23 October 1998
Re Pearce [1936] SASR 137
Rema Industries and Services Pty Ltd v Coad (1992) 107 ALR 374
Rhone-Poulenc Agrochimie SA v UIM Chemical Services (1986) 12 FCR 477
Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 2 All ER 1073
Sexton v Horton (1926) 38 CLR 240; 27 (NSW) 340; (1926) ALR 373
Shephard v Midland Bank plc [1987] 2 FLR 175
Southern Cross Commodities Pty Ltd (In Liq) v Ewing (1988) 14 ACLR 39
Spedley Securities Ltd (In Liq) v Greater Pacific Investments (In Liq) (1992) 7 ACSR 155
Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405
Story v Advance Bank of Australia (1993) 10 ACSR 699
Stroughill v Anstey (1852) 1 De GM & G 635; 42 ER 700
Sutherland Shire Council v Heyman (1985) 157 CLR 424
Swift v Westpac Banking Corporation (1995) ATPR 41-401
Teachers Health Investments Pty Ltd v Wynne (1996) ASC 56-356
The State Bank of New South Wales Limited v Vecchio (1998), unreported; SCt of NSW; 10 November 1998
Union Fidelity Trustee Co of Australia v Gibson [1971] VR 573
Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102
Walker v Wimborne (1976) 137 CLR 1
Warburton v Whiteley (1989) NSW Conv R 58,283
Warner v Elders Rural Finance Ltd (1993) 41 FCR 399
Western Australia v Bond Corp Holdings (1991) ATPR 41-129
Westpac Banking Corporation v Bowden, unreported; SCt of NSW; 13 December 1993
Westwill Pty Ltd v Heath (1989) 52 SASR 461
Wickstead v Browne (1992) 30 NSWLR 1
Wilson v Metro Goldwyn Mayer (1980) 18 NSWLR 750
(Page 7)
1 WHEELER J: This is an action to recover certain moneys and to enforce mortgages and guarantees securing the repayment of the moneys. The defendants are natural persons who are related to each other, and companies in which those natural persons have a variety of interests. It seems not to be disputed that money was advanced and that certain amounts were not repaid. The case of the defendants is essentially that the various security instruments upon which the plaintiff seeks to rely should be set aside by reason of, inter alia, unconscionable conduct on the part of the plaintiff, undue influence and misrepresentation, and participation in breach of trust.
The Natural Persons - Overview
2 A broad overview of the position of the natural persons involved in this matter is as follows. I propose to refer to those people by their first names throughout the rest of these reasons, in order to avoid confusion between them.
3 George Ridout met Dorothy Ridout during the Second World War. She was born in 1925 and left school at 14, having reached third year high school. She first worked in a shoe shop and then in a library and then during the war worked in an aircraft factory sewing and applying dope to main wing assemblies. George and Dorothy were married in September 1946. George died on 25 June 1993 at the age of 69.
4 When George and Dorothy married, George's parents had a small dairy farm in Victoria and the Repatriation Commission lent George the money to buy his parents' farm. Twelve years later, George and Dorothy left the farm having built up a substantial herd of cattle, selling it for approximately £96,000, which was then a considerable sum of money. They purchased a house in Adelaide at a cost of £6,200 and in about 1960 George invested approximately £26,000 into a company called Ranleigh Ware Pty Ltd ("Ranleigh"). It was a silverware business. A company called Cloverdale Pty Ltd ("Cloverdale") acquired the shares in Ranleigh. George and Dorothy were directors and shareholders of Cloverdale.
5 In 1961 George went to Western Australia to look for suitable land for a farm and, he having compiled a shortlist of properties, Dorothy travelled to Western Australia to discuss the final selection with him. Cloverdale purchased the farm at Boyup Brook, known as "Camballan", for cash. It is not entirely clear from the evidence whether the purchase price was the offered £29,000 or the asking price of £32,000, but in any
(Page 8)
- event in 1961 the property was purchased and George and Dorothy moved to Camballan in February 1962.
6 During the first years of their time in Western Australia, George flew regularly to Adelaide for directors or shareholders' meetings of Ranleigh. By 1974, Cloverdale had acquired 100 per cent of Ranleigh's shares; Dorothy was not much involved in Ranleigh, apart from assisting in the selection of goods to be imported from overseas. From time to time she signed documents when George requested her to. From time to time, she would accompany George to Adelaide and would occasionally sit in on meetings between George and the officers of the banks (initially Westpac and later the Commonwealth Bank) which were Ranleigh's bankers.
7 In the meantime, George and Dorothy had a number of children. At the time of George's death, there were five children surviving him, being three sons and two daughters ranging in ages from 33 to 45. Peter and Christopher are two of those sons, while Lynette and Jillian are their respective wives.
8 In 1976 George and Dorothy's son David took over as manager of Ranleigh. He managed Ranleigh for about nine years, leaving in about 1985.
9 Christopher and Peter, who were born in 1957 and 1960 respectively, left school before they had completed five years of high school to assist full time with farm work. When they married, they and their wives lived on the family farms. For a period of time, Peter and Lynette lived on and developed a farm in South Australia (Kacoonda), which was owned by Ranleigh. In 1980, Cloverdale bought a farm adjoining Camballan, called Marshalls. In 1985, a company called Ridout Nominees Pty Ltd ("Ridout Nominees") bought another farm in the same area of Western Australia called Brantwood. It appears that finance for that purchase came partly from the sale of Kacoonda, and partly from a foreign currency loan taken out by Ranleigh from Westpac in the sum of $800,000. Ridout Nominees mortgaged Brantwood as security for that loan.
10 Peter and Lynette lived on Brantwood after their return from South Australia, while Christopher and Jillian lived on Camballan at a house about a kilometre from the house occupied by George and Dorothy. I will return in a little more detail to the personal circumstances of the natural persons later.
11 The corporate structure, through which assets were acquired and held, can most conveniently be set out in chart form. A chart showing the
(Page 9)
- corporate structure is set out as an appendix to these reasons . Broadly, the directorships of the companies and the operations of the relevant trusts were as follows:
Directorships and Trusts
12 Ridout Nominees was a company, formed in 1976, of which George and Dorothy were the sole directors and shareholders. It operated as the trustee of the Cloverdale Trust, a discretionary trust of which the beneficiaries were George and Dorothy, their issue, and companies in which they held at least one share.
13 Cloverdale was formed in 1960. Cloverdale had 3500 issued shares, one of which was held by George and the remainder of which were held by Ridout Nominees. It was not a trustee. At all material times the directors of Cloverdale were George and Dorothy with their sons Christopher and Peter becoming directors in 1979 and 1985 respectively. Dorothy had been a director and secretary of Cloverdale since its formation in 1960. George was the governing director of Cloverdale with power under article 41:
"… to exercise all the powers authorities and discretions by the Memorandum of Association or these Articles expressed to be vested in the Directors generally and all the other Directors, if any, for the time being of the Company shall be under his control and shall be bound to confirm (sic) to his directions in regard to the Company's business."
14 Ranleigh had 50,500 issued shares, two of which were held by George and Dorothy and the remainder of which were held by Cloverdale. The directors were George, Dorothy, Peter and Christopher. Dorothy was first appointed a director and secretary in 1985. Peter and Christopher had been directors since 1981.
15 Viners Silverware Pty Ltd ("Viners") and Estelle Gifts Pty Ltd ("Estelle") were silverware companies of which George and Dorothy were the sole directors and shareholders. Dorothy had been a director of Viners since October 1987 and a director of Estelle since March 1984. Viners operated as the trustee of the G E Ridout No 4 Trust and Estelle operated as the trustee for the G E Ridout No 2 Trust. The beneficiaries of those trusts included George and Dorothy, their issue, Ranleigh, Cloverdale and Estelle.
(Page 10)
16 Wanata Holdings Pty Ltd ("Wanata") was a company in which George and Dorothy were the sole directors and shareholders. Dorothy had been director since May 1985. It was trustee of the G E Ridout No 3 Trust, the beneficiaries of which included George and Dorothy, their sons and daughters-in-law and the issue of the latter.
17 Kamberoo Pty Ltd ("Kamberoo") was a company of which Peter and Lynette were the sole directors and shareholders. It was trustee of the P A Ridout Trust, a discretionary trust, the beneficiaries of which included Peter, his parents (George and Dorothy), spouse and siblings and any company in which any of those persons held a share.
18 Kacana Pty Ltd ("Kacana") was a company of which Christopher and Jillian were the sole directors and shareholders. It was trustee of the C J Ridout Trust, a discretionary trust, the beneficiaries of which included Christopher, his parents (George and Dorothy), spouse and siblings and any company in which any of those persons held a share.
19 Fergal Pty Ltd ("Fergal") was a company of which the directors were George and Christopher and Lyell Kenneth Pontifex and in which the shareholders were George and Lyell Pontifex. It was the managing partner of a limited partnership involved in the motel business described below.
20 RSA Holdings Ltd ("RSA") was a company of which Lynette and Jillian became directors in June 1993. The company was set up to sell Ranleigh's stock, and did so without informing the plaintiff. As will appear, the plaintiff by then would have been in a position to claim an interest in the stock. The proceeds of sale of all the stock sold have not been paid to the plaintiff.
21 The assets which were acquired by George and Dorothy and by their corporate entities and the entities owned by their children, can be broadly classified into: family farms and family home; silverware businesses; other farms; and motel units. An overview of those acquisitions, from 1960 onwards, is as follows:
Silverware
22 In the early 1960's Cloverdale acquired an interest in Ranleigh which operated a silver plating business, importing and completing partially finished products. In about 1974, Cloverdale acquired 100 per cent control of Ranleigh. In 1984, George and Dorothy acquired Estelle, the
(Page 11)
- business of which was primarily the importation from overseas and sale within Australia of silver plated items. In March 1987, George and Dorothy purchased Viners, a silverware company with a business similar to that of Estelle. At some time prior to 1980, Ranleigh acquired an industrial property at Deloraine Road, Edwardstown, South Australia. Ranleigh was the principal silverware business, in that the business of Estelle and Viners was run from the Edwardstown property and Ranleigh charged Estelle and Viners for labour, storage, etc.
Family Farms and Home
23 In 1961, Cloverdale acquired Camballan at Boyup Brook, Western Australia. In about 1980, Cloverdale acquired Marshalls, a farm adjoining Camballan and later run as one with it. In the 1980's, George and Dorothy acquired a home in Adelaide, known as the Panorama (a suburb of Adelaide) home. Dorothy, who was originally from South Australia, seems to have been particularly attached to this house, referring to it on occasions as "my home". In 1985 Ridout Nominees acquired Brantwood, another farm at Boyup Brook, Western Australia, some little distance from Camballan. George, Dorothy and their children lived mostly on the Boyup Brook farms.
Other Farms
24 In 1971 Cloverdale acquired a property called Timaru near Camballan which was subsequently sold at a profit. In 1981 George and Dorothy, or companies owned by them, bought the farm Kacoonda at Kingston in South Australia, and sold it in 1984 for a considerable profit. At about the same time, another farm at Naracoorte in South Australia was bought, which was sold within two and a half years for a considerable profit.
Motel Units
25 In October 1987, 29 units at the All Travellers Motel, Belmont, were acquired as follows:
4 units by Ranleigh
5 units by Ridout Nominees
16 units by Wanata
(Page 12)
2 units by Kamberoo
2 units by Kacana.
Relationship Between the Group Businesses, and Between the Business and Family Members.
26 Broadly, the division of labour within the Ridout family seems to have been that George was the one who was primarily concerned with the making of financial and business planning decisions. He was the person who dealt with banks, accountants and solicitors as required. He was the person who was regarded as having the final decision as to what properties would be purchased or sold, although it appears that, in relation to farming properties at least, he consulted with Dorothy. So far as the practical running of the farms was concerned, Dorothy made a very substantial contribution to the running of the farms by drafting sheep, cooking for shearers, and performing the myriad of tasks that fall to a farmer's lot. Additionally, she was of course for many years very busy bringing up her and George's children. As Peter and Christopher grew up and gradually took over the running of the Western Australian farms, a great many day to day farming decisions were delegated to them, although it appears that within the family it was considered that all major expenditure or novel departures were required to be cleared with George.
27 Dorothy, and, when they were older, Peter and Christopher, had some interest in the running of the silverware businesses, but had by no means a detailed knowledge of them. Those businesses seemed to have been regarded largely as George's creatures. George seems to have been very pleased with, and proud of, the silverware businesses. From time to time, moneys were taken from the farming enterprises when the silverware businesses were in need of cash and directed to the silverware businesses. Dorothy was aware that the silverware businesses were from time to time and to an extent "propped up" with money from the farming operations and she did not like this practice but appears to have made no protest. Peter and Christopher were aware of the practice to a lesser extent.
28 Various inter-company loans were made from time to time amongst the enterprises and interest was charged on an ad hoc basis. So far as one can tell, these decisions were taken from time to time on the advice of accountants in order to minimise the incidence of taxation.
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29 Additionally, funds borrowed by Cloverdale from external lenders, using the family farms as security, were channelled to the silverware businesses, while the silverware business also borrowed money from an external lender which they lent to Ridout Nominees in order to purchase a family farm which was used as security. The major transactions of this kind were as follows. In March 1976, Cloverdale mortgaged Camballan to secure Ranleigh's facilities with the Bank of Adelaide. In June 1976 Cloverdale mortgaged Marshalls in order to raise funds for Ranleigh's business. In April 1985, it appears that the foreign currency loan taken out by Ranleigh was on-lent to Ridout Nominees to provide a substantial amount of the funding for the purchase of Brantwood, which was mortgaged by Ridout Nominees to Westpac by way of security. In March 1987, Cloverdale mortgaged Camballan to the ANZ as security for Viners' debts to the ANZ.
Business Overview
30 The picture which emerges from the evidence is that of a gradual expansion of the business activities of what might be called the "Ridout Group", using that term in a non-technical sense to describe the family's business interests. Over time, George and Dorothy, and interests associated with them, bought seven farming properties, ending up eventually with the two Western Australian family farms (Camballan - including Marshalls - and Brantwood) which were run on a large scale and which were generally very successful.
31 Over time, they built up their holding in Ranleigh and expanded into other silverware businesses. Although money was from time to time directed into the silverware businesses from the farms, it appears that the silverware businesses were overall profitable and successful. Finally, they decided to branch out into other real property by purchase of the motel units. These decisions were taken by George, with some input from other family members, and under George's direction.
32 As the businesses expanded, their requirements for capital increased from time to time and George approached a variety of financial institutions for assistance. Over the years, George and Dorothy signed very many documents associated with loan transactions, and providing security as required. In an attempt to manage the very high interest rates prevailing at the time, George accepted advice from Westpac and caused Ranleigh to take out an $800,000 foreign currency loan which assisted in the purchase of Brantwood.
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33 In the early 1990's, a number of things went badly wrong with what until then had been a prosperous and expanding set of enterprises. Wool prices plummeted, so that the farms were no longer making enormous gross profits. Currency fluctuations saw the amount of the foreign currency loan blow out in Australian dollars from $800,000 to almost $1.3M. The silverware businesses declined; the reasons for this are not entirely clear, but appear to include financial difficulties faced by the Proud's chain, which was a major customer, and a general market decline in demand for silverware. In about 1990, George's health began to decline. By the time of his death in 1993, it had become apparent that the Ridout Group would be unable to continue to service the level of debt which it was then carrying. Some asset sales were undertaken, but the shortfall was such that it appeared that the family farms would have to be sold in order to clear the amounts owing to the plaintiff. It is against that background that the plaintiff seeks to enforce its securities.
34 The relevant borrowings began in 1973 and continued through to a complex revised lending arrangement in late 1990 and early 1991. The plaintiff relies first upon the 90/91 instruments. However, if they are to be set aside for any reason, it relies upon arrangements in force as at March 1990, which are attacked by the defendants on grounds which overlap but do not wholly duplicate the grounds relating to the 90/91 instruments.
35 If those instruments should be set aside, the plaintiff points to still earlier instruments which would entitle it to recover at least some portion of the sums claimed. Even if those earlier transactions were not relied upon by the plaintiff directly, it would be necessary to understand them in order to grasp the nature of the 1990/1991 arrangements. As later mortgages and security instruments were obtained, earlier ones were not discharged, except where other external lenders, such as Westpac, were concerned. In relation to those other external lenders, the purpose of the transactions with the plaintiff was to enable those external lenders to be paid out, and consequently securities given to them were discharged.
The 1973 Mortgage
36 In 1973 the plaintiff agreed to provide Cloverdale with $45,000 worth of finance in the form of a $30,000 farm "carry on" overdraft and $15,000 farm development loan, both secured by mortgage over Camballan (excluding Marshalls which was at that time not acquired). In that mortgage, which is the usual lengthy document in rather small type and written in somewhat impenetrable legal jargon, cl 1 provides that, as
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- is usual in such a document, it "secures all moneys now or hereafter to become payable to the bank by the debtor and mortgagor" (the debtor and mortgagor in this case both being Cloverdale). That facility increased from time to time and by July 1986 had risen to $150,000. By July 1989 it had increased to $400,000.
37 Although the practice does not seem to have been invariable, in relation to most of the increases in overdraft, there is a formal letter of request signed by George as director and Dorothy as secretary and bearing the common seal of Cloverdale. In each case, a form letter was sent by the plaintiff addressed to "The Proprietors" of Cloverdale advising of approval of the increase in overdraft and containing reference to the security which is expressed as "to comprise securities already held by the bank in connection with advances to Cloverdale".
38 By mortgage dated 21 August 1989, Cloverdale mortgaged Marshalls to secure "the same moneys as are secured by mortgage … 11 May 1973 from the said Cloverdale Pty Ltd to and in favour of the bank …". Marshalls thus became part of the Cloverdale mortgage of Camballan. In August 1990 the plaintiff increased Cloverdale's facilities to $530,000, the letter dated 8 August 1990 from it referring to security for the increase as "securities already held in connection to Cloverdale" (ie Camballan and Marshalls).
39 A further application for accommodation was made by Cloverdale dated 2 November 1990, signed by George as director and Dorothy as secretary. No amount appears on the application. Further accommodation was granted as part of a package in late 1990 and early 1991. The details of the package will emerge later. For the moment, it is sufficient to note that in addition to the $530,000 facility already in existence (being $500,000 bill discount facility and a $30,000 overdraft limit), a further "multi-option facility" in the amount of $940,000 was approved, taking Cloverdale's total borrowings to $1,470,000. Approval was given by letter addressed to George c/- Ranleigh dated 6 December 1990 and security for Cloverdale was described as comprising, inter alia, "a mortgage by Cloverdale Pty Ltd over 1533ha property known as 'Camballan' …" together with "a mortgage by Cloverdale Pty Ltd over 750ha property being Wellington Location 4931 WA [Marshalls]".
40 As part of the same re-financing package, the plaintiff again wrote to George on 3 January 1991, referring to the letter of 6 December 1990 and advising that revaluations on Western Australian farming properties and
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- on the Edwards Town South Australia property showed "a substantial decrease in property values from those previously recorded". The letter continued that the approval given for the package "may stand subject to provision of additional security as follows"; that security included what was described as "amended fresh registered second mortgage by Cloverdale Pty Ltd over the farm 'Camballan'" and "amended fresh registered mortgage by Cloverdale Pty Ltd over the farm at Wellington Location". It appears no amended mortgages were prepared; rather (apparently to avoid further fees and stamp duty) the plaintiff decided to rely upon the earlier mortgages.
41 Finally, on 18 January 1991, again referring back to the letter of 6 December 1990, the plaintiff advised George that it confirmed approval for increased facilities, which together totalled almost $5M, to companies under his control. The letter advised, "A summary of facilities and securities is provided for your information." So far as Cloverdale was concerned, that summary relevantly was:
"CLOVERDALE PTY LTD - Boyup Brook, WA
• Bill Discount Facility $500,000
• Overdraft Limit 30,000
$530,000
SECURITY:
1) Registered second mortgage by Cloverdale Pty Ltd over "Camballan" farm WA.
2) Registered first mortgage by Cloverdale Pty Ltd over farm at Wellington location WA.
[The reference in (1) to a second mortgage is because a prior mortgage existed in favour of the Commonwealth Development Bank]
CLOVERDALE PTY LTD - Clovelly Park Branch, SA
• Multi Option Facility $1,090,000"
42 It is unnecessary to set out the security summarised under this heading here. It consisted of registered first mortgages over various of the motel units by various companies, a registered equitable mortgage, and
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- guarantees by a variety of persons and entities including something described as "guarantee interlocking by … Cloverdale Pty Ltd". It is to be noted that there is no reference under this heading to a mortgage of Camballan or Marshalls. The Clovelly Park Branch was the branch which approved the 1990/91 finance.
43 In relation to the Cloverdale mortgage, the defendants plead, as was the fact, that it was executed by George and Dorothy in 1973 as security for farm "carry on" finance. It is pleaded that George and Dorothy had no reason in December 1990 to suspect, and did not suspect, that the mortgage given by Cloverdale 17 years previously remained in existence and applicable to secure additional advances in excess of $1M. It is pleaded that the plaintiff was put on notice that there was a danger or likelihood that George and Dorothy would assume the Cloverdale mortgage did not secure indebtedness of Cloverdale to the plaintiff, other than the carry on finance; and that the plaintiff was on notice that George and Dorothy would not expect "the obligation purportedly imposed by the Cloverdale mortgage to the effect that the Cloverdale mortgage secured all moneys which at any time for whatever reason and on any account whatsoever … might be or become due from Cloverdale to the plaintiff" to exist.
44 It is asserted that this silence and inaction amounted to an implied representation to Cloverdale and to George and Dorothy that those obligations did not exist, which representation was a false representation made in trade or commerce. It is then asserted that Cloverdale executed the Cloverdale mortgage in reliance upon that representation and that the Cloverdale mortgage was by reason of those matters obtained by means of unconscionable conduct.
45 The most cursory examination of the chronology reveals that the conclusion which it is said should be drawn from the events of 1990 cannot stand. The mortgage referred to as the Cloverdale mortgage was executed in 1973, and for that reason alone cannot have been executed in reliance upon, or obtained by means of, a series of representations which commenced after execution and culminated in implied representations made in 1990 and 1991.
46 If it is intended to suggest that there was an implied representation that the mortgage would not be used as security for later advances, or that the later advances were unsecured, then the pattern of correspondence up to and including the $530,000 facility is, in my view, inconsistent with any such representation. While the $1.09M facility gives rise to more
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- complex issues, the events leading up to the grant of that facility, discussed in detail later, make it clear, in my view, that the plaintiff required all the farming properties to be included within its security "package". The defendants' attack on this security cannot be sustained.
Cloverdale Mortgage D777666
47 By letter dated 25 February 1988, the plaintiff approved finance for Viners in the sum of $500,000. The application for accommodation was made on Viners' behalf on a standard bank "application for accommodation" form, and signed by George and Dorothy. The mortgage was signed on behalf of both Viners and Cloverdale by George and Dorothy as director and secretary respectively.
48 By this mortgage, Cloverdale mortgaged Camballan to secure the Viners' facility and to secure all moneys payable by Cloverdale to the plaintiff on any account. By virtue of its terms, the 1989 mortgage of Marshalls later also became security for Viners' debts. By a request signed by George and Dorothy as director and secretary and made under seal, which is undated but appears to have been made in about August 1988, an increase in the Viners' facility to $600,000 was sought. This increase was approved by letter dated 16 August 1988, and one condition of approval was said by the plaintiff in that letter to be "security already held by the Bank in connection with advances to the company".
49 With respect to this mortgage, the defendants plead that Dorothy, the "only director of Cloverdale other than George Ridout" was to the knowledge of the plaintiff in a position of special disability at its time of completion, that she was unduly influenced by George to the knowledge of the plaintiff, that the mortgage was of no benefit to Cloverdale, that George was the agent of the plaintiff for the purpose of obtaining execution of the mortgage by Dorothy and that the plaintiff was therefore liable for his undue influence and misrepresentation, and that certain implied representations which were false and which were made in the course of trade and commerce, were made by the plaintiff to Dorothy in the course of execution of the mortgage. There are in this pleading a number of themes which occur in relation to later transactions also. However, it is convenient to consider how matters stood in 1988, before turning to the later and more complex transactions.
50 There appears to be no shorthand way of summarising the pleadings. It is therefore necessary to set them out in all their detail. The defendants plead with respect to this mortgage that:
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- "44A With respect to Mortgage D777666 the defendants further say that:
44A.1 The fifth defendant, the only director of Cloverdale other than George Ridout, was to the knowledge of the plaintiff as at April 1988 or thereabouts in a position of special disability by reason that:
44A.1.1 She was elderly.
PARTICULARS OF KNOWLEDGE
Personal details concerning the fifth defendant including her age were held on the plaintiff's file.
44A.1.2 She had little education.
PARTICULARS OF KNOWLEDGE
Personal particulars concerning the fifth defendant including her personal history were held on the plaintiff's file.
44A.1.3 She had little or no knowledge of financial matters and no involvement in the management of Cloverdale and Viners.
PARTICULARS OF KNOWLEDGE
(a) The defendants repeat paragraph (a) of the particulars to paragraph 43.2.3.
[ie (a) The fifth defendant has lived in Boyup Brook, a small country town, since 1962 and had been a customer of the plaintiff since that time. She, her circumstances, and history were known to the managers who from time to time were stationed at the Boyup Brook branch of the plaintiff.]
(b) Cloverdale had obtained financial accommodation from the plaintiff since 1973 during which time the plaintiff dealt exclusively with George Ridout, the other director of Cloverdale.
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- (c) The plaintiff dealt exclusively with George Ridout one of the directors of Viners in relation to all financial accommodation granted by the plaintiff to Viners.
44A.1.4 She was unduly influenced and controlled by her husband George Ridout such that she was likely to sign whatever documents George Ridout requested that she sign and was likely to rely entirely upon whatever explanation was given to her by George Ridout concerning the nature of Mortgage D777666 in order to form an understanding of the said transaction and irrespective of the inadequacy of any such explanation.
PARTICULARS OF UNDUE INFLUENCE
The defendants repeat the particulars to paragraph 43.2.5.
[ie (a) By reason of the relationship of husband and wife between George Ridout and the fifth defendant undue influence arises by presumption of law.
(b) Further or in the alternative by reason of the high degree of trust and confidence reposed in George Ridout by the fifth defendant she was unduly influenced by George Ridout.]
PARTICULARS OF KNOWLEDGE
(a) The fact that the fifth defendant was the wife of George Ridout was information held on the plaintiff's file.
(b) The plaintiff's knowledge was constructive arising from its knowledge that:
(i) George Ridout was the controlling mind and will of Cloverdale and Viners of which the fifth defendant was a director.
(ii) all written correspondence concerning the affairs of Cloverdale and Viners had been between the plaintiff and George Ridout;
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- (iii) George Ridout behaved with respect to all decisions concerning Cloverdale and Viners as the person in whom ultimate control resided;
(iv) the fifth defendant was shy, quiet and retiring person while her husband George Ridout was a firm, confident, opinionated, persuasive and optimistic person in apparent control of Cloverdale and Viners.
- 44A.2 With respect to Mortgage D777666 no copy of memorandum number 18 had been supplied to the fifth defendant by the plaintiff and no explanation had been given to the fifth defendant by the plaintiff of the meaning and effect of memorandum 18.
44A.3 By Mortgage D777666 the plaintiff was obtaining security for advances of $600,000 made by the plaintiff to Viners.
44A.4 The entry by Cloverdale into Mortgage D777666 was of no benefit to Cloverdale and was detrimental to Cloverdale.
PARTICULARS
Cloverdale did not have an ownership interest in Viners.
Viners' financial position was uncertain having made a substantial net loss in the preceding financial year.
The mortgage was an all monies mortgage which would secure all future debts of Viners to the plaintiff.
44A.5 To the knowledge of the plaintiff Camballan, excluding Marshalls Farm, was the home of the fifth defendant and her family, and had been since the early 1960's and was the primary source of the livelihood of the fifth defendant and her family and entering into Mortgage D777666 by Cloverdale as security for borrowings of Viners, a peripheral enterprise of George Ridout of doubtful financial standing, resulted in the fifth defendant risking the loss of her family
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- home and livelihood which risk was ill-advised and avoidable.
- 44A.6 The fifth defendant was unaware that the substance and effect of Mortgage D777666 as is pleaded in paragraphs 44A.3, 44A.4 and 44A.5.
44A.7 The fifth defendant and Cloverdale did not obtain any independent advice as to the terms of Mortgage D777666 and as to the advisability of entering into Mortgage D777666.
44A.8 The plaintiff took no steps to ensure that the fifth defendant and Cloverdale obtained, alternatively to encourage them to obtain, independent advice as to the terms of Mortgage D777666 and as to the advisability of entering into Mortgage D777666.
44A.9 The plaintiff addressed all correspondence concerning Mortgage D777666 to George Ridout personally and took no steps to communicate in writing concerning the transaction with the fifth defendant.
44A.10 The plaintiff relied upon George Ridout to obtain the execution by Cloverdale and by George Ridout's wife, the fifth defendant, of Mortgage D777666 and relied upon George Ridout to convey to the fifth defendant the information necessary to appreciate the nature and extent of the obligations imposed upon Cloverdale by Mortgage D777666.
44A.11 George Ridout failed to disclose to the fifth defendant the information necessary to appreciate the nature and extent of the obligations imposed upon Cloverdale by Mortgage D777666.
44A.12 By reason of the facts and matters pleaded in paragraphs 44A.1 to 44A.11 the execution of Mortgage D777666 was procured in a manner which amounts to unconscionable conduct and at equity Mortgage D777666 should be set aside.
44A.13 Further and alternatively in all the circumstances the fifth defendant did not consent to Cloverdale entering
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- into Mortgage D777666 and did not authorise the use of the company seal of Cloverdale for the purpose of executing Mortgage D777666 and that mortgage is not enforceable against Cloverdale."
Unconscionable Conduct in Relation to Cloverdale
51 The first broad observation that may be made about this pleading, is that it seeks to apply to the position of the company Cloverdale, which granted mortgage D777666, the equitable principles which are applicable to persons in a position of special disability. If one looks at the often quoted passage in Blomley v Ryan (1956) 99 CLR 362 (at 405 per Fullagar J) the circumstances adversely affecting a party which may induce a court of equity to set a transaction aside include -
"… poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary."
52 It is immediately apparent that only a natural person can suffer from the majority of the disadvantages there mentioned. There have been few cases in which the principle has applied to a corporation. The learned authors of "Cheshire and Fifoot on Contract" (Butterworths 1997 p 560) observed:
"Although the cases have been concerned with disadvantaged natural persons, it is not difficult to imagine a commercial transaction involving a small one person or family company which might attract equitable relief."
53 It appears that the authors were not aware of any cases in which the principles had been applied to corporations, although the researches of counsel in this case have discovered two cases in which it appears to have been assumed that a corporation could be in a position of "special disadvantage" in this sense, they being: Brooks v Sunlife Properties Pty Ltd, unreported; SCt of WA (Scott J); Library No 960071; 21 February 1996 and NZI Capital Corporation Ltd v Fulton, unreported; FCt Fed Ct of A, NG766/97; 10 June 1998. In neither of those two cases does there appear to have been any consideration of whether a corporation could suffer such a special disadvantage; rather, it seems simply to have been assumed that the principle would apply in respect of a corporation.
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54 If it is correct to say that the focus of equity's inquiry in relation to unconscionable dealing is the conduct of the stronger party in dealing with one who is under a special disability (Commercial Bank of Australia v Amadio (1983) 151 CLR 447 at 474 per Deane J) then there would appear to be more than one sense in which it is possible for such conduct to occur in relation to a corporation.
55 First, to a limited extent a corporation may itself suffer from a "special disadvantage". For example, on occasion individuals have been held to suffer from such a disadvantage where they are in a desperate financial position and, attempting to escape from that position, act without legal advice (eg Morlend Finance Corp (Vic) v Luke (1991) ASCR 56-095). A corporation too may be in a desperate financial position and may act without advice. However, at least at this point of the pleading, that is not how Cloverdale's disadvantage is said to arise. Rather, it appears that the disadvantage is relevantly Dorothy's and, because she was one of the two directors, it is sought to impute her disadvantage to the company.
56 It seems to me that there are principles which would justify taking the view that it is not appropriate to look behind the corporation to the natural persons who are its directors for the purpose of considering whether there has been unconscionable conduct. The first is that the corporation is self-evidently a means adopted for the purpose of engaging in commerce. While there are obviously large, well resourced, well advised, corporations which could not conceivably be suffering any relevant disability, it will not always be easy to discern whether a corporation is, or is not, so run that a disability in one or more key directors would amount to a disability of the corporation itself. Even if one confined the rule to "family" corporations, there is a very wide range of such corporations. It may be a substantial impediment to reasonable commercial activity if those dealing with the corporation must look behind it to consider the abilities of its directors before dealing with it. Small corporations could be adversely affected if they are not in a position to take action quickly where commercial circumstances require it, because of the need to convince lenders or others that their directors are not under a relevant disability.
57 Additionally, while a corporation is an artificial person, it is in law an entity distinct from those who are its directors and shareholders and is employed for commercial purposes precisely because it has that independent and distinct existence. There is much to be said for the view that those who choose to conduct their affairs through the medium of a corporation should not, for the purposes of avoiding obligations
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- undertaken by the corporation, be permitted to rely upon characteristics which pertain to them as the natural persons who lie behind the corporation: Hobart Bridge Co Ltd v Federal Commissioner of Taxation (1951) 82 CLR 372 at 385 per Kitto J, Tate Access Floors Inc v Boswell [1991] Ch 512 at 531, Morgan v 45 Flers Ave Pty Ltd (1986) 10 ACLR 692 at 694-5 per Young J.
58 In Dorothy's case, although the idea for the incorporation of Cloverdale and the other companies was not hers, she knew that Camballan was purchased by Cloverdale, she acquiesced in being a director and secretary, and in that capacity at George's request she signed very many documents holding herself out to the world as director and secretary of a corporation. To the extent that there were taxation and other benefits which flowed to the family members from the adoption of the corporate structure, she was prepared to accept the fruits of that corporate structure. It may be inequitable, as against third parties, for the courts to accede to her request to look behind that corporate structure. Further, although the maxim "ex turpi causa …." is not relied upon by the plaintiff, in a case such as this Dorothy is in effect seeking to rely upon her own failure diligently to apply herself to the affairs of the company.
59 On the other hand, one can imagine cases in which it would appear to be inequitable if a court were to refuse, as a rule of blanket application, to look behind a corporate structure. No doubt there are individuals who are advised to adopt that structure and who do so without ever being capable of understanding the responsibilities and the consequences of that decision. One can imagine situations in which individuals may be advised to adopt a corporate structure by advisers who know of their special disabilities and who then proceed to take advantage of those disabilities. Because of equity's focus on the conduct of the other party, it may be possible to deny reward to unconscionable conduct without unduly inhibiting commerce, if those dealing with the corporation are not permitted to rely upon transactions with it in circumstances where it is sufficiently evident to them that the person or persons who is or are the corporation's effective decision makers suffer from a special disability or disadvantage which makes them unable to make a real judgment as to the best interest of the corporation. It may be thought inappropriate that a third party, having notice of such a disability, be permitted to insist on a transaction by reason only of the fact that it was made with a corporate entity.
60 For the purposes of the somewhat similar principle enunciated in Yerkey v Jones (1939) 63 CLR 649, courts, including the High Court,
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- have thought it appropriate to look behind the corporate veil for the purposes of determining whether a wife who provides a surety is truly to be regarded as a volunteer. In Garcia v National Australia Bank Ltd (1998) 155 ALR 614, although Mrs Garcia was both a director and shareholder of the company in respect of which the guarantee was provided, it was held that the company was in effect the creature of her husband. In the absence of authority expressly dealing with the point, this appears to me to be an indication of the way in which a Judge of first instance should consider the application of these equitable principles where they may involve a corporation. Similar inquiries are to be found in Armstrong v Commonwealth Bank of Australia, unreported; SCt of NSW; Equity Division; 17 June 1999; Hamilton J, Commonwealth Bank of Australia v Khouri [1998] VSC 128; and Cranfield Pty Ltd v Commonwealth Bank of Australia [1998] VSC 140.
61 For the purpose of these reasons, I am prepared to assume that what might in shorthand be referred to as "Amadio" unconscionability will be available in respect of a corporation in some circumstances. However, for the reasons which follow, I take the view that Dorothy did not suffer any relevant special disadvantage which should be imputed to Cloverdale.
62 Most broadly, it needs to be borne steadily in mind that it is accepted on all sides that George was the "directing mind and will" of each of the family companies in which he was involved. The extent to which Dorothy understood the affairs of those corporations and the extent to which she participated in decisions is disputed, but there seems to be no doubt that the decisions were ultimately made by George, and that George conducted the overwhelming majority of negotiations and other dealings with banks and with other third parties. Were George suffering a relevant special disability, it might well be thought to be unconscionable of the bank to take advantage of that disability in order to enter into a transaction with Cloverdale. However, it seems to me to be stretching the principle in Amadio too far to hold that where a lender is aware of any special disability of any director of a corporation, it is unconscionable for the lender to rely upon its transaction with that corporation, even where it is plain that decisions about the transaction on behalf of the corporation will effectively be made by some other person.
63 In the case of Cloverdale, not only was George apparently in each case the person who assessed Cloverdale's requirements for finance and entered into negotiations and made decisions concerning those requirements, but he was also the governing director to whose directions all other directors were, pursuant to Cloverdale's articles of association,
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- required to conform. If George suffered no special disability which would affect his ability to consider the interests of Cloverdale, it appears to me to follow that Cloverdale suffered no such disability. However, in case that conclusion is wrong, I turn to consider each of the aspects of special disability alleged in respect of Dorothy, and I do so by reference to the relevant paragraph number in the defence.
Paragraph 44A.1.1 (her age)
64 At the relevant date, being April 1988, Dorothy was 63. This is not such an advanced age as necessarily to give rise to suspicion of mental disability. The transactions were not some novel sort of commerce in respect of which a person of her age might be thought to lack experience. Further, I note that before me, 11 years later at the age of 74, she presented as an alert lady with a good memory and an ability to understand the relevant transactions. I appreciate that during the course of this litigation she has been required to consider the various transactions in detail, and has no doubt had them clearly explained to her. It therefore cannot be concluded that what she appeared to understand in 1999 she would necessarily have understood in 1988. However, I am sure that her age would not have presented any barrier to her understanding at that time.
Paragraph 44A.1.2 (her education)
65 Although Dorothy left school at 14, there is nothing to suggest that she lacked ordinary literacy skills. In cross-examination, she was able to understand that various documents were mortgages, and it appears that she understood in broad terms what a mortgage was. She was able to recognise on the various mortgages the descriptions of the various locations which identified the property being mortgaged as Camballan. She was able to identify the relevant bank and the family companies involved in the transactions. Although her evidence was that at some time prior to the litigation she was given a copy of the Cloverdale mortgage and found it long, complicated and confusing and could not understand it, it appeared to me during the course of cross-examination that she would have been able to understand the gist of each transaction had she concerned herself with it. She knew that various documents that she signed at her husband's request were security. She simply did not attempt to ascertain at the relevant time what each document was.
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Paragraph 44A.1.3 (her lack of knowledge of financial matters and lack of involvement in the management of Cloverdale and Viners)
66 As I have suggested above, I think that Dorothy was in a position to understand what a mortgage was and to understand the concept of one company securing the debts of another. She understood that the family businesses were conducted through a number of corporations and that she was requested to sign documents in relation to them from time to time. It is not clear to me what "knowledge of financial matters" Dorothy relevantly lacked, as an abstract proposition.
67 So far as the management of Cloverdale and Viners was concerned, she plainly was involved to the extent of signing documents at the request of George. She knew that Cloverdale had purchased Camballan; indeed it was her evidence in cross-examination that she and her husband decided that Camballan would be purchased through the company Cloverdale. She was aware of the purchase of the silverware companies, although she had disagreed with George when he wanted to purchase them, and she was aware that some money went from the farms from time to time to the silverware companies.
68 The evidence does suggest however, that she did not know what the duties of a director were, and that, rather than attempting to apply herself with any diligence to the affairs of the companies, she chose to leave management of them to George because she placed trust in him. To the extent that this was a "disability", it was one which Dorothy chose, and chose (albeit unknowingly) in breach of her legal duties. I will return to the relevance of her directorship later.
69 So far as the plaintiff's knowledge of Dorothy's disability in relation to Cloverdale and Viners is concerned, the pleading essentially boils down to two elements: they being, that Dorothy lived in a small country town and her circumstances must have been known to the Boyup Brook managers of the plaintiff from time to time; and that the plaintiff dealt exclusively with George in relation to financial accommodation to Cloverdale (with a similar pleading later in relation to Viners).
70 Paragraph 43.2.3(b) pleads, in relation to a later transaction in late 1990, that the plaintiff had knowledge of Dorothy's "disability" by reason of inquiries made by its officers Mr Thede ("Thede") and Mr Jazarbek ("Jazarbek"). It is convenient to deal with this allegation in this section, so that all allegations relating to Dorothy remain together.
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71 So far as the first proposition is concerned, there was some evidence from Mr Shackleton, who was the branch manager at Boyup Brook from 1985 to 1990. His evidence was that on a few occasions he visited Camballan when he required documents to be signed by Dorothy and George. On those occasions he said:
"I would take documents out to the property and Dorothy, George and I would sit around a table to discuss the documents."
72 He was cross-examined specifically about this paragraph. He agreed that no such discussion occurred in relation to provision of financing to Viners, which was done from South Australia. However, it was not suggested to him that no such practice ever occurred; rather, it seems to have been implicit in the cross-examination that it was accepted that such discussions had occurred from time to time. So far as the local branch is concerned then, it seems to have been the view taken there that Dorothy was involved in at least some of the family businesses to an extent that required her participation in discussions about "documents".
73 So far as the second proposition is concerned - that is that officers of the bank dealt entirely with George - the difficulty for the defendants lies in acceptance of the proposition that it necessarily follows either that Dorothy was not involved with the management of the two companies or that the bank should have been aware of her non-involvement. It is more often than not the case, perhaps, that in any organisation - even a small family company - different people will adopt different roles as a matter of convenience. The mere fact that one person appears to be the public face of the corporation and the person who engages in negotiations on its behalf, does not entail the conclusion that no other person has any role to play or any interest in management. George's role leads to no conclusion one way or the other about whether Dorothy read or understood, or inquired about, or discussed with George, any of the documents which he took home for her to sign, or any of the proposals which the company negotiated with external bodies.
74 It should also be remembered in this context that the structure adopted by Cloverdale and Viners was a corporate one. Dorothy was a director, and had a duty to apply herself with reasonable diligence to the affairs of those companies. Indeed, the statutory provision in respect of corporations entitles those dealing with them to assume that officers properly perform their duties to the company (s 129 Corporations Law). In the absence of anything indicating the contrary, it seems to me that the
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- plaintiff was entitled to assume that, notwithstanding that it dealt with George, Dorothy was taking a role in the management of the company.
75 To the extent that the pleading relies upon the actual knowledge of officers of the plaintiff such as Thede and Jazarbek, I think the evidence is against the defendants. Dorothy herself conceded in her evidence-in-chief that from time to time when in South Australia, she would sit in on meetings with the bank officers. She said that she spoke little at such meetings because she did not generally understand what was being discussed. However, unless she said anything to indicate her lack of comprehension, her presence at such meetings would have been capable of being seen as participation in the management of the bodies the affairs of which were being discussed. Both Thede and Jazarbek were cross-examined and neither was asked questions directed to establishing that they had notice of Dorothy's lack of involvement in the management of the affairs of the companies. Jazarbek agreed that he did not discuss the Viners' transaction or indeed any subsequent transactions with Dorothy. Thede was asked to recall discussions with Dorothy during late 1990 or early 1991 and replied, "No. I can't recall the specific issue", which tends to suggest that he had some discussions with her about some issue at some stage, but otherwise does not advance the position at all.
76 Some evidence relevant to Dorothy's involvement in the family companies generally was given by Mrs Barker ("Barker") who was a loans officer at the Clovelly Park, South Australia branch of the plaintiff, from 1989 to 1992. Although it post dates this mortgage, it is mentioned here as the only evidence shedding light upon what Dorothy said to officers of the bank, or what was said about Dorothy to officers of the bank. George apparently told Barker that he "and his wife" would be taking control of the motel units to ensure that they were run professionally, and he advised Barker that Dorothy was not prepared to mortgage the house at Panorama in Adelaide as security for any of the companies' dealings. Evidence of these statements was not given to prove the truth of their contents. The fact that they were made, however, might well have led officers of the bank to think that Dorothy was playing an active role and taking an active interest in at least some aspects of the management of the companies. Barker said that she spoke to Dorothy by telephone on a number of occasions and each time explained to her the purpose of the telephone call, which calls were broadly concerned with the financing of the various companies' activities. On one occasion, Dorothy asked her about the bank's taking security over the motel units, and explained to Barker that she thought that the units were becoming profitable, and why she held that view. The only evidence bearing on any
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- actual knowledge of any bank officers of Dorothy's involvement with the management of the various family companies then, tends to suggest that the plaintiff could reasonably have believed there was a degree of active involvement on Dorothy's part.
Paragraph 44A.1.4 (undue influence)
77 Contrary to the allegation in the pleadings, no presumption of undue influence arises at law by reason of the relationship of husband and wife: Yerkey v Jones,nor can undue influence be assumed simply because a "high degree of trust and confidence" was reposed in George by Dorothy. Trust and confidence may be justified. It was, broadly, justified in this case; George applied himself with skill and diligence to the affairs of the varied family companies over many years and built up very substantial enterprises to the benefit of Dorothy and their children.
78 It is perhaps fair to say that George had an enthusiasm for the silverware businesses and a faith in their profitability which appears to have been excessive in the light of the actual position of those companies. However, in this one respect, Dorothy did not repose a high degree of confidence in George and in his judgment. Her evidence, which I accept, was that she was opposed to the purchase of the silverware businesses in the first place, that she wanted to see the family confine itself or substantially confine itself to farming enterprises, and that she had been "on at George for years" to sell Ranleigh. Knowing as she did that their views diverged on this point, she nevertheless made no attempt to insist that the Ridout family be divested of the silverware businesses, and she chose not to examine documents which were presented to her for signature in connection with those businesses.
79 Dorothy's reasons for acting in this way appear to have included the following: she and George regarded George as having greater skill in business and financial matters; she was busy with the bringing up of five children and with other domestic tasks; she took the view that George had had an unhappy early life and she wished to spare him arguments and conflict. In any marriage, where there is a difference of view about a decision of importance, if there appears to be no prospect of consensus or compromise, it is inevitable that the view of one party will prevail. It is not in my view possible to label every occasion on which this occurs as an instance of "undue influence"; unlike other relationships in which undue influence has been held to arise, the intertwined fortunes of parties to a marriage make it most unlikely that, should they disagree, they can simply
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- pursue independent courses, following their own preferred inclination in respect of their joint marital assets.
80 Having reached the view that there was no undue influence, it is not strictly necessary to consider the question of the plaintiff's knowledge in this respect. However, all that is really pleaded in this respect seems to be that Dorothy was George's wife, that George presented himself as the person in control of Cloverdale and Viners, and that Dorothy was quiet and retiring, whereas George was confident, opinionated and persuasive. As I have noted earlier, it does not seem to me to follow from the fact that one person presents themselves as the public face of a corporation that no other officer of the corporation is permitted a role in its management. Such a division of roles may be no more than a matter of convenience, which says nothing about the relationships between the various directors. Nor in my view can it be assumed that a person who presents as confident, opinionated and persuasive, must therefore be suspected of exerting undue influence upon a person who presents as quiet and retiring; this is perhaps particularly so where the persons are married to each other, in which case one would normally expect a degree of mutual dependence which would give the retiring person an influence which they might be unable to exert in ordinary social situations.
Paragraph 44A.2 (no copy of memorandum No 18)
81 Memorandum No 18 is the document which sets out the terms and conditions of mortgage D777666. It is a standard form document consisting of a number of pages of closely typed impenetrable prose. The evidence as to whether or not Dorothy was given this document is unsatisfactory. This is not surprising, after the passage of such a period of time.
82 Dorothy recalls an occasion in 1988 in which George brought a document home with him and asked her to sign it and told her that it was about Viners. She signed the document. She does not purport to recognise mortgage D777666 as the document, but given that it was signed in 1988 it may have been. She did not give evidence to the effect that she positively recalled that she had never been given a copy of memorandum No 18. Indeed, her evidence was that she did not concern herself with the nature of the documents she was signing; it is therefore most unlikely that she would have concerned herself with, or have had any reason to recall, what accompanying documents were put before her together with the documents she was to sign. Equally, there is no evidence from any of the plaintiff's witnesses which would assist in
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- establishing whether memorandum No 18 was ever sent to, or provided for the attention of, Dorothy. It is clear that no officer of the plaintiff explained memorandum No 18 to Dorothy at that time.
83 The only conclusion which can flow from Dorothy's evidence about signing documents generally is that she would not have read a copy of memorandum No 18 if it had been provided to her, and it therefore seems to me impossible to regard the question of whether it was provided as being of any significance.
Paragraphs 44A.3 to 44A.12
84 The principal vice with these paragraphs is the confusion between Cloverdale the corporate entity, Viners the corporate entity, and the individuals - particularly Dorothy - who conducted their affairs through those corporations. It is illustrated most clearly in para 44A.4, in which it is asserted that the entry into the mortgage was of no benefit to Cloverdale, contrasted with para 44A.5, in which it is pleaded that the result of the transaction was that the fifth defendant (Dorothy) risked "the loss of her family home" (ie Camballan). While Dorothy may have lived at Camballan, it was not hers. Rather, it belonged to Cloverdale. The property of the corporation is not the property of its shareholders or directors: Macaura v Northern Assurance Co Ltd [1925] AC 19.
85 In considering these portions of the pleading, and other portions where like issues arise, I see no justification for an inconsistency of approach. Either, one must have regard to the "practical" situation of the members of the Ridout family, and consider the effect upon the family of the web of transactions which were conducted, or alternatively, one must disregard the natural persons and consider only the interests and status of the relevant corporations. It is not open to the defendants to say on the one hand that Cloverdale and Viners were separate corporate entities so that the entry by Cloverdale into a mortgage to secure advances to Viners was of no benefit to it, and then to look behind both corporations in order to find disadvantage to Dorothy. Either Dorothy is to be considered only to the extent that she is a director of the relevant corporations, and what is then important is the understanding and position of the corporations, or alternatively, she is to be considered as an individual and the various corporate transactions are to be considered by reference to their practical effect upon her.
86 Consistency of approach would mean that these transactions would be understood in one of the following two ways. If one considers the
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- members of the family as individuals and has regard to the corporations only as vehicles through which the family members transact their business, then the position was that Viners was an asset which the family wished to acquire (although Dorothy may have been opposed to this decision, she acquiesced in it so that it can be seen as a desire of the family). The family already owned a silverware business, which was apparently running profitably by that time. If the family could acquire another silverware business, then one can see that there might well be economies of scale or advantages from elimination of a competitor or matters of that kind which would lead reasonably to an expectation of profit to the family. Camballan was an asset which the family held and was able to offer as security. It was potentially in the interests of the Ridout family, therefore, to make Camballan available as security for the sum required to fund the acquisition of Viners, in the expectation that profit could be derived in future.
87 If one has regard to their corporate structure, then one starts with the fact that Cloverdale owned the majority of the shares in Ranleigh, which was a silverware business. Although there is no evidence suggesting what the dominant reason for the acquisition of Viners was, one can see that in the normal course of business it might be of assistance to Ranleigh if Viners were to fall into "friendly hands". As it happened, Ranleigh, Viners and Estelle were to an extent later run as one operation. Because of its shareholding, any benefit to Ranleigh would in turn be of benefit to Cloverdale. The practical reality of the acquisition, either from a family or from a corporate point of view may be seen in an internal memorandum of the Clovelly Park branch of the plaintiff dated 2 August 1988 which recorded that "interim figures to 5/88 show Viners is now up and running and making a strong contribution to Group [ie Viners/Cloverdale/Ranleigh] profit". Whether or not the information was accurate, plainly that was the role which Viners was expected to play, when it was acquired.
Paragraphs 44A.7 to 44A.11
88 The first two of these paragraphs are concerned with a failure by the plaintiff to ensure that Dorothy and Cloverdale had independent advice. To the extent that these paragraphs are directed to establishing that Cloverdale was unaware of the nature of the transaction, the answer to them appears to me to be that George was the directing mind and will of Cloverdale and George understood the nature of the transaction. There was no need for Cloverdale to have independent advice.
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89 However, these paragraphs also refer to a lack of independent advice obtained by Dorothy, and plead reliance by the plaintiff upon George to obtain Dorothy's execution of the mortgage. To that extent, they appear to be attempting to raise the principles discussed by the High Court in Garcia.
90 In that case, the court held that it was unconscionable to enforce a transaction in circumstances where: the wife, who was surety, did not understand the purport and effect of the transaction; the transaction was voluntary, in the sense that the wife obtained no benefit from the contract the performance of which was guaranteed; the lender was to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband so that the husband may not fully and accurately explain the transaction to her; and the lender did not itself take steps to explain the transaction to the wife or ensure that it had been explained independently to her. The application of the principles enunciated in that case to this, founders on the proposition that the wife must be a "volunteer" in the sense of obtaining no benefit or no substantial benefit from the transaction.
91 As I have endeavoured to explain, whether one has regard to the natural persons or to the corporate structure, Dorothy or Cloverdale stood to benefit from the transaction. This case is far removed from the situation of a wife who puts at risk either her own independent business assets or the matrimonial home, which is a place of residence only. Camballan was not only a home but was also the very substantial business operated by Cloverdale from which both George and Dorothy derived their living. Ranleigh was a secondary, but still very substantial, business, which also contributed to George and Dorothy's living. The acquisition of Viners might reasonably be expected to benefit those entities. If one has regard strictly to the corporate structure and to the fact that Viners was a separate corporate entity, in my view one must likewise in applying the Garcia principles, give effect to the fact that Cloverdale was a legal entity separate from Dorothy and that Cloverdale's asset - the farm - was not hers. Alternatively, if one looks to Dorothy's individual position and sees her as benefiting from Camballan, one must likewise see her as potentially benefiting (on the assumption that the acquisition would eventually prove to be a profitable one) from the acquisition of Viners.
92 There is a further difficulty in the application of the Garcia principles to this case. Although it is not necessary to determine the point, it seems to me that it might well be thought that principles which are appropriate to be applied where a wife offers surety as a wife - that is, as
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- an individual - are not appropriate to be applied in all cases where a director of a company is the wife of the other director or one of the other directors of that company. To do so may have the effect of substantially impairing the operation of companies as commercial vehicles for small business enterprises. The considerations which led the common law to develop what is called the "indoor management rule" would tend to suggest that a lender should not be put upon inquiry merely because two directors are married to each other.
Paragraphs 44A.12 and 44A.13
93 In my view, the execution of mortgage D777666 was not procured in a manner which amounts to unconscionable conduct, and there is no reason to find that Dorothy did not "authorise the use of the company seal" for the purpose of executing the mortgage, which in my view is a valid and enforceable one.
94 Although the subsequent portions of para 44, being para 44A.14 to para 44A.24 inclusive, attempt to raise issues of undue influence, of agency and of the effect of the Trade Practices Act in relation to this mortgage, they in substance merely repeat the pleadings with which I have already dealt, and must fail for the reasons which I have already given.
The Westpac Loan and its Re-financing
95 In 1985 Ranleigh borrowed $800,000 from Westpac by way of foreign currency loan. It was secured by a first registered mortgage granted by Ridout Nominees over Brantwood. The Westpac loan and a further sum were loaned by Ranleigh to Ridout Nominees to enable the purchase of Brantwood for a sum of approximately $1.6M.
96 It appears that Ranleigh's banking had been largely conducted through Westpac, either under that name or under its prior name of the Bank of New South Wales, for some time. George became dissatisfied with Westpac. All of the reasons for this dissatisfaction are not clear, but a major one is likely to have been the fate of the foreign currency loan. Changes in the value of the Australian dollar relative to the Swiss franc meant that that debt increased very substantially and in a way which George had obviously not expected. I should note that there seems to have been in due course a quantity of litigation, or threatened litigation, from borrowers who felt that they had been poorly advised in relation to foreign currency loans. The loan was by no means an idiosyncratic folly
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- of George's, but seems to have been a strategy recommended at the time by apparently reputable lenders for coping with what were very high Australian interest rates. In any event, George determined that it would be desirable to move some of Ranleigh's business to the plaintiff.
97 Initially, Ranleigh obtained from the plaintiff an overdraft limit of $750,000 and a trade import facility of $600,000. Finance of $300,000 was also approved for Estelle. The security required for that transaction was, in respect of Ranleigh, a registered mortgage over the Edwardstown property and an equitable mortgage over the whole of the assets of the company and a "fully interlocking guarantee unlimited as to amount" to be given by each of Viners, Ranleigh and Estelle. So far as Estelle was concerned, the security was an equitable mortgage by it over its assets and an interlocking guarantee. It appears that the effect of Viners' guarantee of the debts of Ranleigh and Estelle was to make the earlier Cloverdale mortgages of Camballan security for the debts of Ranleigh and Estelle.
98 It appears that in addition to the mortgage of Brantwood, Ranleigh had at some time provided an equitable mortgage over its assets to Westpac, presumably (although this too is not clear) as security for the foreign currency loan. The amount of the foreign currency loan, by the time George came to refinance it, was approximately $1.3M. At the end of 1989, the external borrowings of the various Ridout companies and their securities were as follows:
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| Lender CBA | CBA Security |
| Cloverdale $ 400,000 Ranleigh $1,350,000 Viners $ 600,000 Estelle $ 300,000 $2,650,000 | Cloverdale mortgage 11 May 1973 over Camballan (Cloverdale Mortgage) mortgage 14 April 1988 over Camballan (mortgage D777666) mortgage 21 August 1989 over Marshalls (mortgage E 813334) Ranleigh mortgage 17 May 1989 over Edwardstown equitable mortgage 17 May 1989 over assets etc guarantee 17 May 1989 from Viners and Estelle Viners mortgage D777666, 14 April 1988 over Camballan and Cloverdale's covenant to pay Viners' debts to CBA guarantee 17 May 1989 from Ranleigh and Estelle equitable mortgage 17 May 1989 over assets etc Estelle guarantee 17 May 1989 from Ranleigh and Viners equitable mortgage 17 May 1989 over assets etc Ranleigh because of interlocking guarantees and Viners Cloverdale's 1988 mortgage D77766 of Estelle Camballan, Ranleigh's, Viners' and Estelle's debts to CBA were also secured by Ranleigh's mortgage of Edwardstown and Cloverdale's 1973 and 1988 mortgages of Camballan and 1989 mortgage of Marshalls |
| Lender Westpac | Westpac Security |
| Ranleigh $1,300,000 | Ranleigh 1985 mortgages of Brantwood by Ridout Nominees Pty Ltd, plus equitable mortgage over assets |
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| Lender Farrow | Farrow Security |
| Ridout Nominees, Ranleigh Cloverdale and the other unitholders, jointly and severally $ 985,000 | Ridout Nominees, Cloverdale, Ranleigh and the other unitholders - mortgage D582608 over motel units |
| Lender Elderslie | Elderslie Security |
| Ridout Nominees, Ranleigh, Cloverdale and the other unitholders, jointly and severally (approx) $ 125,000 | Ridout Nominees, Cloverdale, Ranleigh and the other unitholders - mortgage D582609 over motel units |
99 It is desirable to note at this point that the information available to the plaintiff in late 1988 and early 1989 was that an offer had been received from prospective purchasers of Viners/Ranleigh/Estelle at a price of $4.6M. The advances to Ranleigh and Estelle were made against the background of that offer having been made and eventually not accepted. As at March 1990, an internal memorandum of the plaintiff dated 16 March 1990 establishes that the plaintiff appeared to accept that Ranleigh was worth approximately $4.8M. This document also suggests that both Westpac and the plaintiff at that date held registered equitable mortgages over Ranleigh but with priority to the plaintiff in the amount of $2.25M. The plaintiff apparently accepted valuations of $398,000 approximately for Viners and $313,000 for Estelle. That document also refers to offers received by George for the silverware businesses during 1989 of "$5.5M to $6M". It is not clear where the information in relation to potential sales came from, but it seems to have been information on the basis of which the plaintiff was prepared to act.
100 In March 1990, the plaintiff refinanced the Westpac loan, increasing the total facilities to Ranleigh, Viners and Estelle to $3.012M, the Westpac loan standing at about $1.17M. The Westpac debt was paid and the Westpac mortgages over Brantwood were discharged and by mortgages E 355681 and E 355679 in March 1990 Ridout Nominees mortgaged Brantwood as security for Ranleigh's debts which were also secured by Ranleigh's 17 May 1989 equitable mortgage. The limits of the
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- individual facilities for the three silverware companies were: Ranleigh, $2,397,000; Viners, $405,000; and Estelle, $210,000.
101 The defendants plead that although the additional money made available to Ranleigh was used to repay the foreign currency loan, the giving of the mortgages referred to by Ridout Nominees was not to the benefit of, and was manifestly disadvantageous for Ridout Nominees because Ridout Nominees' contingent liability pursuant to the Westpac mortgages was approximately $1.3M (or approximately $1M if one makes allowance for the fact that at a later time Westpac paid $300,000 to Ranleigh in satisfaction of a claim for compensation for losses pursuant to the foreign currency loan) whereas Ridout Nominees' contingent liability pursuant to the new mortgages for the debts of Ranleigh amounted to $2,397,000, which amount was liable to increase and did in fact increase. It is further pleaded that Ranleigh had experienced, and continued to experience "serious financial difficulties" and that in the circumstances it was imprudent for Ridout Nominees to give those mortgages over Brantwood as security for advances given to Ranleigh.
102 The particulars of Ranleigh's worsening financial position are said to be that in 1989 it had a net loss of approximately $288,000 on a trading loss of $671,000 with accumulated losses of Ranleigh, Viners and Estelle combined of $31,198, while in 1990 it had a net loss of approximately $247,000 on a trading loss of $626,000 with accumulated losses of Ranleigh, Viners and Estelle combined at $494,211. It is said that Ranleigh had fallen from a peak profit in 1981 of $169,459 until 1986 when it first incurred a loss, which losses increased thereafter. Ranleigh's liabilities increased substantially from 1986 to 1990; I do not think it is necessary to set out the figures.
103 All of this pleading in relation to alleged manifest disadvantage is coupled with a plea that both Dorothy and George, as at March 1990, were in a position of special disability. Dorothy's alleged special disability is relevantly the same as the special disability pleaded in relation to mortgage D777666 of Camballan. I repeat what I said in relation to that mortgage so far as Dorothy is concerned. It is probably convenient to defer a consideration of George's position until I come to examine the transactions at the end of 1990, in relation to which there is the most extensive pleading concerning George's alleged disability.
104 For the present, it is sufficient to deal with these allegations to find, as I do, that the transaction was not "manifestly disadvantageous" for Ridout Nominees. First, Ridout Nominees had the benefit of the foreign
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- currency loan, in that the sum advanced by Westpac had been "on-lent" by Ranleigh in order to fund the purchase of Ridout Nominees' asset, Brantwood. To the extent that the mortgage secured the amount advanced for the purchase of that property, together with the further losses incurred as a result of the method of borrowing of that sum, it was proper and reasonable that the entity which had acquired the asset should provide security for the moneys used for its acquisition. So far as Ridout Nominees' "exposure" to the other debts of Ranleigh was concerned, plainly there is potential for disadvantage wherever security is provided. However, although Ranleigh had been incurring losses, as at March 1990 an examination of the silverware group's accounts suggests that Ranleigh would have been in a position to meet its debts from its own assets should that have been necessary, so that there would have been no need for recourse to the mortgage over Brantwood.
105 The assumption of manifest disadvantage appears to stem from the wisdom of hindsight; in fact, Ranleigh's losses did increase and when the Edwardstown property and the business came to be sold after George's death, they remained on the market for a considerable time and realised much less than seems to have been anticipated in 1990. However, if one looks at the position as at 1990, the silverware businesses had initially been unprofitable, had then become profitable and had recently incurred losses. George and Dorothy had had silverware interests by then for approximately 30 years. The bank's 1988, 1989 and early 1990 memoranda show that the bank had been told that problems with the silverware businesses included holding of excessive levels of stock, adverse effects from exchange rates, and lack of diversification, amongst other things. However, specific proposals are recorded in those memoranda, which are intended to deal with those adverse conditions, such as progressive running down of stock levels, and local manufacture of some product lines. Such information can only have been obtained from either George or from the manager he employed at Ranleigh, Mr Ladyman.
106 In the light of what was apparently believed in 1988-1990 by both George and by the plaintiff, there would be no reason to expect that Ranleigh's profitability would not improve, although of course it was always possible that it would not. Further, both George and the plaintiff apparently considered that the sale of the silverware businesses was an option which could be taken if necessary; I have already referred to the evidence concerning offers apparently received for the businesses which would have left a surplus even after payment of all debts of Ranleigh.
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107 If Ranleigh's position were to dramatically deteriorate, it must be noted that there were substantial inter company loans by Ranleigh to Ridout Nominees, upon which the equitable mortgage granted by Ranleigh would have fastened had it been necessary for the plaintiff to take action pursuant to that security. As at June 1989, Ridout Nominees owed Ranleigh over $2M, an amount apparently approximately equal to the value of Brantwood. The giving of the mortgage by Ridout Nominees in that context involved the furnishing of a direct security where an indirect one already existed.
108 Finally, it must be remembered that the increase in the amount of the foreign currency loan due to movements in the exchange rate had caused a very substantial increase in Ranleigh's debt, part of which had flowed through to Ridout Nominees by reason of ad hoc charges of interest on the inter-company loan (whether for taxation or other reasons is not clear). The re-financing of that loan was of benefit to Ranleigh, which was in substance a wholly owned subsidiary of Ridout Nominees.
Re-financing Elderslie and Farrow
109 The purchase of the motel units in 1987 was funded principally from Farrow by Cloverdale and Ranleigh and partly by a loan by Cloverdale which was later refinanced by Elderslie Finance Corporation ("Elderslie"), and in part by funds advanced by Ridout Nominees, Wanata and Ranleigh. Those loans from Farrow and Elderslie fell due for repayment on or about 11 October 1990. Those lenders were unable to extend finance and so required that the loans be discharged. From the date of their expiry, they would, of course, attract penalty interest. George turned to the plaintiff to refinance those loans. It is the events and the series of transactions that resulted from this application which was the cause of the most substantial dispute in this matter.
110 A review of the plaintiff's internal memoranda reveals that by about March 1990 there was a concern with the level of debt of the Ridout enterprises and particularly with the profitability of the silverware businesses. As I have noted, there was a reference to information suggesting improvement in management practices at Ranleigh. However, Thede had discussions with George in which he encouraged George to sell assets in order to reduce debt levels. It was Thede's impression that George intended to apply his superannuation funds to the bank debt, to sell the Panorama house, and to sell the units in the motel complex after improvements had been made to the management of them.
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111 There was some considerable discussion in evidence as to whether the idea of selling assets was something that originated with George or with the plaintiff. I do not think it matters. What is important is that the officers of the plaintiff were by then of the view that a reduction in overall debt level was desirable and that they were also of the view that George proposed to identify assets for sale and to reduce overall debt level.
112 Mr Verringer ("Verringer"), another officer of the plaintiff, reviewed the Ridout accounts in July 1990, when trade facilities for Ranleigh were in excess of approved limits. While he regarded the excess as a temporary situation due to the ordering of Christmas stock and due to slow payment by a major creditor, he too noted George's intention to inject superannuation funds and to sell the motel complex.
113 It seems that George had kept Ranleigh's position under review for some time. The evidence of Mr Rawson ("Rawson"), an accountant who dealt with some of the Ridout affairs, was to the effect that in early to mid-1988 he had discussions during which George said that he wished to discuss the future direction of the silverware businesses, because he wished to spend more time in Western Australia on the farm. By 1989 George had engaged Mr Ladyman ("Ladyman") as manager of Ranleigh. In 1988, George informed Rawson that he had received an offer for the silverware business, which Rawson recommended that he accept. The question of sale of the silverware business also arose in about May or June 1990 when Ladyman asked Rawson to prepare financial details of the business for the purposes of discussions about its possible sale. Rawson's advice was essentially that there would not be a very large surplus on sale, but that the real benefit to the Ridout family would be the elimination of the internal (ie inter-company) debt. By late 1990 George discussed with Rawson the engagement of Chilman Bilna as agents for the sale of the business.
114 It was against this background that in September 1990 the plaintiff came to consider George's application for re-financing of the Farrow and Elderslie loans in sum of a little under $1,140,000. The bank's processing memorandum of 13 September 1990 noted that George would consider whether to continue with the units or to sell them after a further three months' trading, that he had put in $400,000 from his own superannuation, that he was proposing to list the residence at Panorama for sale, and that an offer of $100,000 compensation had been received from Westpac in respect of the foreign currency loan but that negotiations at that stage were "stalled". It noted that George had "mooted" the sale of the Ranleigh
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- group but at his preferred price only. The memorandum suggested that George's valuation of the units totalled $2,435,000.
115 A further internal document dated 21 September relating to the proposed re-financing estimated the interest costs of the Ridout Group for the next 12 months. The view was reached that the business could not sustain those costs, and that consideration should be given to further asset disposal. However, the view was expressed that "director's (sic) have proven themselves to be astute and quick to recognise deficiency in coy's and take remedial action."
116 On 25 September 1990 the plaintiff wrote to George advising as follows:
"We are pleased to inform you that the Bank has approved a Multi Option Facility of $1,140,000 to refinance existing borrowings with Farrow Mortgage Services Pty Ltd and Elderslie Finance Corporation Ltd.
As discussed, accommodation will initially be drawn on a Bill Discount Facility basis.
Approval is on the Bank's usual terms and conditions and subject to:-
1) Security to comprise registered mortgages by Wanata Holdings Pty Ltd, Ranleigh Ware Pty Ltd, Ridout Nominees Pty Ltd, Kamberoo Pty Ltd and Kacana Pty Ltd over their respective motel units, which number 29, and are situated at 169 Great Easter Highway, Belmont WA; and
An interlocking guarantee from all abovementioned companies; and
Section 230(8)(a) Certificates from all abovementioned companies; and
A registered Equitable Mortgage by Fergal Pty Ltd.
2) Satisfactory valuation of units.
3) Letter of request under Seal from Cloverdale Pty Ltd.
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- 4) A legal opinion confirming that no Trust aspects intrude. Any legal advisings required are for your expense.
5) An undertaking from Directors that should the motel venture not be viable by 31 December 1990, properties will be sold and this debt cleared.
6) Provision of interim financial statements to 31 December 1990 for Cloverdale Pty Ltd, Ranleigh Ware Pty Ltd, Estelle Gifts Pty Ltd, Viners Silverware Pty Ltd and Fergal Pty Ltd to enable a review of all accounts to be conducted.
7) Establishment Fee $5,700. There will be other handling fees involving registration of mortgages, stamp duty on mortgages and Lands Title Office fees. An allowance of approximately $570 will cover these fees.
BILL DISCOUNT FACILITY
• review of your requirements in January 1991, and annual review thereafter;
• interest only payments for up to three years, then renegotiation at that time;"
117 It is not necessary to set out the remainder of this approval.
118 However, unfortunately, although the plaintiff in October 1990 advised both Elderslie and Farrow that it had approved finance to pay out their respective mortgages over the units, a number of obstacles then presented themselves.
119 A trainee valuer valued the units in early October at $57,000 for each one bedroom unit and $65,000 for each two bedroom unit, but gave the aggregate of the units an "In-one-line" value of $1,300,000; that is, the valuer took the view that if all the units were sold as a package they would realise only the latter amount. The plaintiff took the view that that valuation was unsatisfactory and on 16 October, Mr Hawkes, the deputy regional manager took the view that the plaintiff would be prepared to provide the accommodation "provided additional tangible security is made available to support proposed debt level". This was noted in a diary note of 16 October.
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120 On 17 October, Adelaide solicitors Knox & Hargrave advised Ranleigh that Ridout Nominees, as trustee of the Cloverdale Trust, did not have power pursuant to the provisions of the trust deed to give security by way of a mortgage over trust assets in support of a guarantee. They advised that, although the trustee had express power to borrow and, in respect of borrowings, to grant a mortgage or other security over trust assets, and an express power to enter into a guarantee, it was not possible to aggregate the powers so as to grant security over trust assets in support of a guarantee. They prepared a supplementary deed containing the following power:
"7(c) to give such Guarantees or Guarantees and Indemnities in relation to the borrowings of money by any person or company or the performance of any contract, obligation or undertaking by any person or company or for any other person or any other account whatsoever and to give and execute any mortgages, charges or other securities over the whole or any part of (sic) parts of the trust fund as may be required to secure the same."
121 The supplementary trust deed was executed and the common seal of Ridout affixed by George and Dorothy as director and secretary on 25 October 1990. By early November - apparently on 2 November 1990 - all of the documentation then requested by the plaintiff for security had been signed by Ridout family members. However, on about 29 October, the plaintiff had apparently requested its solicitor to consider the trust deeds of a number of the mortgagor companies. On 12 November 1990 it referred the amendment cl 7(c) of the Cloverdale Trust to its legal department.
122 By 8 November, the plaintiff's internal memorandum recorded that it had determined that its earlier approval for the facility "may stand" subject to additional security by way of a registered equitable mortgage by Fergal, and a statement confirming that there had been no changes in relation to certain of the trusts. It was prepared to allow settlement to proceed without viewing the trust deeds for the PA Ridout and CJ Ridout family trusts, provided that registered mortgages over those units were signed and ready for registration. The plaintiff had apparently been requested to permit rearrangement of the "Ridout Group facilities" so that excesses by one company of its facility would be permitted provided total group facilities were within approved limits. The plaintiff decided to let "rearrangement consideration pass for the present" at that time. Mr Hawkes, then acting regional manager, recorded "we are presently at a
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- crossroads with this connection and without proceeding precipitously, Mr Ridout is going to need to either provide more information re his present position or agree to some orderly asset disposal program to reduce existing debt level." In the meantime, the Farrow and Elderslie loans had expired, penalty interest had commenced, and George was obviously anxious to ensure that the re-financing took place as soon as possible.
123 On 14 November 1990, the plaintiff's solicitor reminded it of an earlier advice dated 31 May 1990. This advice does not seem to have received any attention at the time at which it was originally given. The solicitor summarised the advice as:
"I did not consider the Cloverdale Trust could be amended to enable the Trustee to give the security proposed as the amendment would necessarily favour the appointor, George Edward Ridout as he was a director and shareholder of Estelle Gifts Pty Ltd and Ranleigh Ware Pty Ltd and Viners Silverware Pty Ltd and I confirm that I do not consider that third party security can be taken from this Trust."
124 I will return later to the question of whether the advice given was correct.
125 That legal opinion, however, led the plaintiff to determine that settlement would have to be deferred until that issue was resolved. The plaintiff's solicitor later apparently explained to its officers that it would still be possible for it to execute against Ridout Nominees' units if the need arose without such security, but that a warrant of execution would need to be obtained, which would involve application to the court, and that it could not guarantee that such a warrant would issue. Because Ridout Nominees was unable to provide a mortgage over its units, and because trust deeds for Kacana and Kambaroo had not been viewed, the relevant bank officer took the view that "the only alternative I see is for Ridout Nominees P/L to raise sufficient finance in their own name and on-lend it to Cloverdale P/L".
126 One of his superior officers expressed the view that while the plaintiff would "stand on the terms of our approval as conveyed", if the Ridouts then sought to resolve the situation by direct borrowing, "We will consider but I lean at this stage to letting the business pass". Read with the prior approval letter, this memo appears to mean that, the valuation and guarantee conditions not being satisfied, the plaintiff would not be
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- making the financial accommodation available to re-finance the Elderslie and Farrow loans.
127 It appears that the Clovelly Park branch then advised the plaintiff's southern region office, at which this decision had been taken, that Ridout Nominees had already provided a mortgage over Brantwood to support advances of $2.83M to Ranleigh. Although the branch had apparently been aware of prior advice that Ridout Nominees could not provide what the bank referred to as a "supported guarantee", it had been given George's undertaking that the trust deed would be amended, and it had apparently not appreciated that the legal advice was to the effect that such an amendment was not possible.
128 Faced with the apparent invalidity of the Brantwood mortgage, Verringer suggested that the plaintiff provide a fresh loan to Ridout Nominees for $1.45M to be secured by a mortgage over Brantwood with an interlocking guarantee from the other companies in the group. Ranleigh's residual debt of $733,000 would then be secured by a mortgage over the Edwardstown property, the equitable mortgage over Ranleigh, and an interlocking guarantee which excluded Ridout Nominees.
129 At about this time also, Verringer was advised that other officers of the plaintiff had waived the condition that George give an undertaking to sell the units if no improvement was observed, since George had indicated that he would assess the viability of the units in six months and sell them if necessary. It appears that George was not happy with the concept of an undertaking when he had already indicated to bank officers that he would sell if necessary. Verringer instructed another officer to amend the offer of finance previously made to include a condition that interim financial statements be provided for the group to enable a review to be conducted in March 1991, with an "orderly asset disposal program" to be established if servicing of the debt was then to the bank's satisfaction.
130 By 30 November, however, the Clovelly Park branch in South Australia, with which George had primarily dealt, was recommending to the southern region office that settlement of the new facility should proceed. The proposal put forward by the branch noted that the "Group structure is complex and difficult to deal with. This has been brought home to Mr Ridout by the legal impediments to security … Mr Ridout's primary accountant has been involved in discussions with this office and has advised that he proposes to strongly encourage Mr Ridout to simplify the group structure." It was also noted that the "accountant concurs with
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- proposal that more frequent assessments of groups financial health be undertaken."
131 The branch recommended that settlement proceed notwithstanding that deeds for the PA Ridout Trust and CJ Ridout Trust had not been located and that, in view of the urgency of George's requirements for re-financing, the "Group set off arrangements and need to re-arrange securities and debt in name of Ranleigh Ware Pty Ltd resulting from Legal Opinion stating Security number 4 is unenforceable are being addressed, however will be dealt with separately."
132 However, the southern region office took the view that all security aspects should be satisfied prior to the funds being made available. It also considered that the rearrangement of securities and debt should be dealt with then, rather than being deferred.
133 Verringer explained in cross-examination that he took the view that the bank should have a "failsafe" security position and that, further, it was his experience that unless issues were dealt with at the time, they could be "put on the backburner" and never dealt with. Verringer agreed that by the time of this memorandum, he was of the view that if the group's past trading pattern continued and no assets were sold, the group would be unable to meet the interest burden it was undertaking.
134 In a memorandum dated 4 December 1990, Verringer set out in some detail the views he then held about the application. He began by noting that the branch submission that rearrangement of facilities be deferred was unacceptable. He noted that the purpose of the present proposal was, as to Cloverdale, to assist in payout of the Farrow and Elderslie loans, and as to Ridout Nominees, to assist in payout of those loans and to refinance the multi-option facility currently funded in the name of Ranleigh. There were other purposes to which it is not necessary to refer. Under the heading "Proposed Reductions" he noted that the review in March 1991 had been agreed to when Ridout Nominees "refused" to sign an undertaking to sell assets if servicing could not be demonstrated by 31 December.
135 He analysed the position of each of the entities. So far as Cloverdale was concerned, his calculations revealed that it would be in a position to service the interest on the loans attributable to it, but he noted that the position was "marginal" particularly in view of the decline in farming income. He further noted under this heading that no cashflow had been
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- provided for any of the companies, which he thought reflected badly on the directors, primarily George.
136 Ridout Nominees, he noted, was an asset holding company only, which received its income from rental from the farming property (Brantwood) and the five units in Western Australia. Its position revealed that if it were required to meet the interest on the debts attributable to it, there would be a $130,000 shortfall. He noted a loss had been incurred by Ranleigh, although the loss had been smaller for 1990 than for 1989 on the draft 1990 figures, leading to a shortfall of $141,211, while Viners had a shortfall of approximately $30,000. Estelle had a shortfall of $20,000. He expressed some doubt about the figures for Ranleigh and Viners and expressed the view that the position might be worse than it appeared. The total shortfall was of the order of $300,000. He noted that directors' drawings were unknown.
137 He noted that the group "has managed to survive the 1990 financial year with the injection of funds received from [George's] superannuation … which was obviously a once off situation". He regarded the placing of the Panorama home on the market as a step in the right direction but added, "There is a long way to go before viability is evident." He noted that funds might be received from Westpac in settlement of the litigation at some stage but that it should be disregarded as far as the bank was concerned. He thought that the sale of the units could become very protracted and observed that his view was that "if [George] was genuine, non-performing assets would be on the market now not April '91/June '91 as is suggested." He queried, "Is Ridout and his accountant fully aware of their current predicament, the last two years have resulted in trading losses in excess of $4K each year." He looked at the total security available. The end result of that consideration was that the total of the securities to be held compared to the total of the amount lent was acceptable.
138 As a general comment, he noted that previous bank writings suggested George was an astute businessman, but he observed, "I question this in the light of financial controls". His ultimate recommendation was that, "In light of our previous approval we would support the above increase rearrangement as outlined herewith subject to [a variety of conditions which included provision of the relevant trust deeds, quarterly reviews, reduction of debt load over the next 12 months and the bank to bear re-documentation costs]". (Emphasis supplied).
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