Commonwealth Development Bank of Australia Pty Limited v Claude George Rene Cassegrain; Gerald Cassegrain and Co Pty Limited v Commonwealth Development Bank of Australia Pty Limited and Ors - [2002] NSWSC 965

No judgment structure available for this case.

CITATION: Commonwealth Development Bank of Australia Pty Limited & Anor v Claude George Rene Cassegrain; Gerald Cassegrain & Co Pty Limited & Ors v Commonwealth Development Bank of Australia Pty Limited & Ors; [2002] NSWSC 965

FILE NUMBER(S): SC 50062/00; 50072/00

HEARING DATE(S): 08/10/02, 9/10/02, 10/10/02, 11/10/02, 14/10/02, 15/10/02, 16/10/02

JUDGMENT DATE: 22 October 2002

PARTIES :

Commonwealth Development Bank of Australia Pty Limited (Plaintiff 50062/00) (Defendant 50072/00)
Claude George Rene Cassegrain (Defendant 50062/00)
Gerald Cassegrain & Co. Pty Limited and Ors (Plaintiffs 50072/00)
Murray Smith and Scott Kershaw (3rd Defendants 50072/00)

JUDGMENT OF: Einstein J

COUNSEL : RW Cameron, ARR Vincent (Defendant 50062/00, Plaintiff 50072/00)
AG Bell, DA McLure (Plaintiff 50062/00, Defendant 50072/00)
DL Williams (Murray Smith & Scott Kershaw, 3rd Defendants 50072/00)

SOLICITORS: MC Griffith & Co (Defendant 50062/00, Plaintiff 50072/00)
L E Taylor Solicitor (Plaintiff 50062/00, Defendant 50072/00)
Corrs Chambers Westgarth (3rd Defendants 50072/00)

CATCHWORDS: Contract - Banker and Customer - Loan facilities - Guarantee - Claim that CDBA and CBA acted unconscionably in dealings concerning facilities granted by both banks - Claim that CBA knowingly interfered with loan facility granted by CDBA with intention of procuring breach of facility - Alleged undisclosed decision to decline application for further accommodation - Alleged unconscionable conduct in delaying communication of suggested decision to decline further accommodation - Obligation to act in good faith - Alleged unconscionable conduct - Alleged misleading and deceptive conduct - Farm Debt mediation - Alleged unconscionable conduct in relation to holding of mediation - Claim to set aside Heads of Agreement reached during mediation on the ground of vitiating factors including alleged duress in terms of suggested threats to appoint receiver unless Heads of Agreement entered, in terms of emotional state of customer representative participating in mediation and other matters.

LEGISLATION CITED: Commonwealth Banks Act 1959 (Cth)
Commonwealth Bank Sale Act 1995 (Cth)
Family Provision Act 1982 (NSW)
Farm Debt Mediation Act 1994 (NSW)
Trade Practices Act 1974 (Cth)

CASES CITED: ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1376
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Blomley v Ryan (1956) 99 CLR 362
Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187
Byrne v Australian Airlines Ltd (1995) 185 CLR 410
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Hudson Resources Ltd v Australian Diatomite Mining Pty Ltd [2002] NSWSC 314
Jones v Dunkel (1959) 101 CLR 298
Louth v Diprose (1992) 175 CLR 621
Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170
Overlook v Foxtel [2002] NSWSC 17
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Tymshare Inc v Covell 727 F2d 1145 (1984)

DECISION: Claims by banking parties upheld. Claims by borrower parties not made out. Short minutes of order to be brought in.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

EINSTEIN J

Tuesday 22 October 2002

50062/00 COMMONWEALTH DEVELOPMENT BANK OF AUSTRALIA LIMITED & ANOR v CLAUDE GEORGE RENE CASSEGRAIN & CO PTY LIMITED & ORS

50072/00 GERALD CASSEGRAIN & CO PTY LIMITED & ORS v COMMONWEALTH DEVELOPMENT BANK OF AUSTRALIA LIMITED & ORS

JUDGMENT

The Proceedings

1 There are before the court two sets of proceedings, 50072 of 2000 ["the Cassegrain proceedings"] and 50062 of 2000 ["the Banks proceedings"] being heard together.

2 Both sets of proceedings have their genesis in loan transactions between:

· the Commonwealth Development Bank of Australia Limited ["CDBA" or "CDB"] as lender and Gerald Cassegrain and Co Pty Ltd ["the holding company" or "GCC"] as borrower.

· the Commonwealth Bank of Australia Limited ["CBA"] as lender and the holding company as borrower.

3 The Banks sue on loan agreements and ancillary securities.

The holding company

4 The main business of the holding company was a property development and investment in the Port Macquarie area. The holding company was involved in the management of vineyards and, through the establishment of three subsidiary companies, was involved in establishing a tea tree plantation and in the progressing of the development of its land holdings into a new township.

Mediation

5 An additional parameter concerns a mediation held on 12 November 1998, as a result of which the parties entered into Heads of Agreement. The Banks rely upon the Heads of Agreement and sue upon them. Relevantly:

· In the recitals to the Heads of Agreement the plaintiffs acknowledged:

(a) that the first plaintiff (“GCC”) was indebted to the first and second defendants in the total sum of $4,106,915.03, comprising $3,341,295,52 owed to the first defendant and $765,619.51 owed to the second defendant (the “loans”);

(b) that the loans were secured by a numbered of registered mortgages and registered equitable mortgages provided by the first to fourth plaintiffs and by two guarantees provided by the fifth plaintiff (the “securities”); and

· By clause 2 of the Heads of Agreement the plaintiff confirmed the validity of the securities and acknowledged that the securities secured the plaintiffs’ obligations under the Heads of Agreement and continued to secure the plaintiffs’ obligations to the first and second defendants in respect of the loans.

· By clause 4 of the Heads of Agreement the plaintiffs agreed that except as provided for in the Heads of Agreement, the loans would continue on the same terms and conditions as previously approved or varied by the first and second defendants.

· By clause 6 of the Heads of Agreement the plaintiffs agreed to repay the loans on or before 1 March 1999.

· By clause 7 of the Heads of Agreement the plaintiffs agreed that if the loans were not repaid by 1 March 1999 or if there was a default under the Heads of Agreement, the first and second defendants could commence proceedings against the plaintiffs in the Supreme Court of New South Wales for the debt, and, in that event, the plaintiffs would consent to the entry of judgment for the debt.

· By clause 8 of the Heads of Agreement the plaintiffs unconditionally agreed that if the first and second defendants commenced legal proceedings pursuant to clause 7 of the Heads of Agreement the plaintiffs would not contest the proceedings and if the plaintiffs attempted to do so, the Heads of Agreement might be pleaded by the defendants as a bar to any defence that might be raised.

6 The case pursued by CDBA and the Commonwealth Bank is that:

· on or about 12 April 1999 the first and second defendants agreed with the plaintiffs to extend the time for repayment of the loans pursuant to the Heads of Agreement until 4.00 pm on 28 May 1999.

· The plaintiffs failed to repay the loans by 4.00 pm on 28 May 1999 in accordance with the Heads of Agreement as varied on or about 12 April 1999.

· the plaintiffs are not entitled to plead as against the first and second defendants the matters raised in the second amended summons.

The Loans

7 The subject loans were in the first instance as follows:

· A fixed loan from CDBA OF $3 million ["the fixed loan" or "the CDB loan"]:

· A loan from CBA comprised of what was effectively an overdraft facility ["the overdraft facility" or "the CBA loan"].

8 The initial terms of the fixed loan and of the overdraft facility were varied from time to time.

9 The loans were guaranteed by Mr Claude Cassegrain who is the first plaintiff in the Cassegrain proceedings. Securities including real property mortgages, floating charges and equitable charges were given by the second, third and fourth plaintiffs in those proceedings which were subsidiaries of the holding company. The precise details are recorded below.

The respective proceedings

10 In summary, the proceedings at the inception of the final hearing consisted of three claims:

(a) in the Banks proceedings, the Banks sue Mr Cassegrain pursuant to two guarantees in respect of amounts due under the two loans;

(b) in the Cassegrain proceedings, the holding company and four other plaintiffs (‘ the Cassegrain parties’ ) sue the Banks for damages and certain declarations;

11 The claims against the receivers were settled on the fifth day of the final hearing.

12 An order for separate determination of all issues going to quantum was made during the final hearing.

Details of the loans

The CDBA loan

13 The central structure of the Banks case and the details of the CDB loan are as follows:

· the CDB loan was between CDB and GCC for $3 million;

· the terms of the loan are evidenced by the ‘application for finance’ dated 27 September 1995 and a letter from GCC to CDB dated 4 October 1995;

· Paragraph 1 d of the application for finance dated 27 September 1995 provides that:

‘In the event of default in payment of any one or more of the instalments of principal and/or interest... the accommodation shall at the option of the Bank immediately become payable and the Bank may thereupon demand payment of all monies owing by the applicant/s to the Bank and in the case of a loan not yet drawn or only partly drawn may decline to make any further portion thereof available to the applicant/s’;

· initially, the loan was to be paid in seven instalments of $615,200 each August with the balance due by August 2003;

· by letter dated 30 July 1997 from CBA to GCC, time for repayment was varied, so that the first instalment was required to be paid in August 1998 with the balance due by August 2004;

· It is common ground that the instalment due in August 1998 was not paid;

· as at 30 September 2002, the amount due under the loan, including interest, was $433,210.34.

· Repayment of the CDB loan was guaranteed by Mr Cassegrain deed dated 18 October 1995.

· The CDB loan was secured by registered mortgages over various properties owned by GCC and Clos Farming Estates Pty Limited (“Clos Farming Estates”) and by registered equitable mortgages over the assets of GCC, Clos Farming Estates, and Le Clos Sancrox Pty Limited, (“Le Clos Sancrox”).

· The first instalment was not paid in August 1998.

· By the heads of agreement entered into following the Mediation and dated 11 November 1998, the Cassegrain parties agreed to repay the CDB loan by 1 March 1999 (“Heads of Agreement”). The CDB loan was not repaid by that date. The heads of agreement included the following terms:

‘7. ...If the Loan is not repaid on or before 1 March 1999 or if there is a default under this agreement the Bank may commence proceedings against the Farmer and the Security Providers in the Supreme Court of New South Wales for judgment for possession of the Property and Default Judgment for the Loan debt. In this event the Farmer and Security Providers will consent to the entry of judgments for possession of the Property and the Loan debt...

8. The Farmer and Security Providers unconditionally agree that if the Bank commences legal proceedings pursuant to clause 7 above, they will not contest these proceedings and if they attempt to do so, this Agreement may be pleaded by the Bank as a part to any defence that may be raised.’

· By letter dated 12 April 1999, CDB agreed to extend the time for repayment to 28 May 1999. The CDB loan was not repaid by that date.

· On 15 June 1999, Smith and Kershaw were appointed as receivers of the Cassegrain parties, pursuant to securities.

· By letters to the Cassegrain parties dated 6 April 2000, CDB demanded payment of $2,902,889.39, being the amount then owing by GCC under the CDB loan at that date.

· CDB seeks a judgment in the banks proceedings for $433,210.34 plus interest from 1 October 2002 against GCC, Clos Farming Estates, Le Clos Sancrox and Mr Cassegrain.

The CBA loan

14 The central structure of the Banks case and the details of the CBA loan are as follows:

· the CBA loan was between CBA and GCC for $750,000;

· and the terms of the loan are evidenced by:

(i) a letter from CBA to GCC dated 2 April 1997;

(ii) a letter from GCC to CBA dated 3 April 1997;

· the loan was repayable on demand, but in any event by no later than 30 June 1998;

· it is common ground that the loan was not repaid on 30 June 1998;

· as at 30 September 2002, the amount due under the CBA loan, including interest, was $774,102.

· Repayment of the CBA loan was guaranteed by Mr Cassegrain by deed dated 24 April 1997.

· The CBA loan was secured by registered mortgages over various properties owned by GCC and Clos Farming Estates and by registered equitable mortgage over the assets of GCC, Clos Farming Estates, Le Clos Sancrox and Endwise Holdings Pty Limited (“Endwise”).

· By the Heads of Agreement, the Cassegrain parties agreed to repay the CBA loan by 1 March 1999. The CBA loan was not repaid by that date.

· By letter dated 12 April 1999, CBA agreed to extend the time for repayment to 28 May 1999. The CBA loan was not repaid by that date.

· On 15 June 1999, Smith and Kershaw were appointed as receivers of the Cassegrain parties, pursuant to securities.

· By letters to the Cassegrain parties dated 6 April 2000, CBA demanded payment of $551,294.56, being the amount owing by GCC under the CBA loan at that date.

· CBA seeks a judgment in the banks proceedings for $774,102.45 plus interest from 1 October 2002 against GCC, Clos Farming Estates, Le Clos Sancrox, and Endwise and Mr Cassegrain.

The central complaints of the Cassegrain parties

15 Without limiting the precise ambit and terms of the relevant pleadings which require to be referred to for the detail, it may be said that the central complaints made by the Cassegrain parties in both sets of proceedings are apparently as follows:

· that the Banks acted unconscionably by delaying the communication of their decision to decline an application to reschedule the loans before 30 June 1998;

· that the Banks acted unconscionably after the default in the CBA facility;

16 Again without limiting the ambit or reach of the extensive and grave allegations made by the Cassegrain parties, it is convenient to note the emphasis put during the opening address on the fact that the provisions of the Commonwealth Banks Act 1959 had provided:

· that the functions of the CDBA were

- “to provide finance for the purpose of establishing, acquiring or carrying on businesses… in cases where in the opinion of the [CDBA], the provision of finance is desirable and the finance would not otherwise be available on reasonable and suitable terms and conditions ”;

in accordance with policies approved by the Treasurer, to participate in [such businesses] in cases where, in the opinion of the [CDBA], participation is desirable and other persons would not be prepared to participate on reasonable and suitable terms and conditions

· that in determining whether or not finance should be provided, the CDBA was to have regard "primarily to the prospect of the operations of [the borrower] becoming, or continuing to be, successful and shall not necessarily have regard to the value of the security available in respect of that finance"

[Sections 72, 73]

17 Hence the emphasis put by the Cassegrain parties upon the circumstance that in weighing the conduct in respect of which complaint is made, it is important for the court to focus upon the nature of the subject loans and the fact that the court should infer that the loans were entered into by borrowers who were known to be in a position such that finance on reasonable and suitable terms and conditions would not otherwise have been available to them.

18 Likewise it may be relevant to note, even at this early stage, the allegation that:

· the application by the holding company in February 1998 to restructure its borrowing arrangements presented as an opportunity for the CBA "to rid itself of potential problems with the [holding company's] loan of $3 million;"

· the perceived opportunity was to bring about a default by [the holding company] of its overdraft clearance obligation;

· The CBA knowingly and intentionally brought about a breach of the CDBA loan to rid itself of a high-risk loan which if retained, required further substantial injections of capital by the CBA.

19 A further issue concerning the CDBA/CBA connection arises in respect of the circumstance that the Commonwealth Bank Sale Act 1995 [assented to on 16 December 1995] ["the 1995 Act"] repealed section 71 of the 1959 Act [which had established the CDBA] and repealed sections 72, 73 and 74 [which had respectively identified the functions of the CDBA, the matters to be considered by the CDBA in providing finance and the powers of the CDBA], and proceeded to make provision for converting the CDBA into a company under the Corporations Law. Prior to the 1995 Act the management of the CDBA had been prescribed by section 80 of the 1959 Act which had empowered the board of directors of the CBA to make a determination designating a position in what was described as "the Commonwealth Bank's Service" (constituted, pursuant to section 88 by officers appointed by the CBA, whose terms and conditions of employment were to be determined by the CBA). In the absence of such a determination or during any period when no such determination was in force, the managing director of the CBA was to manage the CDBA. Where such a determination was in force, the person occupying or performing the duties of a position in the Commonwealth Bank's Service designated by such a determination, was, under the managing director of the CBA, to manage the CDBA [section 80, 1959 Act].

20 In those circumstances the CBA up until the 1995 Act, as a matter of fact and pursuant to the above regulated regime and relevant instruments (including a private treaty between the CBA and the Commonwealth), had by relevant officers, effectively run and administered the business and affairs of the CDBA. The position which followed after the enactment of the 1995 Act was different in that the CDBA had effectively been converted into an entirely different vehicle and its previous charter, stipulated for in section 73 of the 1959 Act, and its functions, stipulated for in section 72 of the 1959 Act, had now disappeared. Loans which the CDBA had made remain valid contracts but no further applications for loans could be made to the CDBA which had become the Commonwealth Development Bank of Australia Limited [“CDB Ltd”]. CDB Ltd could not undertake any increase in its on or off balance sheet exposure through provision of additional loans. Effectively the position was that any application for a variation to an existing facility, which had previously been granted by the CDBA, could only be dealt as described in exhibit D1 which is appended to the judgment and is dated 23 September 1996.

21 A new "DevBank" commenced to operate as a division of CBA but the "not otherwise available" aspect of the CDBA's previous charter disappeared. The new DevBank, as before, was to operate efficiently in accordance with commercial principles and was held out as still primarily having regard to prospects ahead of security.

22 The Cassegrain parties pleading in relation to this issue left a great deal to be desired. However during final address inconsistent submissions were put to the court, first asserting that the CBA had never had any authority or power whatever to vary the CDBA facility, and secondly asserting that, whilst it had authority or power to vary the CDBA facility, its conduct was unconscionable and/or lacking in good faith and or unreasonable for the reason that what was said to be a dimensional change in the anterior functions of the CDBA [see section 72 1959 Act] and in the anterior matters to be considered by the CDBA in providing finance [see section 73 1959 Act], was said not to have been communicated to the Cassegrain parties in their dealings with the CBA.

23 Whilst the pleading seems to me to be confined to an allegation that the CBA knowingly and intentionally brought about a breach of the CDBA loan by so dealing with the holding company in terms of treating with its restructuring application in manner such that the loan had to be brought within the parameters of acceptable commercial lending criteria "or be got rid of" [whatever this last expression may mean], the case for reasons which follow, fails both as pleaded, and if this be open on the pleadings, as put in final address. Even at this early stage it is appropriate to note that the loan was not a loan by CBA and its purpose must then be perceived as having been "to get rid of" a loan made by another entity, albeit administered by the CBA. No such motive was established on the evidence.

The second amended summons in the Cassegrain proceedings

24 The second amended summons is poorly pleaded. It is prolix and it is not a simple matter to draw out of the pleading the specific causes of action pursued. They appear to be the following:

Unconscionability in terms of period of notice of pending default

· A claim in relation to a late June 1998 communication by the second Defendant to the holding company that particular extensions of repayment dates which had been sought following representations by CBA as to loans on offer in the holding company’s category, would not be granted and that unless the overdraft facility was repaid in full by 30 June 1998 the holding company would be in default and that the Commonwealth Bank of Australia would then be at liberty to exercise its rights under the securities held by it. The claim is that the period of notice was in all of the circumstances unconscionable [second Amended Summons paragraphs 13 - 16]

[The matters as pleaded is generally as follows:

· End of November/end of December 1997- the second defendant is said to have assumed the management and control of the first defendants loan portfolio

· The second defendant by its State Senior Manager (Mr R. Perkins) and others is said to have in the course of a function conducted by the second defendant:

· February 1998 - the first plaintiff, pursuant to the said representation is said to have applied to the second defendant to restructure its arrangements in the following three respects:-

· February 1998 until 25 June 1998- The second defendant is said to have delayed telling the first plaintiff that it would not be continuing with the first plaintiff as its customer until 25 June 1998, when the second defendant is said by its senior manager G.P. Wilmott, to have orally informed the first plaintiff’s officer, S. Lloyd, that:

Breaches of obligations to act fairly and in good faith

· An allegation that the CDBA and the holding company by having become parties as lender and borrower to the loan contract and the loan facilities became subject to mutual obligations to act fairly and in good faith the one to the other to ensure that:

Knowing and intentional interference with loan contract

· an allegation that the CBA following the enactment of the Commonwealth Bank Sale Act 1995 from a date not known by the Plaintiffs but continuing up through to 30 June 1998, knowingly interfered with the loan contract made between the holding company and the CDBA with the intention of procuring the holding company to become in breach thereof by failing to discharge the overdraft facility before 30 June 1998.

Misleading or deceptive conduct

· an allegation that between December 1997 and June 1998 the Commonwealth Bank of Australia was in breach of section 52 of the Trade Practices Act 1974 in engaging in conduct which was misleading or deceptive to the prejudice of the Plaintiffs. [Summons paragraph 34(c)(5)]

25 Other circumstances upon which the plaintiffs rely in the summons [paragraphs 17 - 22] are put in the following terms:

· between them, the first defendant and the second defendant held all the security that the plaintiffs and their directors could provide;

· the first plaintiff was able to borrow sufficient moneys as to pay out the overdraft of $750,000.00 and to meet the august 1998 repayment on the $3M loan from a private lender subject to the provision of security;

· otherwise the first plaintiff was unable to borrow moneys sufficient to pay out the overdraft of $750,000.00 unless and until it obtained a position where it could satisfy the more stringent lending requirements of the lenders other than those of the first defendant;

· such a position could not be obtained within a period of 18 months and in the interim the loan commitments were to be met as follows-

· Oceania Agriculture Pty Limited (“Oceania”), a wholly owned subsidiary of the first plaintiff borrowed the amount of $750,000.00 and on lent it to the first plaintiff to repay the overdraft;

· Oceania and the fifth plaintiff provided the payment of $612,500.00 due in August 1998 in respect of the loan of $3 million from their respective own resources;

· Oceania was able to meet the relevant lending requirements-

from its own cash flow; with supporting security from the fourth plaintiff a land owning wholly owned subsidiary of the first plaintiff;

· the time required for the lenders due diligence and valuations concerning Oceania, the fourth plaintiff and the fifth plaintiff was about 14 weeks.

· Between February 1998 and 25 June 1998 - by 11 March, the second defendant had decided to refuse the first plaintiff’s application to increase the overdraft and for extensions of time but did not communicate that latter decision to the first plaintiff until 25 June 1998;

· on 27 March 1998, the second defendant requested that the first plaintiff provide it with extensive financial information on a progressive basis concerning the application for restructure and variation and represented that the collation of the information would take some time and would require a revaluation of the group’s assets;

· on 8 April the second defendant by its senior manager and manager met with the managing director of Oceania to further discuss the progress of the extension application;

· on 21 April the second defendant advised the first plaintiff on the fact and cost of the valuation advised in the letter of 27 March 1998;

· on 1 May the second defendant advised the first plaintiff that its loan accounts were to be transferred to a new accounting system;

· on 15 June the second defendant unbeknown to the plaintiffs placed the first plaintiffs account in the hands of its asset recovery unit;

· on 25 June the second defendant orally advised the first plaintiff that it required the overdraft facility to be cleared in full by 30 June 1998;

· on 26 June the second defendant advised the first plaintiff that it was sending two investigative accountants to review the first plaintiff’s business and strategic plans and, if appropriate, to develop strategies to maximise recoveries.

· The first plaintiff provided the information sought by the second defendant and refrained from pursuing alternative sources of finances so as to avoid default in the belief that the second defendant was considering the first plaintiff’s application for extensions on its merits and would have delivered a timely response if the application was to be declined.

· By failing to have notified the first plaintiff of its decision of 11 March 1998 to decline the application, the first plaintiff was irredeemably prejudiced and prevented from avoiding the default that occurred on 30 June 1998 in the failure to have paid out the overdraft facility of $750,000.00.

· Further, after taking over the lending portfolio of the first defendant the second defendant altered the basis upon which the first defendant loaned moneys to the first plaintiff and without notice to the first plaintiff that it would be in a position so to do, placed the first plaintiff in default of its lending contract with the first defendant before the due date for payment of the first payment fell due.

· In the premises, where the first plaintiff as the holding company of the second, third and fourth plaintiffs became in default and under threat of receivership on 30 June 1998, the ability of the said plaintiffs to have borrowed money thereafter was negatived and the plaintiffs’ property exposed to the risk of forced sales.

Particular allegations of breach of obligation as pleaded to act fairly and in good faith

26 The allegations of breach by CBA by itself and by its agent the Commonwealth Bank of Australia are put [paragraph 34A(2)] in the following terms:

(i) failure to have warned the first plaintiff that the Commonwealth Bank Sale Act, 1995 had adverse consequences to the first plaintiff namely that the second defendant could not or would not take over the first plaintiff as a customer on the same terms and conditions as the first defendant;

(ii) failure to have given proper and sufficient notice to the first plaintiff of any likelihood that the first plaintiff would have to obtain re-finance from another lender or lenders for all its capital requirements needed to maintain and work its existing wine growing enterprises and to maintain and complete the tea tree venture;

(iii) failure to have given any or any timely warning that the restructuring proposals of February 1998 were unacceptable to the second defendant and would be refused;

(iv) giving notice of refusal only 5 days before the 30th June 1998;

(v) refusing to extend time to enable re-financing to occur;

(vi) refusing to agree to release securities for purposes of re-financing;

(vii) wrongly asserting that a breach of loan arrangements with the second defendant triggered a default of the first defendant’s loan;

(viii) continuing its negotiations for the first plaintiff’s restructuring proposals after March 1998 when the second defendant knew or ought to have known that the first plaintiff was in a vulnerable financial position for having gone to a lender of last resort for working capital on risky agricultural ventures ;

(ix) wasting critical time for the first plaintiff by failing to tell it to go elsewhere;

(x) gained access to the first plaintiff’s group of Companies so as to allow

s

misrepresented

“to assist our business relationship”;

(xi) the first plaintiff acceded to the request and fully co-operated with the so-called investigative accountants by giving them all that they required in the belief that the restructuring proposals were still proceeding;

(xii) the “investigative accountants” were in fact the first named Third Defendant and a colleague of his, neither of whom were employed by the second defendant “to assist” the banking business relationship between the second defendant and the first plaintiff, but were employed as a prelude to the formal appointment of the second defendant’s Receivers;

(xiii) in that respect, it will be alleged that the second defendant’s stated position that the 30 June 1998 default triggered off a default on the first defendant’s term loan was made after the first plaintiff had agreed to let the Third Defendants into their books and records and was a part of the second defendant’s plan to rid itself of the first plaintiff ;

(xiv) it will be further alleged that the first plaintiff was led to believe by the second defendant that it was dealing with G.P. Wilmott as Senior Manager of the second defendant’s NSW/ACT Lending Services Department. In fact, Mr Wilmott was then a senior officer in the second defendant’s Credit Recovery Department and that what was occurring after 30 June 1998 so far as the second defendant was in reality doing was readying itself for the asset sale it subsequently undertook;

(xv) the prejudice resulting from this conduct by the second defendant after 30 June 1998 was that the first plaintiff believed it had some sort of choice in its negotiating position concerning re-finance terms with other lenders when in fact it had none. This, misapprehension, it will be alleged, resulted in the first plaintiff refusing offers of finance from other commercial lenders whose terms were not fully acceptable to the first plaintiff;

(xvi) finally, the first plaintiff had retained A.T. Cocks Consulting to prepare a strategic sales programme as part of an overall group debt reduction plan and so advised the second defendant of that fact on 10 June 1998;

(xvii) a sales programme had been advocated by the second defendant since 30 June 1998 through its Mr S. Walsh;

(xviii) the second defendant’s response was to appoint the third defendant s as Receiver manager on 15 June 1999;

(xix) the A.T. Cocks sales programme aimed to discharge both loans within 12 months;

(xx) the firm A.T. Cocks Consulting is well known favourably to the second defendant;

(xxi) no reason of substance or value existed for the second defendant to have appointed receiver managers so as to rob the first plaintiff of the benefit of its retainer of A.T. Cocks to sell off the first plaintiff’s assets;

and acting in good faith

and to redeem the same by discharging the mortgages thereon

Particular allegations of knowing and intentional interference with the holding company's contractual rights with CDBA

27 The allegations of knowing and intentional interference with the holding company's contractual rights with the first defendant are put [paragraph 34B] in the following terms:

Particulars

Commonwealth Bank Sale Act, 1995

(ii) the second defendant policy (and that of the Federal Government) was that the first defendant’s borrowers had to be brought within the parameters of acceptable commercial lending criteria or be got rid of;

(iii) the first plaintiff’s application of February 1998 to restructure its borrowing arrangements by short term increases presented as an opportunity for the second defendant to rid itself of potential problems with the first plaintiff’s loan of $3M;

(iv) the perceived opportunity was to bring about a default by the first plaintiff of its overdraft clearance obligation with the second defendant and thereby to put the first plaintiff in default of the loan repayment obligations to the first defendant;

(v) once the latter occurred, the first plaintiff’s position as to re-financing was practically impossible;

(vi) the second defendant knew or ought to have known that that was the case;

[Emphasis added]

Particular allegations of breaches of section 52 of the Trade Practices Act

28 The allegations of breaches of section 52 of the Trade Practices Act are put [paragraph 34C(1) in broad terms, namely that “between December 1997 and June 1998, the second defendant in breach of section 52 of the Trade Practices Act, 1974, engaged in conduct which was misleading or deceptive to the prejudice of the plaintiffs”.

29 The relief sought in the summons in the Cassegrain proceedings is as follows:

· Damages against each defendant;

· A declaration that the purported appointment of the receivers as receivers and managers of the plaintiffs property and undertakings on 15 June 1999 was unlawful;

· An order pursuant to Section 87 of the Trade Practices Act, 1974, declaring the whole of the Heads of Agreement to have been void ab initio or at all times on and after such date as is specified in the order

· In the alternative, compensation pursuant to Section 87

· Damages as follows:

- as against the first and second defendants, for breach of good faith in respect of the contract between them and the plaintiffs

- as against the second defendant, for its unlawful interference in the operation of the contractual arrangements between the first plaintiff and the first defendant

· Costs and interest.

The Cassegrain parties’ case concerning the Heads of Agreement

30 The Cassegrain parties pleaded case is to be found in a Rejoinder filed on 22 February 2002 in the banks proceedings. The substantive issue pleaded is the allegation that the execution of the Heads of Agreement was obtained by unconscionable conduct on the part of the banks representatives described in numbered paragraphs as follows:

“(i) at the time of the mediation the plaintiff’s had not been able to prepare the various statutory notice of demand they were required as mortgagees to prepare and serve. [Claim no longer pressed in final submissions]

(ii) the plaintiffs needed more time within which to prepare and serve the notices. [Claim no longer pressed in final submissions]

(iii) the extension of time given in the Heads of Agreement was given to suit the convenience of the plaintiffs and gave an illusory indulgence only to the defendant and those he represented.

(iv) the mediation was stated by the plaintiffs to be only a formality.

(v) the Heads of Agreement offered no compromise by the plaintiffs to the defendant.

(vi) the plaintiffs had resolved upon the outcome before the mediation and had prepared the document before the mediation.

(vii) the defendant was under great emotional strain and disturbance and the plaintiffs were aware of that disadvantage.

(viii) the plaintiffs offered the defendant only the choice of executing the document or suffering the appointment of receivers on the following day.

(ix) the plaintiffs ignored the defendant’s protests and insisted he execute the agreement which he did.”

(“the Heads of Agreement issues”)

The witnesses/dramatis personae

31 The following convenient summary was prepared by the Banks by way of a dramatis personae and has been shortly complemented as necessary:

Person	Description
Bank employees and witnesses
Barry Watson	Manager, Credit Management in Group Risk Management
Geoffrey Wilmott	Currently Executive Manager, Business and Risk Services. In 1997, Senior Manager, Credit Management Unit of Lending Services NSW / ACT
Roderick Burgess	Senior Manager, Group Risk Management
Stephen Walsh	Former Credit Manager in Group Risk Management
Susan Whiting	Account Manager in Credit Management Unit of Lending Services NSW / ACT
Cassegrain employees, witnesses and companies
Claude Cassegrain	The defendant in 50062 of 2000 The fifth plaintiff in 50072 of 2000 The managing director of Gerard Cassegrain & Co Pty Ltd
Stephen Lloyd	Former consultant to Gerard Cassegrain & Co Pty Ltd Mr Cassegrain gave evidence that throughout 1998 he was familiar with the communications between the Banks and the holding company and that Mr Lloyd kept him informed of his dealings with the banks [Transcript 54]
Troy Terp	Son of JR & ED Terp employed as Business Manager of family business
Stuart Morton	Proprietor of Port Macquarie Hastings Real Estate
Colin Fermanis	Director of Southland Capital Pty Ltd
David Blackwell	Director of Urbis formerly A T Cocks Consulting
John Read	Former employer of Commonwealth Development Bank
Gerard Cassegrain & Co Pty Ltd	First plaintiff in 50072 of 2000
Clos Farming Estates Pty Ltd	Second plaintiff in 50072 of 2000
Le Clos Sancrox Pty Ltd	Third plaintiff in 50072 of 2000
Endwise Holdings Pty Ltd	Fourth plaintiff in 50072 of 2000 [Notwithstanding this table not all of these persons ultimately gave evidence]

Relevant relationships/corporate structure

32 Mr Cassegrain is the eldest son of Gerard and Francoise Cassegrain both of whom are now deceased. He has five brothers and sisters, Katherine, Patrick, John, Dennis and Anne-Marie.

33 GCC is the holding company of the second and third plaintiffs, Clos Farming Estates Pty Ltd and Le Clos Sancrox Pty Ltd. The shareholding in Endwise Holdings Pty Ltd is held as to 50% by GCC and as to 50% by Mr Cassegrain. Mr Cassegrain and Ms Cameron were at all material times the directors of the first four plaintiffs.

34 From the respective dates of their incorporation the first and second plaintiffs progressively acquired land in the Port Macquarie area which was earmarked for the following purposes:

· the establishment of a vineyard to grow premium wine grapes for production and distribution under the Cassegrain Hastings Valley Winery label;

· the development of land for a future new town development;

· the development of a golf course and a hotel with some 400 residential units adjoining the vineyard;

· the development of 130 residential lots for farm owners also adjoining the vineyard; and

· the development of a tea tree farming project.

[sub-paragraphs (a) - (e) of paragraph 6 from the statement of Mr Cassegrain of 6 July 2000]

35 Mr Cassegrain expanded on this by statement of 6 July 2000:

“Between 1987 & 1990 the GC & Co Group developed three separate areas for grape vine growing. The first project was called “Le Clos Sancrox” and comprised some 46 separate farms. That was developed and established in 1987 to 1988. the second project was called “Le Clos Verdun”. It was developed in 1988 and 1989 and comprised 81 separate farms. The third was developed in 1989 to 1990 and comprised 70 separate farms. It was called “Le Clos Françoise”.

All three estates were based on the same concept. Each purchaser acquired two lots. One was for residential use. The other was for growing grapes. The grape growing enterprise was conducted under management provided by the GC & Co Group. Each purchaser took subject to a covenant authorising such management and for sale of the grapes to the Cassegrain Hastings Valley Winery. The winery has achieved several best wines in Australia awards using the Clos farm grapes. All told, some 159 hectares divided into 144 farms have been established for use as vineyards.

The development and management of the vineyard lots has been undertaken by P1, P2 and P3 since 1 July 1987. P2 retains ownership of some 104.88 hectares contained in 3 separate titles divided into 36 separate lots.

In 1989 P4 acquired a property at Telegraph Point near Port Macquarie with a long term view of use as a regional airport by the local councils when funding became available. Council did not proceed and the GC & Co Group then in 1995 commissioned Arthur Anderson to investigate and prepare a business plan for the development of the property as a tea tree plantation. The plan was completed in August 1995.

The plan provided for a three stage development as follows:-

(a) Stage 1 involved the land preparation, infrastructure, site development, fund raising, marketing and administration costs;

(b) Stage 2 involved a fall back scenario if the marketing of the tea tree project to investors was unsuccessful. Instead, the GC & Co Group would establish and maintain a 100 hectare plantation;

(c) Stage 3 involved the completion of the development of the balance of the property into a tea tree plantation to total approximately 500 hectares of trees. To date, approximately 13 million trees on 330 hectares have been planted.

The same system used for sales to investors in the Clos farm project was adopted in the tea tree project except that in the latter case the investors did not acquire the land or a residential lot. Each investor was given a 17 year licence over part of the land. The licence fees were paid to Oceania Agriculture Limited (ACN 076 400 872). That company managed the plantation and collected the licence fees from the investors.

The cost to the GC & Co Group of bringing the project to Stage 1 was $2 million. The cost of bringing it to its present stage has been about $6 million.

Up to then, the Group’s banker was the Colonial State Bank. The GC & Co Group’s debt to it was about $1.4 million. It needed further $1.5 million to fund Stage 1 and to fund expected revenue shortfalls from the vineyard management fees. That led to the Commonwealth Development Bank (“CDB”) loan.”

36 Both Mr Cassegrain and his siblings held shares in Expressway Spares Pty Ltd ["Expressway Spares"] in 1988 and 1989. Expressway Spares had for many years carried on business near Port Macquarie as a dealer in parts for motor vehicles, plant and equipment. Its main banker in 1998 was the Colonial State Bank. Expressway Spares owned 100 percent of Cassegrain Vineyards Pty Ltd which in turn owned Cassegrain Winery at Port Macquarie.

37 Expressway Spares owned 100% of the shares in Cassegrain Tradition Pty Ltd.

38 In 1998 and 1999 Mr Cassegrain and all of his siblings held shares in the holding company.

39 The second and third plaintiff's had been involved during the second half of the 1980s in projects known as the 'Clos Farming Projects' which involved the investors taking an interest in small vineyard areas with the annual produce of those vineyards sold to Cassegrain Vineyards Pty Ltd.

40 The fourth plaintiff owned land which was used in connection with the tea tree farming project which project was managed by Oceania Agricultural Ltd.

41 Mr Cassegrain was not in 1998 or 1999 a director of Oceania Agricultural. The directors of that company were Mr Murtagh, Mr Lloyd, Mr Glover and Mr Liddy.

42 Yet another company, Clos Farming Management Ltd in a sub contract arrangement was involved in the management of Clos Farming Estates Pty Ltd and Le Clos Sancrox, managing the vineyards. The board of management of Clos Farming Estates were from Le Clos Sancrox.

43 Another of the companies which had an involvement in the tea tree project was a company called Agricultural and Rural Finance Pty Ltd in respect of which company Mr Cassegrain was not a director.

44 Verdun Vineyards Estates Pty Ltd was 50 percent owned by the holding company and 50 percent by Clos Farming Management Ltd. Its directors were as at 1998, Mr Curly, Mr Angus, Mr Liddy and Mr Rock. Verdun Vineyards had been formed expressly to purchase vineyard development blocks repossessed by the Colonial State Bank. It procured an approved $500,000 facility from the National Australia Bank for the purpose of purchasing 13 lots from the Colonial State Bank. [Transcript 132,133]

Relevant proceedings in which Mr Cassegrain or family interests were involved

45 Mr Cassegrain gave evidence to the following effect in relation to such proceedings:

· That in 1996 four of his brothers and sisters brought proceedings against him, his sister Anne-Marie and his mother in the Federal Court. One of the complaints made in those proceedings was that he was conducting the affairs of Expressway Spares in a manner that was oppressive to the applicants. The family disputation attracted publicity. In September 1996 a mediation was conducted. Mr Cassegrain participated in the mediation which did lead to an agreement which was unable to be consummated.

· In late 1997 a second mediation of the family dispute in the Federal Court was conducted by the Hon John Clarke QC. Questions arose in respect of Heads of Agreement which Mr Cassegrain, in giving evidence under cross-examination, said comprised a document negotiated between counsel and the respective solicitors and which had not resulted from the mediation. Mr Cassegrain sent a copy of those Heads of Agreement to the Commonwealth Bank in early April 1998 advising that he was seeking specific performance of the Heads of Agreement because of the further dispute which had arisen.

· By June 1999 Mr Cassegrain's mother had passed away leaving him and his sister Anne-Marie as executors of her estate. His mother had also held shares in Expressway Spares and after her death control of those shares passed to him and Anne-Marie as executors. Complexities arose with respect to the Heads of Agreement which Mr Cassegrain described as follows:

“The Heads of Agreement included a clause that my siblings were able to obtain finance. We were advised that the bank had approved the finance and therefore the lawyers started to document the details of the Heads of Agreement. The Heads of Agreement included my mother selling her land and buildings occupied by Expressway Spares to Expressway Spares. My siblings and their lawyers approached the State Bank - I beg your pardon, my siblings and their lawyers approached my mother's lawyer and asked that there be a variation to the Heads of Agreement. The variation that they requested was that rather than the land and buildings over which Expressway Spares was operating be sold to them personally. My mother agreed to that scenario on the condition that she would also retain an equitable interest in the land and buildings as the land and buildings were to be paid for by Expressway Spares. The siblings decided that they do not want our mother to have an on-going interest in the land and buildings occupied by Expressway Spares. They reapproached the bank and asked the bank to make the approval for finance conditional and to retract the approval. The bank then retracted the approval for finance to perform the Heads of Agreement and when the time came for the confirmation of the Heads of Agreement, we were then advised that they were not going to perform because the bank had withdrawn the funding. We then asked for specific performance. The judge decided that because the finance was no longer approved, that we could not rely upon the Heads of Agreement and the Court case continued.

Q. So drawing all those threads together, the effect of all that was these Heads of Agreement to which I have been drawing your attention were never consummated?
A. That's correct."
[Transcript 44]

The relevant dealings relied upon by the plaintiffs

Evidence given by Mr Read – Initial Loan

46 Mr Read gave evidence that he had been an officer in the CDBA up to 4 July 1997. He had opened the Port Macquarie office of the CDBA in 1985 and had had several conversations with Mr Cassegrain from that point in time on. He had dealt with an application for loan by the holding company.

47 He had carried out the investigation in about 1995 for the loan and had put up a submission to head office. His understanding of the charter of the CDBA was that loans had been approved on prospects of success and could not be declined only on the basis of lack of security. Prospects of success had focused upon inspections of the property, analysis of income that could be generated and the particular circumstance is as to whether the loan appeared to be able to be serviced over a reasonable period of time. He gave a detailed explanation of certain aspects of the circumstance that in 1996 the existing CDBA cease to be owned by the federal government and became owned by the Commonwealth Bank of Australia. As a result of the change existing loans were to be quarantined in a separate company which he believed had been the Commonwealth Development Bank of Australia Ltd. His understanding was that the loan conditions applying to such facilities would continue unchanged and he presumed that this would have been the case in relation to see $3 million facility to the holding company. New facilities were thereafter dealt with by a business known as Dev Bank operating as a trading arm of business banking division of Commonwealth Bank of Australia.

48 It is necessary to follow the further timeline closely in order to understand the sundry allegations of wrongdoing by the plaintiffs. It is however clearly unnecessary to chronicle all of the evidence before the court comprising inter alia many folders of correspondence and notes. The issues especially throw up a focus on certain events which are dealt with in the judgment. Hence the evidence disclosed the following relevant events:

04.10.95

49 CDBA lends Cassegrain $3 million – payments due each August, commencing August 1997 and balance by August 2003 (‘the CDB loan’).

18.10.95

50 First guarantee executed in respect of the CDB loan.

August 1996

51 Mr Cassegrain gave evidence that in approximately August 1996 he received a copy of the CDBA customer magazine [PX 1/122 and following]. This document importantly included at PX 1/127 and 1/130, detail of what was referred to as "the new DevBank, operating as a division of Commonwealth Bank, Australia". At PX 1/127 a series of questions and answers were included in which the following was to be found:

”Q. How will this change affect existing SME [small to medium enterprises] and rural customers?
A. There will be no change to existing loans-these will be quarantined in a separate company and the loan conditions will continue unchanged. This applies irrespective of whether the loans are to commercial or rural borrowers and whether the loans are by way of equipment finance or term loan.

Q. What if existing clients want more money?

A. Whether existing or new clients, we will happily assist all

viable

applications within the Business Banking Division of CBA.

[Emphasis added]

52 The detail to be found at PX1/130 was as follows:

“ Charter - does it stay?

Commonwealth Development Bank operated for 36 years under statutory charter providing finance to small businesses and primary producers.

The new DevBank, operating as a division of Commonwealth Bank Australia, will not inherit this Charter when the Federal Government sells its shares and withdraws its subsidy. It will, however, maintain some of the Charter’s important characteristics.

The Development Bank’s Charter meant it provided finance for the purpose of establishing, acquiring or carrying on business in cases where the provision of finance was desirable, but not available elsewhere on reasonable and suitable terms and conditions.

As specified in the Commonwealth Bank’s Act, The Development Bank was required, when determining whether to provide finance, to have regard primarily for prospects of success ahead of the value of existing security.

As in the past, DevBank will continue to operate efficiently in accordance with commercial principles and still primarily have regard for prospects ahead of security .

However, “the not otherwise available” aspect of The Development Bank’s charter will disappear.”

18.10.95

53 Mortgages executed in respect of the CDB loan.

14.08.96

54 Letter Cassegrain to CDB applying for further finance of $750,000.

02.04.97

55 Letter CBA to Cassegrain approving overdraft of $750,000 (‘the CBA loan’)

‘Any debit balance on the account is repayable on demand which the Bank may make at any time but, unless the Bank makes such demand the overdraft arrangement will be subject to full repayment from investor proceeds or sale of assets by no later than 30 June 1998.’

24 April 1997

56 Guarantee executed in respect of the CBA loan.

12.05.97

57 Mortgages executed in respect of the CBA loan.

14.07.97

58 Letter Cassegrain to CBA requesting deferral of first repayment under the loan to August 1998.

30.07.97

59 Letter CBA to Cassegrain agreeing to deferral.

‘Instalments of $615,200 covering both principal and interest are to be payable in August each year. The first instalment is to be met in August 1998 and in August 2004 the balance if any of the loan then outstanding together with interest thereon is to be met.

Late 1997 - restructuring discussions

60 Mr Cassegrain gave the following evidence by statement:

“ As of September 1997, I believed the GC & Co Group was a valued customer of CBA. The document numbered 34 in the bundle was received at about the end of September 1997. That was followed by the document numbered 35.

In late 1997 I was invited together with what I recognised as a number of people whom I recognised as prominent in business in the Hastings region to a function organized by the Bank to celebrate the opening of a Regional Business Centre at Port Macquarie and the appointment of Dale Murray as its Business Manager. At the function I was introduced to a number of CBA executives from Sydney whom I had not previously met. It was stated at the meeting by one of the executives that the purpose of the opening of the Business Centre was to attract to the bank a greater share of the local business banking market, as well as to improve by the local presence of senior officers, the existing business relationships.

During the function I was speaking to a group of the senior executives, one of whom said words to the effect:

“Claude, we are offering some attractive arrangements for the Development Bank clients to restructure their existing loans to take advantage of the more efficient and wide spread services that the CBA can supply. You may be able to negotiate significant interest cost savings.”

Another executive said to the effect:

“We would like the new office to have a number of $5 million business loans, this may be your category.”

I said to that:-

“It sounds good to me. I would like our accounts handled here in Port Macquarie rather than in Newcastle. Does this suit you Dale?”

Dale Murray said:-

“Yes, it does. Claude, I would very much like to have your business here. You should contact David White in Newcastle to get him to transfer the files to me.”

I said:-

“It would sound better coming from you. I don’t want David White to think I am unhappy with him.”

Dale Murray said:-

“We had both better do it then.”

Soon after that meeting, Dale Murray came out to our place and spent about three quarters of the day inspecting our vineyards, proposed golf course resort site, the tea tree plantation, and our plans. At the conclusion of that he said to the effect:-

“I am amazed. This is very impressive. It’s a wonder more people in Port Macquarie don’t know about it.”

During the course of that meeting we discussed the matter of restructuring the CDB loan. Toward the end of the discussion Dale Murray said to the effect:-

“Claude, as soon as I get the files from Newcastle I’ll go to work on it. In the meantime, could you let me have what we have discussed in the form of a written proposal I’ll get our people on to it straight away while we are waiting.””

February 1998

61 Mr Cassegrain gave evidence by statement of several conversations which he said he had had with Mr Murray in February 1998 to the following effect:

“Me: Dale, when should we be dealing with the restructuring of our loan?

Murray: Claude, we need to get your files from Newcastle before we can proceed any further.

Me: Dale, has Newcastle sent the files down yet?

Murray: No. They have promised to send them but they haven’t arrived yet.

Me: Dale, have the files arrived yet?

Murray: I can’t advance it any further till we get the files. I will chase it up.

Me: Have the files arrived from Newcastle yet?

Murray: No. I don’t understand what is going on. I’ll ring up.

Me: How is it going Dale. Any progress yet?

Murray: It’s progressing. I don’t know why, but the files ended up in Sydney instead. I’ll track them down.

Me: Have you found the files yet?

Murray: It appears for some reason Sydney has decided to process the restructuring proposal themselves. When they have finished they said they would send the file to us to manage.

Me: Have you heard from Sydney yet?

Murray: No. They will send the file up when they have looked at it.”

[Sub-paragraphs (a) - (h) of paragraph 31 from statement of Mr Cassegrain of 6 July 2000]

62 Mr Lloyd gave evidence that the proposal to restructure the facilities was prompted by Mr Cassegrain, who said to him on returning from a function hosted by CBA to mark its takeover of CDB, “I have had positive discussions with Dale Murray (the Area Manager of Business Banking for the CBA). He said the Bank is looking to restructure CDB facilities. He thinks we should apply for a restructure of the facilities under the CBA and it could be an opportunity to apply for an increase if we need one” or words to that effect. [Evidence admitted only as evidence of the conversation and section 136 limiting order made accordingly]

23.02.98

63 Cassegrain provides Dale Murray of CBA with proposal for restructure of loans.

Early 1998 - Evidence of Mr Wilmott

64 Mr Wilmott gave evidence that in about early 1998 the Lending Services Division had a “credit management unit” [“CMU”] and a “credit approvals unit”. When an application for loan was made the loan was processed depending upon the credit rating of the customer. If the credit rating of a customer was satisfactory, the submission would go to the credit approvals unit which would review the credit rating, confirm that it remained a satisfactory credit and would consider the request for finance. If the application was from a customer who already had a weak credit rating, the application would come through to the CMU which then, within limits (in the same way as the approval unit), had authority to approve the application. If the application was approved it would revert to the money lending business banking centre or the branch for further administration, depending upon the point of origin of the application. If however it was a credit management unit file CMU would respond directly back to the customer. If an application was rejected by CMU then, if it had the management and control of the file, it would respond directly back to the customer. If CMU had the control of the file but not necessarily the management of the file, CMU would convey that decision back to the centre or branch and they would convey the decision to the customer. [Transcript 290-292]

65 Mr Wilmott gave evidence that where the approvals unit had given an assessment which resulted in an unsatisfactory rating, and the control of the file was migrated to CMU for further assessment, decision-making and control, if required, an attempt would be made to so treat with the matter by CMU. He in fact had the capacity to review the file and to deem whether an approval of the credit that had been originally sought or possibly a variation of the terms of any approval was warranted on the information held at that time. Insofar as CMU had a function of developing a strategy to protect the bank against loss resulting from the event of default, in terms of the Cassegrain circumstance at the time he became involved with the file, he simply had insufficient information to make a decision on whether the request for finance should be approved and he therefore confirmed the original decision taken by credit approvals unit as one which should stand. [Transcript 293]

66 Mr Wilmott did not accept that the CDBA was a lender of “last resort”. Its charter permitted it to grant loans where a customer could show that an application had been declined by one only of the trading banks, and not necessarily by all of them. [Transcript 294]

67 Mr Wilmott was closely cross-examined upon exhibit D1 already described dealing with the integration of CDBA into the Commonwealth Bank lending portfolio and treating with new and increased lending in respect of previous CDBA facilities. Mr Wilmott’s evidence at transcript 300–304 – included that lending policies in respect of new or increased loan applications from CDBA facility customers were to be assessed under the existing CBA policy and that he was aware of the instructions as to new and increased lending. Importantly his evidence as to the final ‘Restriction’ instruction was that these loans were not to be rewritten as CBA loans but to continue as the instruction directed – that is a CBD (now CBD Limited) loans. [Transcript 305]

5 March 1998

68 On 5 March 1998 an internal bank memorandum was received by CMU from the approvals unit advising that given the uncertainties surrounding the long-term viability of the tea tree oil industry, the lack of information concerning the Cassegrain group/family and the overall financial structure and the current family dispute, it would not be prudent to increase the banks exposure at the time so that the application had been declined. [PX 2/338] The same memorandum advised that further contact would be made in due course but that in the interim the applicants were not to be informed of the referral to CMU. Mr Wilmott gave evidence that:

“The policy at the time was that we didn't inform the clients of the control of the filing party to CMU, because the management at that point was still being maintained by the Business Banking Centre and the fact that the file had migrated to CMU meant that we were still assessing the credit under the bank's normal credit policies whether it was within the Approvals Unit or within the Credit Management Unit and the actual decisions were still emanating out of the lending services area of the bank.

69 Also in March Mr Wilmott first received a file concerning the Cassegrain group which was the submission from the Business Banking Centre to the Credit Approvals Unit and a copy of the processing notes from the Credit Approvals Unit and the response which had been given back to the centre. [Transcript 290] By this time the bank had declined a request for accommodation which had been a request for an increase of $350,000 to the overdraft facility.

70 His evidence in relation to the management of the $3 million loan and the requirement that it be transferred to a new accounting system was that this was because the bank was moving to a new Y2K compliant system. [Transcript 340]

71 Mr Lloyd gave evidence that in March 1998 the CBA declined the temporary increase in the overdraft by letter and that about then, he asked Mr Gavin, a manager at the Port Macquarie business banking office, about the restructuring of the loans. He had said words to the effect “I can’t see that being a problem but it will have to go to Sydney for approval”.

Between March and April 1998

72 Mr Wilmott under cross-examination gave the following evidence:

"Q. So, between say March and April you were receiving information from the Cassegrain Group of the sort that you were requesting them to provide, is that right?
A. Yes. They were - - we were receiving information on a progressive basis.

Q. What was the reason for obtaining that information?
A. To assess the clients ability to make the promised reduction that he was making. The proposition that he was making we wanted to see that he could adhere to.

Q. Which promises were there?
A. That they would repay the overdraft at the end of October and meet the instalment due on the DevBank facility at the end of October.

Q. When were those promises made?
A. In terms of the letter I sent back to the client on 27 of March of 1998 where I outlined what I believed to be his request of the bank. I had no information from the client that suggested that they wanted these requests varied in anyway.

Q. But didn't. They on the 25 of March, according to you, asked that the time limits for both payments of the overdraft and the term loan be extended?…

Q. Didn't you say that on the 25 of March Mr Lloyd had spoken to you by telephone and asked you to extend the time for payment of both those loans?
A. He did, yes.

Q. Well, isn't that going the opposite direction to promising to pay by the due date?
A. But I took that as the new due date, that was going to be the end of October. He wanted to extend the loans beyond the overdraft from the end of June to the end of October.

Q. I see?
A. The DevBank term loan from August to the end of October.

Q. So all this information he was requesting was directed to establishing whether or not they would be in a position to pay those amounts of money by the end of October?
A. Correct…

Q. Throughout April they continued to give you information that you requested?
A. I progressively received information.

Q. They were many telephone conversations as well?
A. Principally in writing in relation to the provision of information. I would get a call to say such and such was on its way.

Q. Then on the 20 of April of 1998 you requested valuations of all the security provided by the group as a matter of an urgent basis for establishment of specific provision. Do you remember that?
A. I remember ordering re-evaluations. If I written it's in relation to the provision following a discussion I had with their chief property valuer.

Q. But the specific provision that you were requesting be a valuation for was to establish a loss, wasn't it?
A. It was one of the internal management decisions we had to come to in relation to the management of the file. After discussing the valuation, as it was termed, with our chief valuing officer of the day he came to the view that we needed to have a revaluation done so we could establish the true market value of this property. It was, in his eyes, that the valuation that we held at the time would not stand up to the proper rigors of a valuation.

Q. But aren't you or weren't you concerned with whether or not the group was going to be able to make the two payments of the overdraft and the term loan in October?

A. Yes. I was equally concerned with that because in any credit decision we try and establish what the cash flow robustness is going forward and how reliable those cash flows are. We also establish what are the levels of security based on those.”

[Transcript 332-333]

11 March 1998

73 Mr Wilmott was shown a diary note by Mr Baker, the Senior Credit Manager of 11 March 1998 [DX 4.109-4.110]. A copy of this note is appended to this judgment. The note importantly includes a paragraph making the point that the existing repayment arrangements called for clearance of the working capital overdraft in June 1998 and payment of the previously deferred principal and interest reduction of $617,000 on the term loan in August 1998, it being "apparent that the two commitments cannot be met without resorting to an increase in CBA facilities". The document continues:

"The above issues reinforce the doubts concerning the reliability of previous cash flow budgets and also raises doubts concerning the budgets provided with the application now before us.

Clearly a thorough investigation of the development and the Group needs to be undertaken to establish ongoing viability.

In view of the overall position and the family dispute it would not be prudent for the CBA to provide further funds into the venture

until a full understanding of the Group, the tea tree venture and the Cassegrain family as a whole is gained

. Therefore the application has been declined

at this stage

and BBC advised accordingly."

74 Mr Wilmott gave evidence that a hand written note appended at the end of this document had been made by Mr Dennis Roams who was the chief manager “Lending Services” of New South Wales, senior to Mr Wilmott and to Mr Sergeant. He read the content of this note onto the record as follows:

"This

"Clearly a thorough investigation…" ] is the most basic and desirable need, presumably the BBC file (in the court) would provide some background. However we need to know more. It is hard to dispute the CQC rating without knowing the total picture (development cost/time, the “Clos” structure and so on,

it is neither appropriate to approve more finance nor launch into recovery mode

…"

75 The above emphasis is to make clear that this contemporaneous note contemplated the then position being one of awaiting further developments as between launching into recovery mode or approval of some further accommodation. This disproves by contemporaneous document an important part of the Cassegrain case, which was that an irrevocable and immovable decision to decline any further accommodation had been made early in the peace and well before the communication of the decision in late June 1998.

76 Mr Wilmott gave the following evidence in relation to the words "to establish ongoing viability" being part of Mr Baker is memorandum:

“Q. Did you say you read this at the time?
A. Yes, I did.

Q. Well, what did you understand was meant by those words 'to establish ongoing viability'?
A. We had to establish the various cash flow positions of the ventures within the group. There are quite a number of ventures within the group; and we had to understand how each of those cash flows came together and resulted in a consolidated position.

Q. Why, why would you have to do that?
A. Because the cash is the source of repayment and it's the source of meeting all expenditure in the business, to remain solid.

Q. Yes, well as between the two alternatives which are being referred to in the handwritten note on the one hand approving more finance; and on the other hand launching into recovery mode, you see it's neither appropriate to do either?
A. Yes, I see that comment.

Q. With respect of both or which of those was it, as you then understood it necessary to carry out this thorough investigation to establish ongoing viability?
A. The answer to the ongoing viability question would determine the course of action the bank would finally take…

A. Whether it would be to approve more finance or to take recovery action.

[Transcript 314]

23 March 1998

77 Mr Wilmott's internal memorandum of 23 March 1998 addressed to the Business Banking Centre [DX 4.246-4.252] is appended to this judgment. He was closely cross-examined on this document. His evidence was that what he was doing when he prepared the memorandum was outlining the history of the file because a lot of the documents were missing having been subpoenaed by the Court in the family dispute. [Transcript 310]

78 The document is an important one because it covers a number of aspects explaining the banks approach up to that point in time and in coming months. Reference is made to the steps in terms of the application to vary facilities. Reference is made at 4.249 to approval having been given to the $750,000 application in March 1997 "on the understanding that if the sale to investors was not successful, the company would sell sufficient assets to clear the loan by 30 June 1998".

79 Reference is also made to the prospectus which had been issued in April 1997 and was to close on 9 April 1998. During the course of his further cross-examination Mr Wilmott referred, on more than one occasion, to the significance of the prospectus in terms of operating cash flows. His later evidence was to the effect that because of problems within the Taxation Office and other matters it had become necessary for the further prospectus to issue and that there were clearly perceived difficulties which continued in terms of being in a position to estimate what cash flow might follow success in terms of the prospectus offerings.

80 His evidence included the following [given by reference to some notes of Ms Wilmott DX 317,318 and his own note DX 4.319. In re-examination it became clear that the scenarios referred to on DX 4.319 related to the document PX 2/409-411]:

“HIS HONOUR: At 4.317, at the top of the page, there is a triangle "very little" triangle "to little" submission. The triangle refers to differences between the two prospectuses. Are you telling us then that there were definitely, as you recall it, two prospectuses? One originally for April and then a later one?
A. There was an original prospectus issued in '97 and that provided certain funds into Oceanic. Then they proposed to issue another prospectus in April of '98 to raise further funds for Oceanic.

HIS HONOUR: Which I think you said had, you believed had been deferred because of various problems?
A. The tax ruling in relation to those tax effective schemes.

HIS HONOUR: What do you mean when you thought you could perhaps defer the first line on 4.317?
A. Because I just looked at what she's written here in relation to it. It's obviously in relation to the tea tree prospectus. That she is writing here in terms of tea tree costs and overheads and the monies that are coming in.

HIS HONOUR: It's all about the analysis of what the second prospectus added to what was at the original prospectus back in 1987 from the income.
A. The reason why I asked for the difference was the original prospectus had not been successful as well. I wanted to see if in fact the subsequent one was going to be materially different and then whether it was going to be successful or not.

CAMERON: Q: Did you ever find out how many farms were sold under the second prospectus?
A. Did I find out?
Q. Yes.
A. Yes. Ultimately, yes, I did know. I shouldn't say that - no, because it hadn't closed until the 30 of June because I had lost control of the file by then.”

[Transcript 338-339]

81 The document at 4.250 stated that the proposal then submitted had two steps identified namely:

· (vi) This allegation in order to succeed would have to include as a parameter, some such proposition as that the banks had resolved not to offer any form of compromise and/or not to consider any offers which came forward from the Cassegrain parties. The evidence did not bear out any such form of resolution. To the contrary, the Heads of Agreement contained a degree of compromise in terms of the time extension granted. The Banks had not resolved upon the outcome of the mediation before it had occurred. The written instructions given to Messrs Burgess and Walsh suggested that they were able to compromise the amount of the debt by up to $250,000 (Ex PX Vol 2, p 703), yet, in the way in which the mediation progressed, and as Mr Cassegrain acknowledged that the whole debt was owed, no such compromise of the quantum of the claim was required. Further, the instructions permitted Messrs Burgess and Walsh to extend the date for repayment until 15 January 1999, yet in order to achieve a settlement Messrs Burgess and Walsh were required to extend the date for repayment to 1 March 1999. Indeed Mr Burgess made it clear in his oral evidence that he was fully authorised to mediate on whatever terms seemed to him to be commercial. Mr Burgess justified this extended time in his memorandum in relation to the mediation at Ex PX Vol 2 pp 730-731.

· (vii) This allegation whilst given the closest of scrutiny by the Court, is ultimately not made out on the evidence. Mr Cassegrain had been involved in innumerable court issues and hearings over an extended period of time involving members of his family and lawyers. He had participated in mediations. The world of commerce and the enforcement of contractual obligations continue notwithstanding, inter-family litigious forensic steps. Whilst a particular circumstance may be envisaged where a person was forced to participate in a mediation literally being wrenched out of a witness box and into a mediation room and hence being unable to properly treat (or be expected to be able to treat) in any way shape or form with the mediation, that was not, on the evidence, remotely this case. I accept as reliable the evidence given by Mr Burgess to the effect that the occasion when Mr Cassegrain broke down in terms of crying was when pointed questions were addressed to him with as to whether there was a resolution of the family dispute insight, obviously a problem area of great sensitivity. No case has been made out of emotional strain and disturbance to the extent of a finding of unconscionable conduct in the banks having been prepared to participate in the mediation. See in particular the evidence of Mr Walsh which establishes that nothing was said during a time when Mr Cassegrain had been ‘a bit teary’ and that the matter had passed possibly following an adjournment to allow Mr Cassegrain to compose himself. Mr Cassegrain had not become emotional again to the same degree. The mediator was an independent party. The authority issued a section 11 certificate which could only be issued if it were satisfied that a satisfactory mediation in respect of the farm debt had taken place.

· (viii) In terms of the finding that all that occurred was a general threat of receivers and of taking relevant action under the securities and that there was no threat to appoint receivers on the following day, this allegation of unconscionable conduct fails at a factual level. Neither of the parties to the mediation was a babe in the woods. Significantly it is also to be noted that Messrs Burgess, Walsh and Lloyd all knew that any action to enforce the securities could not be taken until a section 11 certificate had issued. Realistic discussion of options which either side may have had could only be expected during a mediation. On the findings of the court this is all that occurred. Indeed the whole of the background and context in which the mediation was taking place by definition concerned a degree of great anxiety in the Cassegrain parties as to the next step which may be taken by the banks.

· (ix) This allegation in the events which happened is unexceptional. [See (viii)]

231 Moreover it is particularly significant that the acknowledgements, admissions and promises to be found in the recitals to the Heads of Agreement and in the body of the document were made in a context in which, on the evidence, the Cassegrain parties believed that they had a cause for complaint in relation to the manner in which the rescheduling application had been declined [Transcript 179] and claimed that they considered that the banks alleged conduct in asserting a cross default under the CDBA facility was "outrageous". [Transcript 47].

232 Further the evidence establishes that the whole focus of the negotiations at the mediation concerned the time frame for refinance. This was in a context in which Mr Cassegrain did not dispute that the Bank was owed the money that it claimed: [Transcript Mr Cassegrain, 68, 69, Mr Lloyd, 193] Indeed, the mediator at one point stated that the difference in date was the only difference between the parties but that it was a crucial difference and that if agreement could not be reached on the date he would have to set aside the mediation as one in which no agreement was reached.

233 There is further no substance in the plea of the equitable set-off whereunder Mr Cassegrain asserts that he neither knew nor intended at the time that by executing the Heads of Agreement he would waive and forfeit his alleged equity to rely upon other defences. Heads of Agreement reached in a mediation have considerable significance. A cooling off period was allowed. Whilst a case may arguably succeed in terms of a vitiating factor such as was here suggested, this was not, on the evidence, such a case. This allegation fails by reason of the general holding concerning there having been no material misrepresentations, or conduct at the mediation, of a character such as to vitiate the Heads of Agreement. The entry of the parties into the Heads of Agreement was unexceptional.

Significance of finding as to Heads of Agreement

234 The finding that the entry of the parties into the Heads of Agreement was unexceptional and is not vitiated by any wrongful conduct of the banks in terms of the pleaded unconscionable conduct, in effect mandates, as it seems to me, the banks success in relation to all issues of alleged misconduct in these proceedings (outside of the receivership issues which are no longer live). And for the reason that the Heads of Agreement were entered into after this alleged misconduct was said to have been engaged in.

235 Whether or not I be correct in this view, bearing in mind the manner in which the hearing was conducted, it is convenient to treat also with the allegations of anterior misconduct. As will be apparent from the reasons which follow, those allegations are of no substance. Hence even if the Heads of Agreement might in a proper case be set aside on the basis of a mistake concerning one’s curial rights, which case would have to be remarkable indeed, this was not such a case.

The allegation of unconscionable conduct by delaying communication of a decision to decline an application to reschedule the loans

The suggested "decision"

236 There is no substance in this allegation. This allegation fails on the facts. It largely rests on Ms Whiting's computer note already referred to. Whilst of course she did not give evidence and even taking it as read that the rule in Jones v Dunkel should be taken into account [noting that the point was not taken by the Cassegrain parties and that the rule may very well be here inapplicable], the pervasive consideration relates to the part which Ms Wilmott played as account manager. Whilst this may have been her opinion at the time in question the evidence which is accepted as reliable is that the relevant decision was not one for her [Transcript 308]. And it was only her opinion that was being expressed. The whole of Mr Wilmott's evidence which is accepted as reliable is inconsistent with a finding of fact to the effect than the note by Ms Whiting proves that a decision had been taken in late March 1998 by the proper officer within the bank to the effect that additional finance to complete development would not be considered. No such decision was proved. No such decision may be inferred. No such decision was made by Mr Wilmott, or being made elsewhere, communicated to him. His actions belied the taking of any such decision.

The suggested delay in communicating a decision

237 I am satisfied from the evidence that the period leading up to early June 1998 was one during which quite plainly a number of requests for further information from the Cassegrain interests continued to be the subject of staged piecemeal responses. This is made clear from the contemporaneous correspondence and for example from the cross-examination of Mr Lloyd [Transcript 174 - 177]. Hence there is a clear explanation as to how it came about that the Banks investigation and decision on a final basis was only reached during June. The ‘conspiracy’ theory that this was only paying ‘lip service’ to a cast iron ‘decision’ to play along with the Cassegrain parties and to bring down the guillotine at the eleventh hour, was not made out. The months preceding 25 June are not replete with any indication of particular haste by the Cassegrain parties in furnishing information expeditiously. Additionally some files had been the subject of subpoena. Whilst they now suggest that they had been misled as to their prospects, the evidence simply does not establish this proposition at a factual level. Optimism as to prospects is a subjective thing. In this case the banks level of anxiety at the family disputes had been obvious over some time and had been the subject of communications. I accept as reliable the evidence given by Mr Burgess that the occasion during the mediation when Mr Cassegrain broke down in terms of crying was when pointed questions were being addressed to him about whether there was a resolution of the family dispute insight which matter was clearly not able to be resolved short term. [Transcript 356]. The communication of the decision so close to the 30 June deadline was the product of the need for the bank to reach a decision on an informed basis. I reject on the evidence the submission that this has been shown on the balance of probabilities to have been a concerted and deliberate action intended to bring the Cassegrain parties into default.

Causation

238 In any event and even if the bank had engaged in the suggested form of unconscionable conduct, the Cassegrain case fails at a causative level. The evidence did not establish on the balance of probabilities that had the banks immediately, as for example during March 1998, communicated what was suggested as having been an irrevocable and firm and immovable decision not to allow the restructuring, the Cassegrain interests would have been able to obtain the necessary refinancing to enable the overdraft facility to be repaid on 30 June 1998 or to enable the first instalment of the fixed loan to be paid by August 1998.

The allegation that the banks wrongfully claimed that there was a default in the CDBA facility as a result of the default in the CBA facility

239 This allegation is not made out on the evidence. Further it is inconsistent with the contemporaneous legal advice [PX 2/488A] to the effect that default by the mortgagor under its securities with CBA did not create a "cross default" under the CDBA securities enabling CDBA to enforce its securities. The Bank’s contemporaneous documents clearly demonstrate that Messrs Wilmott, Walsh and Burgess did not believe that default of the CBA loan would constitute a default of the CDB loan. Specifically:

· The Bank's internal memorandum dated 15 June 1998 raised the question of whether default of the CBA loan would also constitute default of the CDB loan;

· Mr Wilmott's file note of his telephone conversation with Mr Lloyd dated 25 June 1998 noted that he had not suggested to Mr Lloyd that default of the CBA loan would constitute default of the CDB loan and that he would not assert as much in his letter to Mr Lloyd without confirmation from the Legal Department. Ms Heatherington of the Bank’s legal department gave advice in the memorandum dated 25 June 1998 that default of the CBA loan would not constitute default of the CDB loan;

· Mr Wilmott's letter dated 26 June 1998 does not suggest that default of the CBA loan would constitute default of the CDB loan;

· the Farm Debt Mediation Act notices issued on 7 July 1998 (PX 521 – 527) and 26 August 1998 (PX 572 – 574) only relate to default of the CBA loan;

· In response to a letter from Mr Lloyd proposing that the parties also mediate the CDB loan, Mr Burgess responded in a letter dated 13 July 1998 that:

‘Unless mutually agreed with you beforehand, CDB farm debt mediation invitation will issue upon default under the Term Loan facility.’

· The Farm Debt Mediation Act notice in respect of default of the CDB loan was not issued until 3 September 1998 when it was in fact in default;

· Mr Lloyd agreed that the implication in the Bank’s letter of 13 July 1998 was clear;

· Clearly Mr Burgess did not believe that the CBA loan would constitute default of the CDB loan. As Mr Walsh’s superior, it is most improbable that Mr Burgess would have permitted Mr Walsh to assert what is alleged by Mr Cassegrain, when he (Mr Burgess) regarded this to be incorrect.

240 The most likely explanation is that either or both of Mr Cassegrain and Mr Lloyd formed the incorrect conclusion that default of the overdraft would be default of the CDB loan. Mr Cassegrain gave evidence that Mr Lloyd informed him of this very matter and Mr Lloyd accepted that he believed default of the CBA overdraft would be default of the CDB loan, but does not suggest that he was told this by any officer of the Banks.

The alleged strategy to procure a default in the CBDA facility

241 As has already been made clear, this is simply not made out on the evidence. Essentially the banks submissions are adopted in what follows.

242 The basic facts in relation to the changes that occurred in respect of the Commonwealth Development Bank in 1996 are as follows:

· in 1996 the CBA purchased the Commonwealth Government’s shareholding in the Commonwealth Development Bank;

· existing CDB business prior to 1 July 1996 was quarantined in a company structure, Commonwealth Development Bank of Australia Limited;

· the loan conditions applying to quarantined loans continued unchanged;

· if existing clients wanted more money or made new applications, these would be assessed by the business known as “Dev Bank” within the business banking division of CBA - see exhibit D1;

· existing quarantined loans which were “troublesome and impaired assets” were not to be moved out of CDB Limited into the CBA. There were taxation implications in relation to this and the instruction in Ex D1 meant that these loans were not to be taken out of CDB’s loan book and put onto CBA’s loan book: Evidence of Mr Wilmott.

[Transcript 298, 290, 300, 303]

243 It is clear that the Gerard Cassegrain & Co existing loan of $3 million from the Development Bank continued to be dealt with under its existing loan conditions, which continued unchanged. The loan was not transferred to the Commonwealth Bank of Australia.

244 The Cassegrain parties failed to establish any of the alleged breaches of obligation to act fairly and in good faith to ensure that:

(a) normal standards of honesty were adhered to ;

(b) each would co-operate to achieve the objects of the loans contract;

(c) neither would act in a manner substantially to nullify the bargained objective or benefit contracted for;

(i) full opportunity to redeem; and

245 The whole of the exercise from late 1997 and onwards involved a question of restructuring existing loans in an environment in which it was clear that the CBA was to look at any proposal. Mr Cassegrain had received the CDBA customer magazine which had made clear that if existing clients wanted more money, assistance would be given to all viable applications within the Business Banking Division of the CBA. Any early discussions in relation to restructuring were plainly expressly dependent upon the particular proposal which would be advanced and would clearly have to be assessed. There was no question of the CBA taking over the holding company "as a customer on the same terms and conditions as [CDBA]". The exercise involved an application for a restructure of the facilities under the CBA. And the Cassegrain case fails in the central allegation that the underlying intent of either or both of the banks was to remove the instant CDBA term loan [which is alleged to have been clearly seen as already a troublesome or impaired asset [“TIA”], out of CDBA and into CBA for the purpose of bringing about a default in such account. This most serious allegation that there was a “deliberate policy” to remove from the loan books of the CDB this or any existing CDB quarantined loans, is not made out on the evidence. To the contrary the evidence before the court was that the former quarantined book would run down over time which simply amounts to lending facilities running their regular course over time. The proposition that the ‘deliberate policy’ was conceived and carried out by reason of CBA’S anxiety about it’s and CDBA’S securities or about becoming accountable to shareholders, is rejected as not made out on the evidence. On analysis the case involved an application to the CBA for a new loan with additional parameters (as to amounts and as to repayment dates) against an anterior background of a CDBA facility which, unless consensually terminated upon refinancing, would run full term.

246 There is no substance in the allegation that there was a “knowing and intentional course of conduct” by the banks or either of them to cause or bring about a breach of the CDB loan. The evidence does not bear out this grave allegation. In so far as the matter is related to the claim that the Banks asserted to the Cassegrain parties that a default in the CBA overdraft automatically brought about a default in the CDB facility, it is clear that from the documents that as late as June 1998 Mr Wilmott did not know if a default in the CBA facility would produce a cross default in the CDB facility and needed confirmation from Legal Department The advice was only obtained on 26 June 1998 and clearly indicated that a default with CBA did not create a “cross default” under the CDB securities. This chronology of events is inconsistent with the alleged strategy to procure a default in the CDB facility. And the evidence of the witnesses simply does not on the balance of probabilities establish any such knowing and intentional course of conduct.

Asset Recovery Unit

247 There is no substance in the complaint that the account had been placed into the hands of the asset recovery unit without notification to the Cassegrain parties. Mr Wilmott clearly explained that the CMU simply had a continuing role to monitor and as appropriate had every entitlement to approve loans which had been referred to it. The CMU having the management during the relevant months of overseeing the administration of the loan some pleaded not carry with it a decision that no accommodation chord or would be granted to the Cassegrain interests. To the contrary its role was to very carefully indeed scrutinise the information which was forthcoming in order to decide whether or not the accommodation should be provided or recovery steps taken.

248 Nor is there any substance in the complaint concerning the access given to investigating accountants.

Breach of section 52 of the Trade Practices Act

249 The allegation of breach of section 52 of the Trade Practices Act having taken place between December 1997 and June 1998 is not pleaded with any particulars but the matter has simply been litigated in terms of the otherwise conduct complained of in the second amended summons, generally concerning the dealings between the Cassegrain parties and the banks over the material period. This is an allegation pressed against the CBA. It fails for reasons otherwise given in this Judgment and it is unnecessary that it be separately dealt with. Those reasons make plain that no misleading or deceptive conduct within the meaning of section 52 has been established. Those reasons also deal with causation.

The alleged repayment of the CBA facility

250 The Cassegrain parties have a further defence which is that the CBA debt has been discharged in full from moneys advanced to the principal debtor by Oceania Agricultural Limited, and the proceeds of sale of properties over which the guaranteed debt was secured. The particulars of the defence as pleaded are as follows:

Particulars

251 There is no dispute that the first three payments referred to in the particulars were credited to the account of GCC with the CBA: ($250,000 on 6 April 1999, $43,000 on 13 April 1999 and $43,000 on 13 May 1999).

252 As to the three payments alleged to have been made on 10 January 2000 in the particulars, the last two amounts referred to are incorrect. The proceeds of sale of Lot 27 Bushland Drive were in fact $134,946.44 and the proceeds of sale of Lot 53 Bushland Drive were in fact $241,553.06.

253 The three amounts (126,036.77, $134,946.44 and $241,553.06) were credited to the account of GCC with the CBA on 10 January 2000 (this is confirmed by the account statement which is annexure “B” to Mr Watson’s affidavit of 2 October 2002).

254 The deposit in relation to the above sales of $36,433.83 was credited to the account of GCC with the CBA on 14 January 2000, this being the last payment referred to in the particulars. The fact that this amount was credited on that date is confirmed by bank statement which is annexure “B” to Mr Watson’s affidavit of 2 October 2002.

255 Mr Watson’s undisputed evidence was that amounts credited on 10 and 14 January 2000 were mistakenly credited to GCC’s account with CBA because he had overlooked the priority arrangement between CBA and CDB. The mistakes were:

· An application of certain funds to the CBA loan when the CDB loan had priority;

· Application of certain funds to the CDB loan derived from a property over which only the CBA had taken security.

256 The priority arrangement is set out in annexure “A” to Mr Watson’s affidavit sworn 2 October 2002. It reflects the arrangement about which GCC had been notified as part of the facility agreement between GCC and CBA: [see the approval letter dated 2 April 1997 at PX Vol 1 pp 151-156, and specifically at 156 under paragraph numbered (Q) and Mr Watson’s evidence at Transcript 8.37-51.] This arrangement also reflected the priorities arising as a matter of law in any case, as a result of CDB being the first registered mortgagee of the land in question.

257 When Mr Watson realised that the CDB had priority he reversed the credits on 27 January 2000 (as is confirmed by the bank statement which is annexure “B” to his affidavit sworn 2 October 2002).

258 In July 2000 it came to Mr Watson’s attention that Lot 53 Bushland Drive secured only the CBA loan and not the CDB loan. Accordingly, on 10 July 2000 he arranged for $260,679.31, being the total proceeds (ie by now including the deposit which had come in) of the sale of Lot 53, to be debited against GCC’s account with the CDB and credited to GCC’s account with CBA. This is also confirmed by the bank statement which is annexure “B” to Mr Watson’s affidavit.

259 Hence in each case the mistake was corrected by debiting the amount incorrectly paid and by crediting the account to which the money should have been paid.

260 There is simply no substance in the allegation by the Cassegrain parties that in these circumstances the CBA debt was discharged and the Guarantee which had been given by Mr Cassegrain, accordingly discharged.

261 In David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, the following propositions were clearly enunciated:

· A rule precluding recovery of moneys paid under a mistake of law does not form part of the law in Australia

· A payer is prima facie entitled to recover moneys paid under a mistake if it appears that the moneys were paid in the mistaken belief by the payer that he was under a legal obligation to pay them or that the payee was legally entitled to payment

· In order to recover, a payer does not have to prove "unjustness" over and above the mistake

· It is a defence to a claim to recover money paid under a mistake that the payee has adversely changed his position in reliance on the payment

262 There is no pleaded allegation in either suit that the banks are estopped from correcting these mistakes. No evidence was adduced from any of the Cassegrain parties that they were either misled or relied upon the mistakes or changed their position.

263 The submission advanced by the Cassegrain parties was that the priority agreement, which is annexure “A” to Mr Watson’s affidavit, was ineffective because the CBA was both “the Bank” and “the Mortgagee” in the priority letter. This is clearly a typographical error which would be cured by the insertion of the word “Development” between the words “Commonwealth” and “Bank” in the first line of the letter. The letter was written to the CDB and with that typographical correction the document makes perfect sense. If the assertion of ineffectiveness had been raised at an appropriate time by the Cassegrain parties then an application could plainly have been made to rectify the document.

264 More importantly, this submission by the Cassegrain parties overlooks the fact that even if the letter of priority did not exist, the priority position would be identical. The CDB was the first registered mortgagee in respect of the relevant security properties. As first registered mortgagee it was entitled to priority to the extent of its advance plus interest and other charges even if there had been no express priority arrangement.

265 In these circumstances, it was correct as a matter of law, even disregarding the letter of priority, to credit the amounts obtained on realisation of the securities other than Lot 53 to the CDB and to credit the realisation on Lot 53 to the CBA. This was the ultimate position after the original errors had been corrected.

266 In all of those circumstances there is no substance in the claim that the CBA debt was discharged following these payments and the identified initial accounting entries and later reversals.

Short minutes of order

267 The proceedings will be stood over for the purpose of the parties bringing in short minutes of order and for submissions as to costs to be taken.

I certify that paragraphs 1 - 267
are a true copy of the reasons
for judgment herein of
the Hon. Justice Einstein
given on 22 October 2002

___________________
Susan Piggott
Associate

22 October 2002

Last Modified: 10/31/2002

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Citations

Commonwealth Development Bank of Australia Pty Limited v Claude George Rene Cassegrain; Gerald Cassegrain and Co Pty Limited v Commonwealth Development Bank of Australia Pty Limited [2002] NSWSC 965

Most Recent Citation

Commonwealth Bank of Australia v Spira [2002] NSWSC 905

Cases Citing This Decision

1

Commonwealth Bank of Australia v Spira [2002] NSWSC 905

Cases Cited

15

Statutory Material Cited

5

David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 1376

CITATION:	Commonwealth Development Bank of Australia Pty Limited & Anor v Claude George Rene Cassegrain; Gerald Cassegrain & Co Pty Limited & Ors v Commonwealth Development Bank of Australia Pty Limited & Ors; [2002] NSWSC 965
FILE NUMBER(S):	SC 50062/00; 50072/00
HEARING DATE(S):	08/10/02, 9/10/02, 10/10/02, 11/10/02, 14/10/02, 15/10/02, 16/10/02
JUDGMENT DATE:	22 October 2002
PARTIES :	Commonwealth Development Bank of Australia Pty Limited (Plaintiff 50062/00) (Defendant 50072/00) Claude George Rene Cassegrain (Defendant 50062/00) Gerald Cassegrain & Co. Pty Limited and Ors (Plaintiffs 50072/00) Murray Smith and Scott Kershaw (3rd Defendants 50072/00)
JUDGMENT OF:	Einstein J

COUNSEL :	RW Cameron, ARR Vincent (Defendant 50062/00, Plaintiff 50072/00) AG Bell, DA McLure (Plaintiff 50062/00, Defendant 50072/00) DL Williams (Murray Smith & Scott Kershaw, 3rd Defendants 50072/00)
SOLICITORS:	MC Griffith & Co (Defendant 50062/00, Plaintiff 50072/00) L E Taylor Solicitor (Plaintiff 50062/00, Defendant 50072/00) Corrs Chambers Westgarth (3rd Defendants 50072/00)
CATCHWORDS:	Contract - Banker and Customer - Loan facilities - Guarantee - Claim that CDBA and CBA acted unconscionably in dealings concerning facilities granted by both banks - Claim that CBA knowingly interfered with loan facility granted by CDBA with intention of procuring breach of facility - Alleged undisclosed decision to decline application for further accommodation - Alleged unconscionable conduct in delaying communication of suggested decision to decline further accommodation - Obligation to act in good faith - Alleged unconscionable conduct - Alleged misleading and deceptive conduct - Farm Debt mediation - Alleged unconscionable conduct in relation to holding of mediation - Claim to set aside Heads of Agreement reached during mediation on the ground of vitiating factors including alleged duress in terms of suggested threats to appoint receiver unless Heads of Agreement entered, in terms of emotional state of customer representative participating in mediation and other matters.
LEGISLATION CITED:	Commonwealth Banks Act 1959 (Cth) Commonwealth Bank Sale Act 1995 (Cth) Family Provision Act 1982 (NSW) Farm Debt Mediation Act 1994 (NSW) Trade Practices Act 1974 (Cth)
CASES CITED:	ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1376 Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Blomley v Ryan (1956) 99 CLR 362 Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Hudson Resources Ltd v Australian Diatomite Mining Pty Ltd [2002] NSWSC 314 Jones v Dunkel (1959) 101 CLR 298 Louth v Diprose (1992) 175 CLR 621 Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170 Overlook v Foxtel [2002] NSWSC 17 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Tymshare Inc v Covell 727 F2d 1145 (1984)
DECISION:	Claims by banking parties upheld. Claims by borrower parties not made out. Short minutes of order to be brought in.