Gardiner v National Australia Bank Ltd; National Australia Bank Ltd v Gardiner

[2023] NSWSC 45

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Gardiner v National Australia Bank Ltd; National Australia Bank Ltd v Gardiner [2023] NSWSC 45

Hearing dates:

18 - 20, 24 - 26 October 2022, last submissions 28 October 2022

Date of orders:

8 February 2023

Decision date:

08 February 2023

Jurisdiction:

Equity - Commercial List

Before:

Rees J

Decision:

Summons dismissed with costs; judgment for cross claimant in amount of $12,775,622, with orders for possession.

Catchwords:

BANKING – customer operates petrol stations – customer financially strained – customer referred to bank’s specialist unit to ‘turnaround’ stressed business customers – specialist unit works with customer for two years – bank presses customer to sell investment properties and paydown debt – customer seeks to expand and obtain additional finance – bank prevails – customer ultimately wound up by ATO and deregistered – bank writes off $3m owed – proceedings commenced 10 years later by guarantors for $56m in damages – time-barred claim of deregistered company brought by others – claims under legislation which did not then exist – claims inconsistent with surviving contemporaneous records – claims devoid of evidence in key areas – bank prompted by claim to file cross-claim to enforce remaining security – bank entitled to judgment.

NATIONAL CREDIT CODE – “carried over instrument” – Consumer Credit Code – mortgages – meaning of “related guarantee” – guarantee must be related to credit contract: see [88]-[93].

LIMITATION OF ACTIONS - time for commencement of proceedings – Limitation Act 1969 (NSW) – deceit and contract claims – confirmation under s54 – any confirmation was after expiry –fraudulent concealment under s55 – not established – claims time barred.

CODE OF BANKING PRACTICE – ‘small business’ – customer was not a small business – alleged breach of obligation not imposed until after relevant events – breaches not established.

CORPORATIONS – application for reinstatement –not “just” to resurrect a company when its claims time barred and without merit.

Legislation Cited:

Consumer Credit (New South Wales) Act 1995 (NSW), s 5

Contracts Review Act 1980 (NSW), ss 7(1), 16(a), 16(b)

Evidence Act 1995 (NSW), s 63

Limitation Act 1969 (NSW), ss 54(1), 55(1)(b), 14(1), 14(1)(b)

Australian Securities and Investments Commission Act 2001 (Cth), ss 12GF(2), 12GM(1)

Australian Constitution, s 109

Corporations Act 2001 (Cth), s 601AD(2), 601AH(2), 601AH(3)

Judiciary Act 1903 (Cth), s 79(1)

National Consumer Credit Protection Act 2009 (Cth), sch 1

National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth) sch 1 item 3(1), s 4

Trade Practices Act 1974 (Cth), s 87

Consumer Credit (Queensland) Act 1994 (Qld)

Code of Banking Practice cls 2.2, 25.1, 25.2, 28.9

Consumer Credit Code, ss 5, 6, 8(1), 8(2), 9

National Credit Code, ss 76, 80

Uniform Civil Procedure Rules 2005 (NSW), r 5.3

Cases Cited:

Apand Pty Limited v The Kettle Chip Co (1994) 52 FCR 474

Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 34 ACSR 232; [2000] NSWSC 316

Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640

Australian Executor Trustees (SA) Ltd v Kerr (2021) 151 ACSR 204; [2021] NSWCA 5

Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1

Ballard v Multiplex [2012] NSWSC 426

Campbellv Backoffice Investments Pty Ltd (2009) 238 CLR 304

Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45

Carr v Miller [2018] NSWSC 1424

Chalker v Clark [2008] VSCA 92

Chappel v Hart (1998) 195 CLR 232; 156 ALR 517; [1998] HCA 55

Dinh v Commonwealth Bank of Australia [2021] WASCA 127

Doggett v Commonwealth Bank of Australia (2015) 47 VR 302

Dorfler v ANZ Banking Group Ltd (1991) 103 ALR 699

Eckford v Six Mile Creek Pty Ltd (No 2) [2019] FCA 1307

Fabre v Arenales (1992) 15 MVR 303; (1992) 27 NSWLR 437

Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336

Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82

Gooley v NSW Rural Assistance Authority [2020] NSWCA 156

Gould v Johnson (1702) 2 Salk 422; 91 ER 367

Hudson v National Australia Bank Limited [2022] FCA 1222

In the matter of Austral Bronze Pty Limited (No 2) [2020] NSWSC 1633

Jones v Dunkel (1959) 101 CLR 298 at 320-321; [1959] HCA 8

Magill v Magill [2006] HCA 51; 226 CLR 551

Mayne NicklessLtd v Multigroup Distribution Services Pty Ltd [2001] FCA 1620; (2001) 114 FCR 108

Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205

Neal v Ambulance Service (NSW) [2008] NSWCA 346

Paciocco v Australia and New Zealand Banking Group Ltd [2014] FCA 35; 309 ALR 249

Payne v Parker [1976] 1 NSWLR 191

Pilarinos v Australian Securities and Investments Commission (2006) 24 ACLC 775; [2006] VSC 301

ReEuropean Metal Recyclers Pty Ltd (in liquidation) (deregistered) [2018] NSWSC 946

Reilly v Australia and New Zealand Banking Group Ltd (No 2) [2020] FCA 1502

Rizeq v Western Australia [2017] HCA 23; (2017) 262 CLR 1

Rosenberg v Percival (2001) 205 CLR 434; 178 ALR 577; [2001] HCA 18

Sent v Jet Corporation of Australia Pty Ltd (1986) 160 CLR 540

Shannon v Permanent Custodians Ltd [2020] WASCA 198

Sims v Commonwealth of Australia [2022] NSWCA 194

Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535

Ta Lee Investment Pty Limited v Antonios (2019) 19 BPR 39153; [2019] NSWCA 24

Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

Watson v Foxman (1995) 49 NSWLR 315

Category:

Principal judgment

Parties:

Bradford Gardiner (First Plaintiff/Cross-Defendant)
Stacey Gardiner (Second Plaintiff/Cross-Defendant)
Newport Resources (NSW) Pty Ltd as trustee of the Gardiner Family Trust (Third Plaintiff)
National Australia Bank (Defendant/Cross-Claimant)

Representation:

Counsel:
Mr PE King / Ms EJ Rusiti (Plaintiffs/Cross-Defendants)
Mr JC Giles SC / Ms H Mann (Defendant/Cross-Claimant)

Solicitors:
Baker Love Lawyers (Plaintiffs/Cross-Defendants)
Norton Rose Fulbright Australia (Defendant/Cross-Claimant)

File Number(s):

2019/386958

INDEX

INDEX

JUDGMENT

WITNESSES

Jones v Dunkel

FACTS

Eleebana mortgage

Hawks Nest property

Gardiner Petroleum

Rothbury property

Initial concerns

Blueys Beach property

First Market Rate Facility

Merewether property

Overdraft Facility

Pre-lending Review

Second Market Rate Facility and the Guarantee

CONTRACTS REVIEW ACT CLAIM

NATIONAL CREDIT CODE CLAIM

RETURNING TO THE FACTS

SBS Categorisation

Seeking refinance

Strategy 1: assess options and improve cashflow

SBS meets with Gardiner

Appointing an investigating accountant

McGrathNicol’s first report

Meeting with McGrathNicol

Second meeting with SBS

Refinance?

A new bank manager

Third meeting with SBS

Strategy 2: sell remaining investment properties and repatriate to branch

Fourth meeting with SBS

McGrathNicol’s second report

Fifth meeting with SBS

Strategy 3: financial support and asset sales

Strategy 4: recovery

McGrathNicol’s third report

McGrathNicol monitoring

Liquidator appointed to Gardiner Petroleum

ASIC ACT CLAIMS

Time bar

The representations

Redacted McGrathNicol reports

Causation and loss

DECEIT

Time bars

Elements

CODE OF BANKING PRACTICE

Time bars

“small business”

Breach of the Code

NEWPORT RESOURCES AND REINSTATEMENT

CROSS CLAIM

ORDERS

JUDGMENT

1. HER HONOUR: Brad and Stacey Gardiner and the trustee of their family trust, Newport Resources (NSW) Pty Ltd, sue National Australia Bank Ltd seeking compensation and ancillary orders in respect of misleading and deceptive conduct and unconscionable conduct under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), together with relief under the Contracts Review Act 1980 (NSW), the Code of Banking Practice and the National Credit Code.

2. The bank had provided finance to the former trustee of the Gardiner Family Trust, Gardiner Petroleum Pty Ltd, which operated service stations in the Newcastle area. Whilst Mr Gardiner was keen to expand the network of service stations, business cashflow was insufficient to service the company’s existing obligations to pay interest and repay principal. The company also struggled to pay for fuel from cashflow, as a result of which the company’s overdraft limit was frequently exceeded. The bank began to press Gardiner Petroleum to pay down debt, including by the sale of Mr and Mrs Gardiner’s investment properties. Mr Gardiner strenuously resisted this and instead sought to establish new service station sites funded by increased bank finance. Something of a ‘battle of wills’ followed. Mr Gardiner expected the bank to continue to fund his business regardless of the bank’s concerns.

3. In 2009, Gardiner Petroleum’s facilities became subject to the supervision of the bank’s team responsible for business customers facing financial difficulties, Strategic Business Services (SBS). At the outset, SBS appointed an investigating accountant, McGrathNicol, which identified a significant shortfall in the bank’s security and recommended that the bank provide further financial support to Gardiner Petroleum to enable the business to continue to address problems identified with the business and reduce debt. For two years, SBS pursued a ‘turnaround’ strategy, endeavouring to bring Gardiner Petroleum’s accounts into order before repatriating the customer back to the branch. Whilst initially the ‘turnaround’ strategies resulted in improvements in Gardiner Petroleum’s operation and brought the accounts within terms, these improvements were short lived. In 2011, the bank moved to an ‘enforcement’ strategy, pressing the customer to sell remaining service stations and ‘exit’ the business. Ultimately in 2012, a liquidator was appointed to Gardiner Petroleum on the application of the Deputy Commissioner of Taxation (ATO).

4. A decade after these events, the plaintiffs commenced these proceedings. In short, the plaintiffs contend that Gardiner Petroleum lost its business as a consequence of SBS’s conduct and, further, that Mr and Mrs Gardiner were misled into selling their investment properties and service stations in order to reduce Gardiner Petroleum’s debts. Damages of $58 million were sought, albeit reduced somewhat by closing submissions to $20 million. In addition, Mr and Mrs Gardiner sought a declaration that they were not bound by a guarantee given in respect of Gardiner Petroleum (the Guarantee), together with a discharge of the mortgage over their family home in Eleebana (the Eleebana mortgage), to the extent that the mortgage secured Gardiner Petroleum’s indebtedness. Unsurprisingly, the plaintiffs’ claims were largely time barred.

5. The bank had earlier cancelled the facilities provided to Gardiner Petroleum in 2015 and, in 2017, wrote-off the remaining indebtedness of $3,354,905. The bank did not then enforce the Eleebana mortgage. On being sued, the bank filed a cross-claim seeking to enforce the Guarantee and the Eleebana mortgage. For the reasons which follow, the plaintiffs’ claim fails and the bank is entitled to succeed on its cross-claim.

6. In short, these proceedings have been a complete ‘own goal’. Sadly for the Gardiners, their claim was poorly pleaded, incoherently presented, at odds with surviving contemporaneous records and devoid of evidentiary support on key matters. Whilst the claim was replete with difficulties issues, no effort was made to grapple with these complexities beyond making ambit (and often scandalous) allegations said to be supported by authorities which, on examination, were irrelevant. The burden this method of advocacy places on the Court should not be ignored.

7. More significantly, I am very troubled that a family, who has no doubt suffered greatly as a consequence of the failure of their business, has had further suffering inflicted by the manner in which their claim was formulated and pressed, and for which they have presumably outlaid funds which they could ill afford.

WITNESSES

8. The plaintiffs relied on the evidence of Mr and Mrs Gardiner together with their daughters Eloise Harrison, Jacqueline Johnson and Josephine Cramp, son-in-law Michael Cramp, former business development manager Kerrie Cornall, former bookkeeper and external accountant Joyce Dawson and expert accountant Nicholas Gaudion.

9. Mrs Gardiner and her daughters were not required for cross-examination and nor, with great respect to them, was their evidence relevant to the plaintiffs’ case. Whilst I would have been interested to hear from Mrs Gardiner as to the circumstances in which the Eleebana mortgage and the Guarantee were entered into, and why these contracts were said to be ‘unjust’, her affidavit was silent as to these matters. Nor was Mr Gaudion required for cross-examination. Again, his reports were largely irrelevant to the issues in the case or went beyond leave granted to adduce expert evidence.

10. Mr Gardiner was cross examined. He was a pleasant fellow. However, Mr Gardiner’s evidence had an air of unreality. In particular, Mr Gardiner said that if he knew that the bank was considering how to realise its security in order to minimise its losses, he would have set about to achieve a result which resulted in him retaining the properties which the bank was pressing him to sell. It was not entirely clear how Mr Gardiner thought he could resist the bank’s requests to pay down debt and yet retain the investment properties, over which the bank had first registered mortgages.

11. Mr Gardiner proved a poor historian, which was perhaps unsurprising given that these proceedings were commenced a decade after the events in question. For example, Mr Gardiner denied that he was told by the bank that he needed to reduce debt; the business records indicate otherwise. Likewise, Mr Gardiner denied that the bank had complained that he could not continue to breach the limits of an overdraft facility. That was clearly incorrect. Overall, Mr Gardiner’s recollection of his dealings with the bank cast an unduly optimistic light on the financial prospects of Gardiner Petroleum and omitted the seriousness of the company’s situation. Indeed, the bank’s contemporaneous records note significant difficulties in persuading Mr Gardiner of the seriousness of the situation at the time.

12. Mr Gardiner became increasingly reluctant to answer questions which he perceived did not advance his case. He was evasive on occasion, for example, about having given an undertaking to sell two properties. Mr Gardiner gave several self-serving speeches and was, on occasion, argumentative. Some of Mr Gardiner’s answers appeared to be directed to what he thought would advance his case and I was not entirely comfortable relying on the accuracy of these answers. I have approached his evidence with caution.

13. Ms Cornall was also cross examined. Ms Cornall was straightforward and her evidence was uncontroversial. Mr Cramp was cross examined. As Mr and Mrs Gardiner’s son-in-law, Mr Cramp’s evidence had a partisan quality. Nothing turned on his evidence.

14. Ms Dawson had been required for cross-examination but medical evidence indicated that she was not fit to appear in Court. The defendant did not oppose Ms Dawson’s affidavit being read under section 63 of the Evidence Act 1995 (NSW), but noted the medical evidence indicated that Ms Dawson suffered from early Alzheimer’s disease, which “significantly increases the difficulties she faces when answering questions and recalling information.” In any event, Ms Dawson’s evidence was of a general nature; the contemporaneous documents provide much greater detail.

15. The defendant relied on the evidence of the plaintiffs’ former banker at Lake Macquarie Business Banking Centre, Patrick Harris, former Executive in the SBS section of the bank, Prenesan Acharrie, Associate Director of SBS, Beth Stacker, chartered accountants and partners of McGrathNicol, Murray Smith and Sean Wiles, and the defendant’s solicitor, Laura Johns. All but Ms Johns were required for cross-examination. No questions of credit arose. In particular, Mr Acharrie was an impressive, calm and knowledgeable witness. Mr Smith was an experienced and fair witness. Mr Wiles made appropriate concessions.

Jones v Dunkel

16. The plaintiffs submitted that the Court should draw an adverse inference in respect of the defendant’s failure to call John Vasseleu, the Impaired Asset Manager who had the conduct of the Gardiners’ file at SBS: Jones v Dunkel (1959) 101 CLR 298 at 320-321; [1959] HCA 8 per Windeyer J. I agree that Mr Vasseleu is a person who it would be natural for the bank to call; he may be regarded as “in the camp” of the bank or “a witness likely to be friendly to the interests of the other party”: Payne v Parker [1976] 1 NSWLR 191 at 201-202 per Glass JA; Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 at 343 per Kirby P with Mahoney and Clarke JJA agreeing.

17. However, if the failure to call a witness is explained, the inference cannot be drawn. In Ta Lee Investment Pty Limited v Antonios (2019) 19 BPR 39153; [2019] NSWCA 24, it was sufficient explanation that the plaintiff no longer spoke to the missing witness: at [118], [137] per Bathurst CJ, Beazley P and Macfarlan JA. It may be the case that the witness would not be expected to co-operate by way of prior consultation or providing a proof of evidence, and a party is not obliged to call a witness ‘blind’ in order to avoid the inference being drawn against them: Fabre v Arenales (1992) 15 MVR 303; (1992) 27 NSWLR 437 at 449-450 per Mahoney JA.

18. Mr Vasseleu left the bank in April 2018. The bank’s solicitor, Ms Johns, spoke to Mr Vasseleu on several occasions and sent a number of letters and emails asking him to give evidence in these proceedings. Mr Vasseleu told Ms Johns that he had a number of chronic health conditions and was concerned about the impact that being a witness might have on his health. It is apparent from Mr Vasseleu’s emails that one of his children had a significant health condition and it was “a stressful time for our family at the moment.” In light of this, the bank withdrew its request for a sworn statement from Mr Vasseleu but requested further details of his health issues and the reasons why he did not wish to give evidence. The bank arranged for independent legal advice for Mr Vasseleu and followed him up several times. Ultimately, after several months and follow up emails, Ms Johns swore an affidavit describing her efforts to gain the assistance of Mr Vasseleu.

19. The bank has gone to some lengths to encourage Mr Vasseleu to give evidence or, failing that, to provide a document explaining why he cannot do so. Mr Vasseleu is obviously unwilling to assist the bank by appearing as a witness, to provide additional details as to why he does not wish to give evidence, or to avail himself of the independent solicitor arranged by the bank. In light of Ms Johns’ evidence and the accompanying correspondence, I consider that the bank’s failure to call Mr Vasseleu has been explained and thus it is not appropriate to draw a Jones v Dunkel inference. The bank is not obliged to subpoena Mr Vasseleu and call him ‘blind’ in order to avoid the inference being drawn against it. In these circumstances, I am not prepared to draw the inference.

20. It is also convenient to here deal with criticisms made of Mr Vasseleu. Mr Gardiner was highly critical. Mr Cramp also made some adverse observations. Mr Gardiner said he had various discussions with Mr Harris regarding Mr Vasseleu’s “rudeness” and “lack of empathy”. Mr Harris recalled Mr Gardiner saying that he did not like Mr Vasseleu, did not get on with him and did not find him approachable. Although Mr Harris and Mr Acharrie spoke highly of Mr Vasseleu and his professionalism, it is apparent from the contemporaneous records that Mr Vasseleu became frustrated on occasion in his efforts to persuade Mr Gardiner to take the steps considered necessary to reduce the bank’s predicted losses in respect of the Gardiner Petroleum facilities. Ultimately, how these gentlemen got along is not particularly relevant to the plaintiffs’ claim.

16. The plaintiffs also submitted that a Jones v Dunkel inference should be drawn in respect of the evidence of Roger Coddington, the former bank manager for the Gardiners who referred the Gardiner Petroleum account to SBS. Mr Coddington provided an affidavit but the bank chose not to call him. I will infer that his evidence would not have assisted the bank. That said, failure to call a witness does not detract from findings of fact otherwise established by the evidence: Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205 at [634]. The bank’s contemporaneous records detail what Mr Coddington said and did at the time and he is hardly a central character.

17. The plaintiffs also sought a Jones v Dunkel inference in respect of various other bank officers, being John Crosdale, Craig Collie and Peter Perriman. As far as the contemporaneous records reveal, each of these gentlemen played a very small role in the events which unfolded. It is not necessary for a party to call an unnecessary witness: Apand Pty Limited v The Kettle Chip Co (1994) 52 FCR 474 at 490. Given the relative unimportance of these witnesses, I am not prepared to draw a Jones v Dunkel inference in respect of the bank’s failure to call them.

FACTS

23. Mr Gardiner has a Bachelor of Commerce degree and worked for BP for 14 years, becoming a regional manager. Mrs Gardiner is a qualified hairdresser.

Eleebana mortgage

24. In 1986, Mr and Mrs Gardiner purchased vacant land in Eleebana on Lake Macquarie to the south of Newcastle. In 1987, they granted a mortgage over the property to the bank, when borrowing $45,000 to build a house. It is this mortgage which Mr and Mrs Gardiner now seek to have discharged and which the bank seeks to enforce by the cross-claim. It will be immediately noted that the mortgage was executed 32 years before the commencement of these proceedings. Beyond what is here stated, nothing is known of the circumstances in which the mortgage was entered into.

25. The Eleebana mortgage is an ‘all moneys’ mortgage. The ‘moneys hereby secured’ by the mortgage is defined and includes “moneys owing or remaining unpaid to the Bank in any manner or on any account whatsoever by the Mortgagor whether alone or jointly with any other person and whether as principal or surety”: clause 34.

26. In 1992, Mr Gardiner began to operate his own service station business by buying the Caltex service station franchise in Toronto through his company, Gardiner’s Pty Ltd. The bank provided funding for the business, secured by the mortgage over the Eleebana property. Noteworthy, from the very commencement of the service station business, the Eleebana property was used as security for business borrowings. Mr Gardiner later ‘exited’ the Toronto service station, owing Caltex some $132,000.

Hawks Nest property

27. In 1995, Gardiner’s Pty Ltd purchased a property in Hawks Nest for $225,000, as trustee for the Anchorage Trust. Mr and Mrs Gardiner’s self-managed superannuation fund, Gardiner’s Superannuation Fund, owned 95% of the shares in the trust. A mortgage was granted to RAMS Home Loans to secure part of the purchase price, with the balance provided by Mr and Mrs Gardiner’s self-managed superannuation fund. The involvement of the superannuation fund becomes relevant in due course, as the plaintiffs point to the sale of this property, at the insistence of the bank, as a breach of the Code of Banking Practice, to which I will return at [358].

28. In 1997, Mr Gardiner began to operate a second Caltex service station in Warners Bay. In April 1997, Mr and Mrs Gardiner and Gardiner’s Pty Ltd provided a guarantee to the bank, limited to $200,000, in respect of Gardiner’s Pty Ltd. Their solicitor certified that he had given them independent legal advice in respect of the guarantee. Mr Gardiner later sold the Warners Bay service station as unprofitable: see [103].

29. In May 1997, the Gardiners refinanced their Hawks Nest property with the bank. Mr Gardiner said the borrowing and security over the Hawks Nest property was transferred to the bank as additional security for business borrowings.

Gardiner Petroleum

30. In 1998, Gardiner Petroleum was incorporated; Mr Gardiner was the sole director and shareholder. Gardiner Petroleum was appointed trustee of the Gardiner Family Trust. (The bank referred to Gardiner Petroleum, Gardiner’s Pty Ltd and, later, Gardiner Investments (NSW) Pty Ltd as the Gardiner Group or the Group.)

31. After this, Gardiner Petroleum was the entity which entered into leases and franchise agreements to operate subsequent Caltex service stations. The bank advanced various facilities to Gardiner Petroleum including an overdraft, a market rate facility and equipment leases. The bank registered a fixed and floating charge over Gardiner Petroleum. Clause 29 of the debenture provided:

29   Consultants

29.1   Appointment

In addition to all other Rights of the Bank, if the Bank reasonably believes the Mortgagor has breached or is in danger of breaching a provision of this Deed the Bank may at its sole discretion from time to time engage accountancy, financial, management or other consultants to examine the business and affairs of the Mortgagor and the compliance by the Mortgagor with this Deed and to make reports to the Bank.

29.2   Further Assurances

The Mortgagor shall do, make, sign and execute all papers, documents and authorities necessary for the purposes set out in Clause 29.1

29.3   Agent of the Mortgagor with Duty to Report to Bank

Any consultant appointed under Clause 29.1 is and is to be treated for all purposes as the agent of the Mortgagor but is to be free to communicate all information received by the consultant to the Bank and is to be obliged to report to the Bank on any matters affecting the business and affairs of the Mortgagor and the compliance by the Mortgagor with this Deed as frequently as the Bank requires.

(The bank later appointed McGrathNicol as investigating accountant pursuant to this power.)

32. In 1998, Gardiner Petroleum took on a third Caltex service station in Belmont. In August 1998, Mr and Mrs Gardiner and Gardiner’s Pty Ltd gave the first of many guarantees to the bank in respect of Gardiner Petroleum, limited to $140,000. Their solicitor certified that he had given them independent legal advice in respect of the guarantee.

33. In 1999, Gardiner Petroleum commenced trading at a fourth Caltex service station in Belmont North. In March 1999, Mr and Mrs Gardiner gave a further guarantee to the bank in respect of Gardiner Petroleum, now limited to $298,000. Their solicitor certified that he had given them independent legal advice in respect of the guarantee.

34. In 2000, Gardiner Petroleum also began to operate the shop at BP Thornton. In October 2000, Mr and Mrs Gardiner and Gardiner’s Pty Ltd gave a further guarantee to the bank in respect of Gardiner Petroleum, now limited to $343,010. In November 2000, the guaranteed amount was increased to $461,947. Their solicitor certified that he had given them independent legal advice in respect of both guarantees.

35. In 2001, the amount of the guarantee in respect of Gardiner Petroleum was increased to $565,132. Mr and Mrs Gardiner’s solicitor certified that he had given them independent legal advice in respect of the guarantee.

36. In 2002, the guaranteed amount was increased to $551,843 and then $648,820. Mr and Mrs Gardiner’s solicitor certified that he had given them independent legal advice in respect of both guarantees.

37. In May 2003, the guaranteed amount was increased to $776,489 and then, in November 2003, to $859,218. Mr and Mrs Gardiner’s solicitor certified that he had given them independent legal advice in respect of both guarantees.

Rothbury property

38. In February 2004, Mr and Mrs Gardiner purchased a property in Rothbury for $265,000. A mortgage was granted to St George Bank. Mr and Mrs Gardiner borrowed additional funds from St George to construct a house on the property. Perhaps noteworthy, the Gardiners then used different banks for Gardiner Petroleum’s borrowing and their borrowings for investment properties.

39. In February 2004, Mr Gardiner sought finance from the bank in respect of a new Caltex service station to be constructed at Morisset. Gardiner Petroleum entered into a lease of the site, on which a new service station would be constructed by the lessor and operated by Gardiner Petroleum. The company’s market rate facility was increased to $828,000 to cover stock and working capital requirements of the new Morisset site. The guarantee was increased to $1,090,525. Mr and Mrs Gardiner each signed a declaration acknowledging that they had received independent legal advice regarding the guarantee before signing it.

40. In August 2004, Mr Gardiner sought finance from the bank in respect of a new Caltex service station to be constructed at Beresfield. Again, Gardiner Petroleum entered into a lease of the site on which a new service station would be constructed by the lessor and operated by Gardiner Petroleum. The company’s market rate facility was increased to $1.154 million to cover stock and working capital requirements of the new Beresfield site. In August 2004, the guarantee was increased to $1,527,369. Mr and Mrs Gardiner each executed a legal advice certificate in respect of the guarantee.

41. In 2005, Gardiner Petroleum’s market rate facility was increased to $1.604 million to cover increased stock, turnover and repayment of beneficiary loans. The guarantee given to the bank in respect of Gardiner Petroleum was increased twice, to $2,092,974 and then to $2,397,103. On both occasions, Mr and Mrs Gardiner signed a Legal Advice Waiver, acknowledging that the bank had recommended that they obtain legal and financial advice but they were content to execute the documents without it.

42. In November 2005, Mrs Gardiner purchased a hairdressing salon using a new company, Gardiner Investments (NSW) Pty Ltd. In January 2006, Gardiner Investments executed a debenture in favour of the bank to secure a facility for $35,000.

Initial concerns

43. In August 2006, Gardiner Petroleum’s market rate facility was increased to $1.747 million to cover the increased cost of fuel and to assist with continued growth in sales at Beresfield and Morisset. Mr Coddington was then Gardiner Petroleum’s business banking manager. On 28 August 2006, Mr Coddington recorded concern at the bank’s exposure and the manner in which the business was being operated. Group drawings and directors’ wages for the 12 months ended 6 June 2006 were some $690,000 and “not sustainable at this level”. Mr Coddington made a note to negotiate maximum drawings and wages at $252,000, in line with consolidated cashflow. The quarterly reporting covenant was to be extended to require detailed reporting on any negative actual to budget variance greater than 5% in income or expenditure lines.

44. Mr Coddington also noted that the clients were looking for the bank to support them in a further expansion program at Rutherford and Raymond Terrace, “Any further submission will require external (short form) valuations of both residential real estate securities presently held by the Bank in support of Group facilities. This is the maximum level of our exposure to the Group on present – future operations are required to be within approved arrangements.”

45. In August 2007, Gardiner Petroleum’s market rate facility was increased to $2.046 million, to be reduced at $21,350 per month. The funds were utilised to regularise the overdraft facility from an excess position and also to consolidate a small loan. The guarantee in respect of Gardiner Petroleum was increased to $2,767,949.

Blueys Beach property

46. In September 2007, Mr and Mrs Gardiner purchased a property at Blueys Beach for $672,500, subject to a mortgage granted to St George Bank. Again, the Gardiners continued to use different banks for their business and investment property borrowings.

47. Likely at about this time, Ms Cornall gave a presentation to the bank in respect of Gardiner Petroleum’s proposal to expand into two new sites. According to Ms Cornall, the bank officers said that they were impressed by the achievements and growth of the company and said “We need time to attend to the matters raised and will come back to you. We understand the points you have raised.” At the end of the meeting, either Mr Coddington or his colleague, Mark Sherwood, said they would have to submit a formal request “but they didn’t feel that it was going to be an issue”.

48. According to Mr Gardiner, Mr Coddington said, “I shed tears of joy when it was revealed that you were over-selling your fuel expectations”. Mr Gardiner also said that Mr Coddington told him that, as the business grew, Eleebana could be released from the bank’s security. As he and Mr Coddington walked down the stairs after the presentation, Mr Coddington said “Well, let’s get on and build this business … Let’s get your family home out of the bank security listings”. I will return to whether these comments were likely to have been made at [54].

49. In January 2008, the bank prepared a “Client Evaluation” in respect of an application for funding of some $550,000 to establish a second Beresfield North Caltex service station. Gardiner Petroleum had entered into a lease of the Beresfield North site, on which the lessor had constructed a new service station. The lease contained an option to purchase the site after one year for $2.994 million. According to the bank memorandum, “I do not know that [Mr Gardiner] will have the capacity to exercise purchase o[p]tion – unless he sells “sites” to fund equity contribution. Prior [Senior Business Banking Manager] was involved in discussion with Gardiner. … At that time we advised clients, that to support additional outlet expansion, we would be seeking an independent review to be completed on the Group’s operations.”

50. The Gardiners also sought $700,000 to refinance the Rothbury property. A further $1.35 million was sought to purchase a property in Merewether “pending the sale of their existing Eleebana property … NB Undertaking to be sought for sale of Eleebana [property] within 6 months of settlement of Merewether purchase.”

51. The memorandum detailed the facilities then in place for the Gardiners, with total business lending of $4,393,950. Gardiner Petroleum was noted to be the largest multiple Caltex franchisee in Newcastle and the Hunter Valley and employed approximately 80 staff. In addition, Mr Gardiner had advised that he was looking for two additional lease sites at Doyalson and Raymond Terrace, each of which would require finance of $700,000. The memorandum noted:

No commitment has been given to fund such operation and [Gardiner] will be put on notice. It may well be that we will be looking for Eleebana having sold and possible undertakings to meet the market with the sale of Hawks Nest to consider funding in the future.

52. The memorandum described discussions with Mr Gardiner in respect of the Hawks Nest property. Gardiner’s Pty Ltd owned the prime waterfront residential property, which was used for holiday lettings. Whilst the Gardiners had planned to demolish the existing building and construct a luxury home to continue to use for holiday lettings:

They are mindful that they cannot [extend] themselves to both the ongoing expansion of the Service Station business and retain this property, nor justify the cost of servicing such constr[u]ction – given in effect minimal letting return for outlay. They have chosen instead to look to relocate to Merewether [and] sell their existing Eleebana property … they will execute an undertaking to meet the market an[d] sell Eleebana within 6 mths on settlement of Merewether and are mindful of costs to retain. 100% net proceeds from the sale of Eleebana to be applied to debt reduction for the Merewether purcha[s]e.

53. The memorandum noted that Mr Gardiner had expressed a preference for an orderly sale of the Hawks Nest property in spring or summer of 2008. The bank officer noted that Mr Gardiner had offered up the sale of the property on a number of occasions previously, “He appeared genuine in my discussions with him yesterday (23/01/2008) – however does not wish to fire sell the property.”

54. The “Client Evaluation” was likely prepared after Ms Cornall’s presentation, when Mr Coddington is said to have represented that the bank would “build the business” and “get [Eleebana] out of the bank security listings”. The comments recalled by Mr Gardiner do not accord with Mr Coddington’s circumspect file note, which I prefer. It is also unlikely that the bank represented that it would remove Eleebana from the bank’s securities when Mr and Mrs Gardiner were then proposing to sell the Eleebana property and make the Merewether property their family home. Rather, the bank was “looking for Eleebana having sold and possible undertakings to meet the market” before providing further funding. In any event, Mr Coddington’s remarks as recalled by Mr Gardiner were hardly an unqualified promise by the bank to fund Gardiner Petroleum into the future or to discharge the Eleebana mortgage.

First Market Rate Facility

55. On 8 February 2008, the bank offered Gardiner Petroleum a market rate facility with a limit of $2,430,600 (the First Market Rate Facility). The facility was to expire on 31 August 2015, and to be repaid at $26,500 per month. As will be seen, the company struggled to make the principal repayments.

56. The facility was to be secured by a fixed and floating charge over the assets of Gardiner Petroleum and Gardiner’s Pty Ltd, mortgages over leases of the Caltex service station sites, a guarantee and indemnity from Mr and Mrs Gardiner and Gardiner’s Pty Ltd limited to $3,165,958, and mortgages over the Eleebana, Hawks Nest, Rothbury and Merewether properties. The First Market Rate Facility included reporting covenants, obliging Gardiner Petroleum to provide annual accounts, interim accounts within 45 days of the close of each quarter and statutory payments certificates.

57. The letter of offer was accepted by Mr and Mrs Gardiner. In addition, Mr and Mrs Gardiner executed two FlexiPlus Mortgage Facilities Agreements in the amount of $1.35 million (for the Merewether property) and $700,000 (for the Rothbury property). Each mortgage provided that the securities to be taken by the bank were registered mortgages over the Eleebana, Rothbury, Merewether and Hawks Nest properties together with a guarantee given by Gardiner Petroleum and Gardiner’s Pty Ltd for the amount of each facility and fixed and floating charges over the assets of Gardiner Petroleum and Gardiner’s Pty Ltd.

58. The mortgage facilities did not have set expiry dates. However, the bank was entitled to cancel the facilities at any time, obliging the borrower (Mr and Mrs Gardiner) to repay any money owing under the facility immediately: clause 4, FlexiPlus Mortgage Facility Agreement Terms and Conditions. The mortgage facility for $700,000 advanced in respect of the Rothbury property was not repaid and now forms part of the bank’s cross-claim.

59. In addition, on 26 February 2008, Mr and Mrs Gardiner signed letters to the bank, undertaking to meet the market and sell the Eleebana and Hawks Nest properties within 12 months of settlement of the purchase of the Merewether property, with full net sale proceeds to be applied to debt reduction with the bank. As will be seen, neither property was sold within the required timeframe.

Merewether property

60. On 28 February 2008, Mr and Mrs Gardiner purchased the Merewether property for $1.29 million. Mr and Mrs Gardiner borrowed the whole of the purchase price and stamp duty from the bank. Mr Gardiner said that, when buying this property, he relied on a pre-lending report obtained from PPB Recovery Forensics Advisory (PPB). In fact, the bank did not send an engagement letter for a “Pre Lending Review” to PPB until April 2008 and the report was not obtained until August 2008: see [66].

60. On 27 June 2008, the Gardiner Petroleum guarantee was increased to $3,265,000. Mr and Mrs Gardiner each gave a certificate to the bank confirming that the guarantee had been explained to them. They do not appear to have executed either a certificate counter-signed by their solicitor confirming that they had been given independent legal advice or a certificate waiving legal advice.

Overdraft Facility

62. In July 2008, Mr Coddington prepared a Short Form Credit Memorandum in support of an increase in Gardiner Petroleum’s overdraft from $600,000 to $1 million. The increase would provide for “present account irregularity” to assist with working capital requirements for the Group’s six service stations. The bank was still waiting on the Pre Lending Review from PPB to support an increase in the overdraft. Mr Coddington observed:

Present excesses had been approved on the understanding that they would be short term nature, however, due to increasing cost of fuel stocks in +- mid June it became apparent that formal increase would be required to regularise and provide for day to day working capital …

Both the flexiplus mortgages $700K & $1.35M are to reduce from the sale of Eleebana (+- $900K) & Hawks Nest Properties +- $1.2M) within the next 6 mths (>$100K).

63. An additional $159,000 was needed to pay-out the St George mortgage on the Rothbury property than the bank had previously understood. The client was incurring substantial accounting costs to PPB and its own accountants, Lawler Partners, to complete the pre-lending review. In all, unbudgeted cash items totalled $570,000. Further, “We are on notice of a further funding request … to assist in their future expansion plans, sites at Raymond Terrace and Berkeley Vale, submission request expected in the short term.”

64. On 16 July 2008, the bank offered to provide Gardiner Petroleum with an overdraft facility of $1 million (the Overdraft Facility), to be secured by the same charges and mortgages as the First Market Rate Facility and a guarantee and indemnity from Mr and Mrs Gardiner and Gardiner’s Pty Ltd of $3,403,918. The overdraft was to include a financial covenant as follows: (emphasis in original)

Interest cover

Minimum interest cover of 2.00 times as measured for the 12 month period ending on 30/12/2007 and thereafter quarterly for Gardiner Petroleum Pty Ltd ATF The Gardiner Family Trust.

65. Again, the Overdraft Facility did not contain an expiry date. However, the bank was entitled to cancel the facility at any time, where cancellation made the loan immediately repayable: clause 2(a), Specific Conditions; clause 4.1(c), General Conditions.

Pre-lending Review

66. On 1 August 2008, PPB provided its pre-lending review to the bank. The review concluded that the Gardiners were meeting their current commitments “albeit with some strain”. Further, “Introducing a cap on director’s personal spending until actual trading of new sites is well established, would serve to protect the directors from potential shortfall of meeting budgets, in the event consumers experience a downturn in spending power, arising from the current volatile economic climate.” If assets were sold on a going concern basis, there appeared to be sufficient assets to repay bank facilities but, in the event of a forced closure basis, a shortfall of some $788,000 had been identified. PPB further observed:

We note there is an apparent cashflow strain. A review of creditors … reveals there are some payment arrangements in place … Directors spending pattern over the 2007 and 2008 years has contributed to the cashflow strain. Cash management control should be reviewed by the NAB regularly, to monitor capacity to fulfill all financial obligations are met within trading terms as new sites are added to the Group.

67. On 11 August 2008, Mr Coddington and Mr Gardiner met and went through PPB’s report. Mr Gardiner was then obtaining costings for construction of a house at Merewether, with costs coming in much higher than initially projected. Mr Coddington’s note records that he indicated “we would not be in a position to consider without the sales of Hawks Nest/Eleebana and the budget numbers of the business hitting projections – some thing which they are not at present. … he is aware no funding has been approved …” Mr Coddington’s note further records:

Eleebana - still not sold ... Will need to seek extension in respect the “6 mths selling undertaking” with approval authority in next submission ...

Hawks Nest not sold – still does not expect to sell until spring selling season – aware needs to sell to progress Merewether.

68. Discussion turned to Mr Gardiner’s level of drawings. Mr Gardiner stated that he and his wife were drawing about $60,000 each only but were also funding the Merewether home loan via the company. The whole family had also gone on an overseas study tour costing $104,000, which was described as a “one off”. Discussion turned to funding for a proposed service station at Raymond Terrace. Mr Coddington’s note records:

[Gardiner] is aware that funding has not been approved – not committed. … Asked as to his Plan B – states Nil. (I suggest that he would be able to offer under sublease arrangement if NAB not able to assist).

…

NOTE NO COMMITMENTS GIVEN.

Mr Gardiner agreed in cross-examination, “I didn’t have a plan B.”

69. Overall, however, the bank appears to have been reassured by PPB’s pre-lending review. On 4 September 2008, the bank prepared a credit submission to fund a new service station in Raymond Terrace and to refinance the remaining St George facility on the Blueys Beach property. The credit submission noted that PPB’s pre-lending review “did not highlight any glaring deficiencies of the business, in fact, from the writers’ view it is such that it provides the Bank with sufficient additional comfort for us to continue to support the Gardiner Group further with their expansion program – subject to ongoing forecasts/trading result budgets being reasonably well met.” A new market rate facility of $1 million was sought to fund stock for the new Raymond Terrace site. The facility was sought as interest only for the first 12 months, to allow the recently established Beresfield North and Raymond Terrace sites to perform. On expiry, the bank would then assess whether the facility would continue as interest only or move to a principal and interest reduction program.

70. On 24 September 2008, the bank approved the credit submission but reduced the business overdraft limit from $1 million to $800,000. A bank executive advised:

Customer is to be advised that the Bank will not consider any funding for the Berkley Vale site or the Beresfield North freehold property with a period of consolidation now considered essential.

The intent was not to convey that the Bank would never fund anything further for this customer. Although, further funding for business growth will be difficult to support unless all the existing businesses achieve their projected profits and sale of the 2 resi properties (debt reduction c$2M) is achieved within time frame of undertakings.

… any further working capital requests will need to be supported with interim trading results and updated CFB.

Second Market Rate Facility and the Guarantee

71. On 24 September 2008, a business letter of offer was issued to Gardiner Petroleum for a market rate facility of $1 million (the Second Market Rate Facility). Unlike the First Market Rate Facility, the facility was to expire in six months, on 31 March 2009. Gardiner Petroleum was obliged to repay the Second Market Rate Facility on that date: clause 4.1(d) and clause 23 (‘final repayment date’ and ‘facility term’).

72. The Second Market Rate Facility was to be secured in the same manner as the earlier facilities. In particular, the facility was secured by a Guarantee and Indemnity given by Mr and Mrs Gardiner and Gardiner’s Pty Ltd for $4,248,002 and supported by the registered mortgages over the Eleebana, Hawks Nest, Rothbury, Merewether and Blueys Beach properties, fixed and floating charges over Gardiner Petroleum and Gardiner’s Pty Ltd, together with mortgages over the service station leases. The facility was also subject to the interest cover and reporting covenants.

73. Mr and Mrs Gardiner and Gardiner’s Pty Ltd executed a Guarantee and Indemnity to the bank in respect of Gardiner Petroleum limited to $4,248,002 plus interest (including default and compound interest), bank fees, costs, charges and expenses accrued in relation to amounts within the limit (the Guarantee).

74. Mr and Mrs Gardiner each signed a certificate acknowledging that the Guarantee had been explained to them and they were unwilling or unable to take legal advice but nonetheless were amenable to executing the document. It is this guarantee which Mr and Mrs Gardiner now challenge.

75. Mr and Mrs Gardiner also executed a further FlexiPlus Mortgage Facility Agreement in the amount of $530,000, apparently to fund the additional St George refinance on the Blueys Beach property. The mortgage facility was, again, secured by registered mortgages over the Rothbury, Merewether, Blueys Beach and Eleebana properties, together with a guarantee given by Gardiner’s Pty Ltd for $2,668,158 supported by fixed and floating charges over the assets of Gardiner’s Pty Ltd and Gardiner Petroleum Pty Ltd and a registered mortgage over the Hawks Nest property. Mr and Mrs Gardiner executed a mortgage over the Blueys Beach property in favour of the bank. Gardiner Petroleum and Gardiner’s Pty Ltd also gave a guarantee to the bank in respect of Mr and Mrs Gardiner, limited to $2,668,158. The bank registered a fixed and floating charge over Gardiner Petroleum.

CONTRACTS REVIEW ACT CLAIM

76. It is convenient at this juncture to consider the plaintiffs’ claims under the Contracts Review Act in respect of the Eleebana mortgage and the Guarantee. Ordinarily, such claims must be brought within two years of the date on which a contract is made: section 16(a). However, as the bank now seeks to enforce both contracts by the cross-claim, the time for making an application for relief continues during the pendency of the cross-claim: section 16(c).

77. The Court may grant relief under the Act where a contract was “unjust in the circumstances relating to the contract at the time it was made”: section 7(1)(a). The plaintiffs’ pleading, however, tended to focus on circumstances post-dating execution of the Eleebana mortgage and the Guarantee, in particular, the bank’s actions once Gardiner Petroleum’s accounts were referred to SBS in 2009. The plaintiffs alleged that the contracts gave the SBS authority “to conceal and implement the Bank’s exit strategy [and to] transfer … its financial risk to the Plaintiffs by its undisclosed response to the [GFC] … in selling assets of its customers”. There was said to be a lack of proportionality in the contract provisions which permitted the bank “to foist upon the Plaintiffs external financial risks faced by the Defendant … arising from the global financial challenge of 2008 to 2010.” The plaintiffs also relied on the bank’s subsequent enforcement action and demands for payment in 2015. In addition, Mrs Gardiner was said to lack financial education and independence. Further, the provisions of the contract were not the subject of legal advice.

78. I am bound by the terms of the statute and will consider the circumstances relating to the contract at the time it was made. As to reliance on Mrs Gardiner’s lack of financial education, little is known about Mrs Gardiner, other than she ran a hairdressing salon and managed staff at Gardiner Petroleum. I cannot safely conclude that she was financially naïve or uninformed.

79. As to the Eleebana mortgage, Mrs Gardiner did not give evidence as to the circumstances at the time the mortgage was executed, nor as to why it is now said the mortgage should be set aside. Mr Gardiner’s evidence on the circumstances in which the Eleebana mortgage was granted was brief: see [24].

80. As I understood it, no complaint was made as to the circumstances in which the Eleebana mortgage was granted in 1987. Rather, the complaint was that the Eleebana mortgage came to secure the borrowings of Gardiner Petroleum under the First Market Rate Facility, the Overdraft Facility, the Second Market Rate Facility and the Guarantee. Each of the First Market Rate Facility, the Overdraft Facility and the Second Market Rate Facility expressly provided that the facility was secured inter alia by the Eleebana mortgage. Whilst the Guarantee made no specific reference to the Eleebana mortgage, the terms of the Guarantee entitled the bank to “resort to the Securities”, being all security which the bank held from Mr and Mrs Gardiner over any of their property or assets, including a mortgage: clause 12(a), clause 29 (“Securities” and “Security”). Further, as already noted, the Eleebana mortgage is an ‘all moneys’ mortgage: see [25].

81. It is unclear why it was unjust for the bank to be given security over the Eleebana property to secure the business borrowings of Gardiner Petroleum. As earlier described, the Eleebana property was used to secure business loans since 1992, when Mr Gardiner first began operating a service station through Gardiner’s Pty Ltd: see [26]. Mr and Mrs Gardiner were the beneficiaries of the Gardiner Family Trust and stood to benefit from Gardiner Petroleum’s business, including by drawings and using Gardiner Petroleum revenue to make mortgage payments on investment properties in their name: see [68], [124], [138], [140], [145], [157]. It is unclear why it was unjust for the bank to secure the borrowings of Gardiner Petroleum against their assets in these circumstances.

82. As to the Guarantee, neither Mr nor Mrs Gardiner gave evidence as to the circumstances in which the Guarantee was granted. The Guarantee replaced an earlier guarantee – which was not challenged – and which itself was one in a long series of guarantees Mr and Mrs Gardiner gave in support of Gardiner Petroleum’s borrowings. The Guarantee was the sixteenth guarantee.

83. True it is that there was no independent legal advice given to Mr and Mrs Gardiner at the time. But as I have earlier described, Mr and Mrs Gardiner had signed many guarantees in respect of the borrowings of Gardiner Petroleum and, before that, Gardiner’s Pty Ltd. According to Ms Stacker, from August 1998 until September 2008, Mr and Mrs Gardiner provided 15 guarantees to secure debts owed to the bank by Gardiner Petroleum, increasing in amount from $140,000 to, now, $4,246,002. For six of these guarantees, Mr and Mrs Gardiner obtained legal advice and provided legal advice certificates to the bank. For the remaining guarantees, Mr and Mrs Gardiner waived their rights to obtain legal advice and signed advice waivers. (No records of either a legal advice certificate or advice waiver were located for guarantees given on 27 May 2003 or 6 September 2007).

84. The bank’s policy did not require guarantors to obtain independent legal advice where the guarantor had received such advice in respect of a guarantee in the last five years. By my count, Mr and Mrs Gardiner received independent legal advice in respect of a Guarantee and Indemnity three times in that period, being in November 2003, February 2004 and August 2004: see [37], [39] and [40]. Other than the amount of the limit on Mr and Mrs Gardiner's liability, the guarantees were in substantially or wholly the same form. The plaintiffs did not suggest that they did not understand the Guarantee.

85. Where Mr and Mrs Gardiner received the benefit of the lending the subject of the Guarantee through Gardiner Petroleum, whether by Gardiner Petroleum meeting their expenses or through their beneficial interest as beneficiaries of the Gardiner Family Trust, there was no unjustness in the circumstances. The Contracts Review Act claims fail.

NATIONAL CREDIT CODE CLAIM

86. It is also convenient at this juncture to consider the plaintiffs’ claims under the National Credit Code (being Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth)), in respect of the Eleebana mortgage. As I understood it, the plaintiffs did not challenge the enforceability of the Eleebana mortgage when initially executed but only insofar as it became security for the Guarantee.

87. The plaintiffs submitted that the National Credit Code applied where finance was provided to Mr and Mrs Gardiner in respect of their family home under the 1987 mortgage. The Eleebana mortgage secured obligations under a credit contract or a related guarantee and the mortgagors were natural persons: section 7. The Guarantee was ‘related’ to the mortgage and the Code was also said to apply by reason of sections 4 and 8. Although the Guarantee pre-dated the Code, it was said to be nonetheless engaged when additional credit was extended after 2010 and a notice of demand was served in 2015. The Court has a wide discretion to grant relief under the Code: Shannon v Permanent Custodians Ltd [2020] WASCA 198 at [331], [345] per Quinlan CJ and Tottle J.

88. The first matter to consider is whether the National Credit Code applies at all, where the Code did not commence until after both the Eleebana mortgage and the Guarantee were executed. The National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth) provides that the National Credit Code does not apply to contracts made before commencement unless it is a “carried over instrument”: Item 3(1), Schedule 1. A ‘carried over instrument’ is a contract to which the Consumer Credit Code, as defined in the Consumer Credit (New South Wales) Act 1995 (NSW), applied: section 4, National Consumer Credit Protection (Transitional and Consequential Provisions) Act.

89. The transactions to which the Consumer Credit Code applied are broadly the same as the National Credit Code. Sections 5 and 6 of the Consumer Credit Code (being the appendix to the Consumer Credit (Queensland) Act 1994 (Qld), as applied by section 5 of the Consumer Credit (New South Wales) Act 1995 (NSW)) provided: (emphasis added)

Meaning of “credit contract”

5.    For the purposes of this Code, a “credit contract” is a contract under which credit is or may be provided, being the provision of credit to which this Code applies.

Provision of credit to which this Code applies

6.(1)    This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into … —

(a)    the debtor is a natural person … or a strata corporation …; and

(b)    the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes …

90. The Consumer Credit Code then specifies “Provision of credit to which this Code does not apply”, in section 7, before turning to particular forms of credit to which the Code does apply. Section 8 of the Consumer Credit Code provided:

Mortgages to which this Code applies

8.(1)    This Code applies to a mortgage if—

(a)    it secures obligations under a credit contract or a related guarantee; and

(b)   the mortgagor is a natural person or a strata corporation.

(2)    If any such mortgage also secures other obligations, this Code applies to the mortgage to the extent only that it secures obligations under the credit contract or related guarantee.

…

91. Whilst “related guarantee” is not defined and does not appear to have been judicially considered, the Code applies to a mortgage if it secures obligations “under a credit contract or a related guarantee”. The close proximity of “related guarantee” to “credit contract” indicates that the guarantee must be related to the “credit contract” rather than simply related to the mortgage. To construe “related guarantee” more broadly would have the consequence that the protections conferred by the Consumer Credit Code would extend beyond the evident statutory purpose of regulating credit provided to natural persons for personal, domestic or household purposes.

91. Further, section 9 of the Consumer Credit Code provided:

Guarantees to which this Code applies

9.(1)    This Code applies to a guarantee if—

(a)    it guarantees obligations under a credit contract; and

(b)    the guarantor is a natural person or a strata corporation.

(2)    If any such guarantee also guarantees other obligations, this Code applies to the guarantee to the extent only that it guarantees obligations under the credit contract.

…

93. Where a guarantee concerns obligations other than under a “credit contract”, the Consumer Credit Code does not apply. If “related guarantee” in section 8(1)(a) was construed in the manner for which the plaintiffs contend, it would have the curious result that a guarantee to which the Code does not apply by dint of section 9 would be a guarantee to which the Code does apply by dint of section 8(1)(a). This confirms a construction of “related guarantee” as a guarantee related to the “credit contract” rather than simply related to the mortgage.

94. It may be accepted that, when the Eleebana mortgage was executed in 1987, the underlying loan agreement was a “credit contract” to which the Consumer Credit Code applied: the debtors were natural persons (Mr and Mrs Gardiner) and the credit was provided for personal, domestic or household purposes, being the construction of their home. Likewise, the Eleebana mortgage was then a mortgage to which the Consumer Credit Code applied, as it secured obligations under a “credit contract” and the mortgagors were natural persons.

95. The same cannot be said for the Eleebana mortgage when it came to secure Gardiner Petroleum’s obligations under the First Market Rate Facility, the Overdraft Facility, the Second Market Rate Facility or the Guarantee. None of these contracts were “credit contracts” within the meaning of the Consumer Credit Code as the debtor was not a natural person, but Gardiner Petroleum. Nor was the credit provided for personal, domestic or household purposes but to fund the business operations of Gardiner Petroleum’s network of service stations. Likewise, the Consumer Credit Code did not apply to the Guarantee where Mr and Mrs Gardiner were not guaranteeing obligations under a “credit contract”.

96. Insofar as the Eleebana mortgage came to secure the First Market Rate Facility, the Overdraft Facility, the Second Market Rate Facility or the Guarantee, it was not a mortgage to which the Consumer Credit Code applied as the mortgage was not securing obligations under a “credit contract or a related guarantee”, where “related guarantee” means a guarantee related to the “credit contract”, not simply related to the mortgage. To the extent that the Eleebana mortgage secured other obligations – being those of Gardiner Petroleum – section 8(2) provided that the Code did not apply.

97. As such, the National Credit Code did not apply to the Eleebana mortgage or the Guarantee. If I am wrong about this, then I am not satisfied that “in the circumstances relating to the relevant credit contract, mortgage or guarantee at the time it was entered into or changed … the contract, mortgage or guarantee was unjust” such that the transaction ought be re-opened: section 76, National Credit Code. Essentially for the same reasons as in respect of the Contract Review Act claims, the plaintiffs have not established that the Eleebana mortgage or the Guarantee was unjust in the circumstances at the time the contracts were entered into or changed.

98. The bank further submitted that the claims under the National Credit Code were out of time. Section 80 of the National Credit Code provides that an application may not be brought more than two years after the “credit contract” is “rescinded or discharged or otherwise comes to an end”. The bank cancelled Gardiner Petroleum’s facilities in 2014: see [288]. To this, the plaintiffs submitted that section 80 did not apply where the bank maintained that the plaintiffs remained customers of the bank and they were still in receipt of statements of account. It is not necessary to decide this question where the National Credit Code does not apply, but the bank’s submission has considerable force. The National Credit Code claim fails.

RETURNING TO THE FACTS

99. In December 2008, three months after execution of the Guarantee and provision of the Second Market Rate Facility, Gardiner Petroleum requested further funding of $500,000 in order to sustain the growth then being experienced at the Raymond Terrace and Beresfield North sites.

100. On 28 January 2009, Mr Gardiner emailed Mr Coddington regarding exceedance of the overdraft limit. Mr Coddington noted that the overdraft balance was $917, 204 against a limit of $800,000. Whilst Mr Coddington noted the pressure on the overdraft due to fuel sale volumes, “we do look for the limit to be respected.” The file was made “close monitoring” by the bank, following a breach of covenants in the September 2008 quarter and a delay in providing final accounts for the 2008 financial year.

101. On 3 February 2009, Mr Coddington reported to bank colleagues that he had placed a call to Mr Gardiner that morning given the overdrawn overdraft facility, “with what appears rising fuel costs I expect that we will need to look to provide some assistance … The PPB report read relatively well of business model and his management – gave us comfort then … There is still cash drain due to unsold residential property … Just a heads up at this stage”.

102. On 23 February 2009, the Portfolio Review Group of the bank completed a review of the Gardiner Group and provided their conclusions to Mr Coddington. The file review noted that the bank had a weak secondary exit position, with mortgages over four of seven leasehold sites. The file was regarded as high risk, to remain under close monitoring until a period of sustained performance to budget was demonstrated. Further, the bank needed to discuss whether the customer had considered de-leveraging by selling leaseholds, injecting equity or finding an equity partner to improve cashflow and reduce risk in the current economic climate. Further, as the last credit approval required the sale of Eleebana and Hawks Nest by March 2009, an update was sought. Finally:

The customer is considered highly leveraged and our current exit positions remain we[a]k. Hence, there is little margin for further deterioration in performance otherwise we have going concern issues. Position should be monitored closely via excesses/account conducts and creditor positions regularly for early signs of cash flow stress.

Should further decline in performance be noted, early referral to SBS should be discussed with [Delegated Credit Authority].

103. On 24 February 2009, Mr Coddington updated his colleagues on Gardiner Petroleum. Mr Coddington noted that the loss-making Warners Bay site was closed at the end of February 2009. Neither the Eleebana nor Hawks Nest properties had sold. The Beresfield North site was now break-even and the Raymond Terrace site was improving. Mrs Gardiner’s hairdressing salon had been sold. Mr Coddington expressed the view that the present loan structure had “very aggressive amortisation”.

104. For here on, the Overdraft Facility was routinely exceeded. Mr Coddington obtained updated cashflow projections from Gardiner Petroleum, on which he reported to his colleagues on 25 March 2009:

The bleed of cash from core activity has to stop and house sales needed to reduce group debt loads.

Selling off sites is not seen as something that Gardiner would warm to - so he needs to determine if he wants surplus residential real estate or an emerging business.

I still suggest profitable but it may be that we need to consider facility restructure to ease servicing burden.

… to cut Caltex “off / turn back fuel drawings” and require them to go “COD” will bust the business.

105. In advance of a meeting between Mr Coddington and the Portfolio Review Group, Mr Coddington was provided with some high level points following a review of the financial information provided by Mr Coddington. The Portfolio Review Group noted that Gardiner Petroleum conducted a high volume/low margin business where long-term profitability appeared to depend on achieving sufficient critical mass, “yet Gardiner Petroleum appears to be growing beyond financial means/insufficient equity support (over expansion with no buffer to absorb “external shocks”).” Capital constraints appeared not to have been factored into the business model, which proceeded on the basis that operating cashflow would be sufficient, combined with continuing bank support. The bank was now in a quasi-equity position based on gearing levels, with the potential risk of loss in a “worse case” scenario. A number of suggestions were made as to how to address these problems, however, there was a need to stabilise business cashflow and reduce debt, noting the risk of “forced sale recovery … should Caltex payments be turned off.”

106. On 31 March 2009, the Second Market Rate Facility expired. Mr Coddington sent an internal memorandum to a senior colleague at the Lake Macquarie Business Banking Centre, John Crosdale, seeking advice or instruction, having “identified more than short term cash strain within this business”. Mr Coddington considered that the aggressive amortisation program was unachievable. ‘In principle’ support was sought to extend the facility across the Gardiner Group to 30 September 2009, increase the overdraft limit to $1 million, suspend the principal reductions of $26,500 a month until 30 September 2009, require monthly reporting within 15 days of month’s end and extend the requirement to sell two residential properties by six months “with firm commitment to sell”. Further, “we consider our continued support warranted as … still reflects as profitable enterprise.”

107. On 7 April 2009, Mr Coddington sought comments from a senior credit partner at the Lake Macquarie Business Banking Centre, Stephen Bottom. Mr Coddington advised that he was managing the account on a daily basis and was in regular contact with Mr Gardiner, who was “aware of our stance $1M max within O/D, that funding for any formal increase in facilities has not been approved/committed and that the firm remains with our credit area for consideration.”

108. On 15 April 2009, Mr Coddington submitted a Lending Increase Memorandum, proposing to increase the overdraft to $1 million until 31 May 2009 to regularise “present long dated excess on the working account” and ongoing working capital needs until determination of the bank’s ongoing support or assistance to the Gardiner Group.

SBS Categorisation

109. On 16 April 2009, Mr Coddington referred the Gardiner Petroleum facilities to SBS. On the same day, the bank approved the increase in the overdraft to $1 million until 31 May 2009 and extended the Group’s existing facilities until that date. By then, the bank’s total lending to Gardiner Petroleum stood at $8,543,331, while securities were valued at only $4,330,082.

110. Mr Coddington advised SBS that he could not support the company’s recent request for further funding given immediate past profit performance and conduct of the account. The company’s request required greater overview of operations to enable the bank to gain sufficient comfort to support the Group. Further:

Continued cash strain from non core business activities of the Group’s Service Station operations impacting negatively on cashflow – I now don’t believe increasing fuel sales volumes are the underlying reason for present cash deficiency.

111. Mr Crosdale supported the categorisation of the account, noting that the “position with this group is less than ideal … Clearly the Group’s cashflow has been under considerable strain for some time and it appears there was little chance they would be able to regularise the long dated irregular account from that source.”

112. On 20 April 2009, Mr Coddington met with Mr and Mrs Gardiner and explained that the Guarantee extended to provide for the increase in the overdraft facility. According to Mr Coddington’s note, both Mr and Mrs Gardiner “are aware and accepted reasoning and acknowledged in interview position. Both again placed on notice of requirement for $1M limit to be respected and that further review in conjunction with SBS will now be required – facility expiry stands now at 31/5/09”.

113. The Gardiner Group was categorised on 21 April 2009 given emerging liquidity difficulties, a covenant breach, and an irregular account. (The plaintiffs’ expert, Mr Gaudion, acknowledged that there were periods prior to March 2009 when the Interest Cover Ratio was below 2.0.) The file was to be managed by Mr Vasseleu. Mr Vasseleu reported to Mr Acharrie, who reported to Joseph Taylor, the head of SBS. It is apparent from the contemporaneous documents that Mr Vasseleu routinely sought approval from Mr Acharrie in respect of the Gardiner file, for example, approving extension of facilities or excesses on the overdraft limit. On occasion, Mr Acharrie consulted with Mr Taylor, for example, when deciding whether to use PPB as the investigating accountant or a ‘fresh pair of eyes’: see [128]. Mr Acharrie said, at a minimum, joint approvals and overviews were required on all files.

114. Mr Acharrie explained that SBS had two divisions: the retention/turnaround division and the recovery/collections division. Mr Acharrie ran the retention/turnaround division and Mr Vasseleu worked for him. Mr Acharrie said that most of his managers, including Mr Vasseleu, spoke to him about a way to get the customer obligations back in order so that the file could be repatriated to the ‘front line’. If the person in charge of the file believed there was a pathway to repatriation, then that would have been the guiding principle in managing the file. SBS staff closely monitored files to get the customer on a footing that was in line with the bank’s parameters of comfort. Further, Mr Acharrie explained:

The fact that it was domiciled within my team meant that they felt that they could actually convince the customer to work with us and bring the LVRs to … within a comfortable level and then we repatriate it back to the frontline, and largely during that time, a lot of customers would go and sell down assets and get to a more comfortable LVR and then be repatriated to the frontline.

115. While, according to SBS’s computer file, the Gardiner file is marked as a recovery file, Mr Acharrie did not agree that the file had been placed in the recovery section at the outset, “That didn’t happen. The fact that it was in John Vasseleu’s team management and in my team meant that at the outset it was not placed into recovery.” A likely explanation for the Gardiner file being marked as “recovery” is that, as Ms Stacker explained, SBS’s computer file was updated. For example, whilst Ms Stacker’s name appears on SBS’s computer file as the Impaired Asset Manager, she did not take on this role until February 2020. Presumably, when the Gardiner file became a “recovery file” in 2011, SBS’s computer file was updated accordingly. Either way, it is plain from Mr Acharrie’s evidence and the efforts of Mr Vasseleu, to which I will now turn, that the bank in fact treated the Gardiner Petroleum file as a “turnaround” file on categorisation.

116. According to the bank’s records, a meeting with Mr Vasseleu and Mr Gardiner was arranged urgently at the request of bank manager Mr Perriman, as the client had indicated to the Business Banking Centre that the $1 million overdraft facility approved by on 16 April 2009 was insufficient to fund an increase in volume sales of fuel and was likely to be exceeded in the short term. According to the bank’s note, prior to the meeting with SBS both Mr Perriman and Mr Coddington ‘pre-positioned’ Mr Gardiner on the bank’s concern regarding the business’ continuing appetite for debt to fund its growth strategy and the limitations on the bank to further assist against the inadequate capital and security base of the Group. Mr Perriman and Mr Coddington endeavoured to encourage the Group to explore alternate options to fund the business through sourcing equity or the sale of sites to consolidate their position.

117. According to Mr Gardiner, Mr Coddington called him to say that someone from Sydney wanted to come up and meet him. When Mr Gardiner asked for what purpose, Mr Coddington said “This guy has greater authority to approve things than we do locally, to assist with the management of cashflow and debtor repayments, extend lease payment terms and holidays on principal repayments.” Mr Gardiner said he understood that Mr Vasseleu’s function was to assist in approving overdraft limit increases which he needed because of the faster than anticipated “organic” growth of the business.

118. Mr Gardiner’s evidence that he was told that Mr Vasseleu needed to meet with him in order to approve an increase in funding is unlikely where the bank’s contemporaneous notes record that Mr Coddington had met with Mr and Mrs Gardiner on 20 April 2009 and conveyed the bank’s concerns (see [112]) and where Mr Perriman and Mr Coddington had ‘pre-positioned’ Mr Gardiner as to the bank’s limited appetite for further funding (see [116]).

Seeking refinance

119. Mr Gardiner agreed that, before the meeting with SBS, he approached the Commonwealth Bank, ANZ and Westpac regarding the possibility of refinance. Mr Gardiner had a number of contacts at these banks, who he knew socially. Mr Gardiner believed these contacts were in a position within these banks “to give me some advice on the future growth expansions of the company, not specifically to refinance the existing debt of the company, but to provide finance moving forward … it was a broad conversation like that.” No formal application was made, “It was just conversations”.

120. Again, I consider that Mr Gardiner’s recollection as to why he enquired about finance from alternate banks is framed in unduly optimistic terms. More likely, Mr Gardiner apprehended – as he had been told by Mr Coddington and Mr Perriman – that the bank was reluctant to extend further finance and wanted Mr Gardiner to seek equity or sell assets. Mr Gardiner’s enquiries of other banks is consistent with Mr Gardiner having understood that the bank was not prepared to continue to accede to Mr Gardiner’s funding requests and wished to reduce its exposure to Gardiner Petroleum. In any event, nothing came of Mr Gardiner’s enquiries of the Commonwealth Bank, ANZ or Westpac.

Strategy 1: assess options and improve cashflow

121. Before leaving to meet with Mr Gardiner, Mr Vasseleu informed Mr Acharrie of the results of his preliminary review of the file, in particular, the bank may wish to consider instructing an investigating accountant, where revenues had failed to achieve projections assessed by PPB and cashflow was currently under considerable stress. Mr Vasseleu considered a key issue to be that the business was undercapitalised and, to date, had been wholly reliant on debt funding to fund business expansion strategies. Mr Vasseleu considered that the Group needed to look at urgent options to inject equity into the business. Mr Vasseleu’s initial thoughts were recorded in SBS’s computer file as “Strategy 1”.

SBS meets with Gardiner

122. On 27 April 2009, representatives of SBS met with Mr and Mrs Gardiner together with Mr Coddington and Mr Perriman. Mr Vasseleu’s note of the meeting records: (emphasis added)

At the meeting Brad Gardiner provided … further plans to establish another site at Berkeley Vale towards the end of the year. … Brad conveyed that he did not have options available to source equity and/or to extend payments terms with Caltex. In any event he was reluctant to find an equity partner and relinquish control at this stage of the business’ growth cycle. He also appeared of the view that given he believed the businesses were profitable and on his track record, the Bank would continue to provide funding of his business and its expansion plan. Brad further advised that an internal review of the staffing overhead of the business had been undertaken and the group had implemented immediate reduction of wages overhead of approximately $200k pa through recent termination of full and part-time staff. He did not convey any further options to internally address the cash stress on the business.

326. Mr Gardiner did seek alternative finance, before and after the first meeting with SBS: see [119], [153]-[155]. Mr Gardiner was continuing to talk to the Commonwealth Bank in June 2010: see [193]. The bank’s notes record that, in October and November 2011, Mr Gardiner advised that he had approached another lender about refinancing the bank’s debt in full and the bank advised that it was open to a refinance: see [251], [255], [257], [258]. In January 2012, an analyst at SBS, Andrew Wibawa, expressed concern that Mr and Mrs Gardiner “also now pay themselves into their CBA accounts” each week, “Not sure what the position is on that side but it seems that CBA is now their primary daily transactional Banker.” In February 2012, Mr Gardiner informed the bank that he was meeting with other financiers regarding a refinance: see [269]. He also advised that he had “been discussing re-finance with two Banks for 3 years”: at [271]. In May, June and July 2012, Mr Gardiner advised McGrathNicol that he had met with a potential new financier: see [274], [279], [281]. The fact that Mr Gardiner endeavoured but failed to refinance Gardiner Petroleum at the time suggests that, even if Mr Gardiner had been fully informed of the bank’s suggested ‘exit strategy’, he would not have been able to refinance the company in any event.

327. While Mr Gardiner now says that, were it not for the redactions in the first McGrathNicol report in 2009, he would have moved to sell one of his high value service stations in 2009 instead of waiting until the situation deteriorated in 2011, the contemporaneous evidence suggests otherwise. At no time was Mr Gardiner receptive to the bank’s repeated suggestions to sell assets. Mr Gardiner was reluctant to sell the investment properties or service stations without repeated, sustained and increasing pressure from the bank to do so.

328. A further problem faced by Mr Gardiner’s suggestion that he would have simply sold a high value service station to meet the bank’s demands is that this option was examined at the time and founded wanting. McGrathNicol’s second report considered this option and concluded that the remaining service stations would not generate enough profit to enable the remaining service stations to survive: see [184]. Whilst this advice was redacted and, thus, not available to Mr Gardiner at the time, the bank encouraged Mr Gardiner to obtain advice from Lawler Partners on this subject and, so far as the evidence reveals, Lawler Partners gave Mr Gardiner the same advice: see [214], [221], [225]. The plaintiffs made no attempt to explain why McGrathNicol’s analysis was wrong, nor to adduce the evidence from Lawler Partners on the same subject. So far as I could tell, the figures just did not ‘add up’.

329. There is no evidence that Gardiner Petroleum would be profitable in the future, had the bank not taken the steps it did. By 2009, the position of the Gardiner Petroleum business was difficult. Gardiner Petroleum had an expired equipment lease of $120,000 and an expired Second Market Rate Facility of $1 million. Gardiner Petroleum’s cashflow as at 2009 and 2010 was such that it was not in a position to continue operating at all without further funding, which the bank (and the Commonwealth Bank) was not prepared to provide. Gardiner Petroleum had payment arrangements with some of its creditors, including the ATO. Working capital continued to be Gardiner’s Petroleum ongoing and unresolved problem. There is no evidence on which to conclude that, even if any of the alleged conduct was established, Gardiner Petroleum had a chance of operating as a profitable business.

330. As pleaded and pursued at trial, the loss and damage of Mr and Mrs Gardiner – as opposed to loss and damage which may have been sustained by Gardiner Petroleum – was undelineated and unclear. Also unclear was the ability of Newport Resources to pursue a claim for damages on behalf of a deregistered Gardiner Petroleum, to which I will return at [365]. Nor was there any evidence to support any loss or damage, in particular, of the quantum tabulated in the plaintiffs’ opening or closing submissions.

331. As ultimately put, the plaintiffs submitted that, if the bank had been more forthcoming or had given Mr Gardiner the unredacted McGrathNicol report and advised that it was thinking of selling him up, Mr Gardiner would have sold a high value service station and thereby retained the investment properties. The bank would have then been owed some $8 million, which would have been repaid on a refinance. Unfortunately, however, the value of the properties appeared insufficient for this purpose. Presumably, the incoming financier would have taken security over the plaintiffs’ remaining residential and commercial properties such that identifying any loss proved elusive.

DECEIT

336. The plaintiffs contended that the bank made false representations, deceiving the plaintiffs into selling their assets when it was not necessary to do so. Had the plaintiffs known the bank’s true position, they would have taken a different course, seeking alternative debt or equity finance. It is said that the bank deceived the plaintiffs by representing that the bank’s strategy was to work with the plaintiffs to save the service station business. By redacting the McGrathNicol reports, the bank concealed its true plan. In fact, the bank intended to liquidate all assets of the plaintiffs and their business, but failed to disclose this strategy. The bank adopted “fictional calculations” in the McGrathNicol reports. By relying on the bank’s representations, the plaintiffs are said to have lost the whole of their residential and business assets.

Time bars

337. A cause of action founded on tort is not maintainable if brought at the expiration of six years from when the cause of action first accrues, being when loss or damage is sustained: Limitation Act 1969 (NSW), s 14(1)(b), Wardley v Western Australia. However, the plaintiffs relied on section 54 of the Limitation Act 1969 (NSW), contending that the bank confirmed their cause of action by pleading a set-off as part of its Cross-claim. Further, the plaintiffs alleged that they first discovered the bank’s ‘financial exit strategy’ after inspection of the documents discovered by the bank in April 2021. At no stage during the pendency of the credit facilities with the bank prior to the commencement of the proceedings did the bank or McGrathNicol disclose to the plaintiffs the bank’s ‘financial exit strategy’. As such, it was suggested that section 55 of the Limitation Act 1969 (NSW) had the effect that the limitation period in relation to their allegations did not start running until then.

338. As to section 54, confirmation is effective only if it happens before the expiry of the limitation period: section 54(1). Confirmation after expiry of the limitation period does not revive it: Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535 at 565 (Wilson J). As earlier analysed at [296]-[297], any loss was sustained more than six years before commencement of these proceedings in December 2019. The bank filed its Commercial List Response in March 2020 and a cross-claim in April 2020. Assuming for the moment that either pleading confirmed the plaintiffs’ cause of action in deceit, any such confirmation was made after the limitation period had expired.

339. As to section 55, the deceit claim was added to the plaintiffs’ pleading on 5 August 2022 by the Further Amended Commercial List Statement. By the Amended Commercial List Reply filed on 5 August 2022, the plaintiffs contended that their cause of action was fraudulently concealed within the meaning of section 55. As I understand the plaintiffs’ pleading, reliance was placed on section 55(1)(b) of the Limitation Act, which provides:

55   Fraud and deceit

(1)   Subject to subsection (3) where—

…

(b)   a cause of action or the identity of a person against whom a cause of action lies is fraudulently concealed,

the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment.

340. The first problem is that I have found that there was no ‘financial exit strategy’ as alleged. The second problem is that it is unclear how provision of the redacted McGrathNicol report to Mr Gardiner amounts to fraudulent concealment where the plaintiffs knew that they were not being provided with certain sections of the McGrathNicol report. Further, as noted at [316]-[318], when the redacted report was viewed against the bank’s letter of instruction, it was fairly obvious that the redacted portions of the report addressed the bank’s request for advice on its security position and the likely outcome if the security was realised on a going concern or forced sale basis. I am not satisfied that the redaction was “fraudulent” within the meaning of the section.

341. Further, a plaintiff seeking to rely on section 55 must not only prove when they actually discovered the fraud but must also show that they could not have discovered the fraud without taking unreasonable or exceptional measures. That is, the plaintiff bears the onus of proving that they could not reasonably have discovered the fraudulent concealment of the cause of action earlier than they did: Ballard v Multiplex [2012] NSWSC 426 at [104]-[107] per McDougall J; cited with apparent approval in Sims v Commonwealth of Australia [2022] NSWCA 194 at [83] (Bell CJ).

342. The bank submitted that there was nothing preventing the plaintiffs, acting with reasonable diligence, from discovering in 2009 or at any time since what they say they have discovered only recently. If they had genuine concerns about the bank’s conduct, there were no obstacles to them obtaining legal and accounting advice. There was also nothing preventing the plaintiffs from requesting unredacted copies of the McGrathNicol report from the bank.

343. There is much force in this argument where it was perfectly apparent from the redacted McGrathNicol reports provided to Mr Gardiner in 2009 and 2010 that portions had been redacted such that the bank may be acting in accordance with advice undisclosed to Mr Gardiner. If the plaintiffs thought that the bank may not have acted in accordance with the law, including by actioning advice which had not been disclosed to them, a simple step would have been for the plaintiffs to request a copy of the unredacted reports. There is no evidence of such a request, which I can consider would have been a reasonable and unexceptional measure.

344. Whether the bank would have acceded to such a request is, of course, not known. If the bank had refused to provide the unredacted reports on request, necessitating, for example, an application for preliminary discovery under rule 5.3 of the Uniform Civil Procedure Rules 2005 (NSW), then it may well be that the plaintiffs would be able to maintain that they could not have discovered the fraud earlier than they did without taking unreasonable or exceptional measures. But that is not the case here, where the plaintiffs did not take the simple step of asking for the unredacted reports. As such, I do not consider that the plaintiffs have satisfied the requirements of section 55. The tortious claim of deceit is time barred.

Elements

345. If I am wrong about this, the tort of deceit has five elements: first, the defendant made a false representation; secondly, that the defendant made the representation with the knowledge that it was false, or that the defendant was reckless or careless as to whether the representation was false or not; thirdly, that the defendant made the representation with the intention that it be relied upon by the plaintiff; fourthly, that the plaintiff acted in reliance on the false representation; and fifthly, that the plaintiff suffered damage caused by reliance on the false representation: Magill v Magill [2006] HCA 51; 226 CLR 551 at [114] per Gummow, Kirby and Crennan JJ. As their Honours there emphasised, “the need to satisfy each element has always been strictly enforced, because fraud is such a serious allegation”: at [114].

346. As McDougall J observed in Carr v Miller [2018] NSWSC 1424, an allegation of deceit is serious and the Court must take the gravity of the allegation into account in deciding whether it is satisfied on the balance of probabilities that the allegation has been made good; there must be a feeling of actual satisfaction that the deceitful conduct took place and that the elements of deceit have been made out: at [93]-[94].

347. None of these elements were established. To the extent any representations about the bank’s strategy and intentions were made to the plaintiffs, they were made openly and the bank adopted the strategy that it said it was adopting, being to encourage Gardiner Petroleum to reduce its debt and to manage its cash flow. As earlier observed, the redaction of portions of the McGrathNicol reports did not result in a false representation. It was apparent from the bank’s letter of instruction and the headings of the redacted portions what the bank wanted advice about and, thus, what the bank was thinking about. Nor did the redacted portions record the suggested “exit” strategy.

348. More important than McGrathNicol’s advice and presentation of options was the strategy which the bank decided to pursue. The bank’s contemporaneous records evidence consistent, clear communication with the Gardiners about what the bank wanted to achieve, what the bank wanted them to do and why. Further, for reasons earlier stated, the plaintiffs have not established causation or loss.

CODE OF BANKING PRACTICE

349. The bank is said to have failed to comply with the Code of Banking Practice when requiring Mr and Mrs Gardiner to refinance the properties then mortgaged to St George with the bank, without informing them that the bank proposed to use the additional equity as part of its ‘post-GFC’ intervention and for the bank’s benefit. Further, Mr Vasseleu required the plaintiffs to sell their assets urgently and without delay, thereby resulting in sales proceeds less than might otherwise be achieved. The bank required the plaintiffs and Gardiner Petroleum to pay for McGrathNicol’s “expensive accounting reports” and withdrew the bank’s financial facilities without adequate notice “contrary to … promises”. The bank was said to have influenced the outcome of McGrathNicol’s reports and caused sections of the reports which did not support its plans to be redacted. Some of the pleading is scandalous and unsupported by any evidence and will not be repeated here. Ultimately it is said that the plaintiffs thereby suffered loss and damage, being all of the residential investments and business.

Time bars

350. This is a claim for breach of contract. The limitation period is six years from accrual of the cause of action, being when the contract was breached: section 14(1) Limitation Act 1969; Gould v Johnson (1702) 2 Salk 422; 91 ER 367. The alleged breaches of contract date from 2008 to May 2010. Clearly, these proceedings are out of time. To the extent that the plaintiffs relied on sections 54 or 55 of the Limitation Act to extend the limitation period, I have concluded that these sections do not apply in the circumstances of this case: see [338]-[344].

“small business”

351. If I am wrong about this, the question is whether the Code of Banking Practice applied in the circumstances of the case, where the Code sets standards of good banking practice for the bank to follow when dealing with individual and small business customers and their guarantors: clause 1.1, Code of Banking Practice (May 2004). ‘Small business’ is, relevantly, a business which employs less than 20 full time or equivalent employees: Part F ‘Application and Definitions’, ‘small business’ and ‘you and your’.

352. Mr Gardiner said that, as at April 2009, Gardiner Petroleum had six permanent full-time employees. In addition, casual employees ran the service stations. He calculated the number of full-time equivalent employees to cover these service station shifts as an additional seven employees, bringing the total to 13 full time or equivalent employees. Mr Gardiner said April 2009 was a time at which the business “had more employees than at any other time.”

353. Mr Gardiner’s calculation seems odd where six service stations were then operating 24 hours a day, seven days a week and the seventh service station was open 16 hours a day, seven days a week. In his last affidavit, Mr Gardiner deposed that the ‘total weekly hours worked by part time employees’ of Gardiner Petroleum was at least 980 hours. This alone would have amounted to the equivalent of 24.5 full time employees.

354. Also at odds with Mr Gardiner’s evidence, a Client Evaluation prepared by the bank in January 2008 recorded that Gardiner Petroleum employed approximately 80 staff, four of whom were employed in key senior management positions looking after the day-to-day operations of the site. However, Mr Gardiner said this was not an accurate statement; the company had 50 staff, being six full-time staff and another 44 casual staff who assisted in operating the service stations. I do note, however, that in his resume, Mr Gardiner describes himself as the managing director and founder of the largest Caltex multi-site business in Australia, with an annual turnover of $80 million “and I employed 100 employees”.

355. I also note that, in January 2012, Direct Credit Report records at least 38 people to whom wages were being paid. Presumably, the company’s employees were much reduced by this time. The Bad Debt Report completed on 14 September 2012 reported that, at its peak, the company employed approximately 60 people.

356. The bank submitted that, even on the assumption of only one employee present at a service station at a time, there was a 168-hour working week per service station. Taking a full-time employee at 40 hours a week (38 is probably accurate), that is four full time employees (rounding down) per 24 hour day per service station per week, or 24 employees (again rounding down) per week across the six service stations that operated 24 hours a day plus about another three at the service station that operated 16 hours a day. On any view, despite Mr Gardiner’s evidence, that was in excess of 20 full time or equivalent employees.

357. The bank’s calculations make more sense to me, particularly when viewed with the contemporaneous records, which suggest that Mr Gardiner has under-stated the number of full-time employees of the company at the time of the suggested contractual breaches. Any obligations imposed under the Code of Banking Practice did not apply vis a vis Gardiner Petroleum and its guarantors, Mr and Mrs Gardiner.

Breach of the Code

358. If I am wrong about this, the Code of Banking Practice was incorporated into the relevant contracts by the bank’s General Conditions, for example, clause 20 of the General Conditions to the Second Market Rate Facility. The plaintiffs contend that the bank was in breach of its obligation to act fairly and reasonably towards Gardiner Petroleum in a consistent and ethical manner. The bank was obliged to act prudently with diligence, care and skill. The bank was obliged to work with the plaintiffs if they experienced financial difficulties and not to cause them to draw on their superannuation. The latter obligation arose under the Code of Banking Practice adopted in 2013, and I will consider whether this obligation applied at [362].

359. The alleged breaches of the provisions of the Code of Banking Practice have not been established. Clause 2.2 required the bank to act fairly and reasonably in a consistent and ethical manner where, “In doing so we will consider your conduct, our conduct and the contract between us”. This obligation requires no more than conduct in good faith: Dinh v Commonwealth Bank of Australia [2021] WASCA 127 at [135]-[139]. I do not consider that the bank breached this obligation. Rather, Mr and Mrs Gardiner did not perform their undertakings given in 2008 to sell properties to reduce debt. Gardiner Petroleum could not comply with the terms of its facilities and sought more finance. The bank afforded Gardiner Petroleum and the plaintiffs repeated opportunities and indulgences.

358. Clause 25.1 required the bank to exercise the care and skill of a diligent and prudent banker in selecting and applying its credit assessment methods and in forming its opinion as to the customer’s ability to repay. It does not require the bank to be satisfied that the customer has the ability to repay a facility before offering it: Dinh v CBA at [178]-[180]. The bank may take due care and decide that, although it is possible that the borrower may not be able to repay the loan, it will offer the loan in any event: Doggett v Commonwealth Bank of Australia (2015) 47 VR 302 at [163]-[164] (McLeish JA, Whelan JA and Garde AJA agreeing); Gooley v NSW Rural Assistance Authority [2020] NSWCA 156 at [26] (Meagher JA, Macfarlan and White JJA agreeing). The bank did not act in breach of this obligation, particularly where the plaintiffs’ complaint is that more money, not less, should have been lent.

359. Clause 25.2 requires the bank to help its customer overcome the customer’s financial difficulties with any credit facility the customer has with the bank. I consider that the bank discharged this obligation. The bank supported Gardiner Petroleum through waivers of breaches, allowed excesses on its overdraft facility and extended time for repayment of facilities which Gardiner Petroleum could not otherwise repay when due. The bank did so despite increasing concern as to the risk of losses and exasperation at Mr Gardiner's failure to understand the position his business was in, and to sell assets to reduce debt and improve cashflow.

360. Clause 28.9 was only added as an amendment to the Code in 2013. Clause 28.9 prohibits the bank from requiring customers to apply for early release of their superannuation benefits to repay their credit facility and obliges the bank to recommend that the customers seek independent advice on the option of applying for such release. The plaintiffs rely on this clause in respect of the Hawks Nest property, which was owned by Gardiner’s Pty Ltd as trustee of the Anchorage Trust. The trustee of Mr and Mrs Gardiner’s self-managed superannuation fund owned 95% of the units in the Anchorage Trust. That is, the Hawks Nest property was not property of the superannuation fund; the units in the unit trust were.

361. In any event, assuming for the moment that clause 28.9 applied to the sale of the Hawks Nest property, that property was sold on 12 April 2011, before clause 28.9 became part of the Code of Banking Practice. The contractual obligation imposed by clause 28.9 did not have retrospective effect. As such, the bank’s efforts to encourage Mr and Mrs Gardiner to sell that property are not a breach of contract. The claims for breach of the Code of Banking Practice fail.

NEWPORT RESOURCES AND REINSTATEMENT

364. The third plaintiff was Newport Resources, which was appointed as trustee of the Gardiner Family Trust on 28 November 2019, seven years after Gardiner Petroleum automatically ceased to be trustee on the appointment of a liquidator.

365. Newport Resources was joined to the proceedings in February 2022. The bank responded to the joinder by maintaining that Newport Resources had no right or power to sue in these proceedings as the deed by which it was appointed trustee of the Gardiner Family Trust did not vest any trust property in the company. Gardiner Petroleum was the proper plaintiff but any chose in action vested in ASIC on deregistration: section 601AD(2), Corporations Act 2001 (Cth).

366. The plaintiffs then added a further prayer for relief in the Further Amended Summons, seeking an order to the extent necessary to reinstate the registration of Gardiner Petroleum pursuant to section 601AH(2) of the Corporations Act and to add the company as a plaintiff to the proceedings. No mention was made of this matter by the plaintiffs during the hearing. I am tempted to treat it as not pressed, particularly where ASIC would need to be notified of any application to reinstate a company and there is no evidence that it had been so notified: Regulatory Guide 83 - Reinstatement of Companies(ASIC Guide) at RG 83.42.

367. I will resist that temptation. Section 601AD of the Corporations Act provides that, on deregistration, a company ceases to exist; all property that the company held on trust immediately before deregistration vests in the Commonwealth while other property vests in ASIC.

368. Subsection 601AH(2) of the Corporations Act provides that the Court may make an order that ASIC reinstate the registration of a company if an application for reinstatement is made by a person aggrieved by the deregistration and the Court is satisfied that it is just that the company's registration be reinstated. As Gleeson JA explained in ReEuropean Metal Recyclers Pty Ltd (in liquidation) (deregistered) [2018] NSWSC 946 at [17]-[18], the expression “aggrieved person” is of wide import and should be construed liberally and includes a person who has been damaged in the legal sense. As Brereton J observed in ReRegional Planners Developments Co Pty Ltd (2015) 110 ACSR 457, a person is aggrieved by the deregistration of a company if they are thereby precluded from suing the company and it may be just for the company’s registration to be reinstated for the purpose of enabling the applicant to pursue its remedies: at [11]. Similarly, in Pilarinos v Australian Securities and Investments Commission (2006) 24 ACLC 775; [2006] VSC 301 at [103], Gillard J observed:

… in my view, it follows, once the Court comes to the view that the first and third plaintiffs are persons aggrieved by the deregistration, in that there is a valuable right which each wishes to establish in a court or tribunal, that in the circumstances it would be just that the company’s registration be reinstated.

369. The plaintiffs are “aggrieved” in the relevant sense where Gardiner Petroleum may have valuable rights against the bank which it cannot pursue given its deregistration.

370. The second matter to consider is whether it is “just” that the company’s registration be reinstated. His Honour Austin J succinctly explained this requirement in Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 34 ACSR 232; [2000] NSWSC 316 at [27]:

The wording of the section is very broad, and the cases confirm that it gives the court a wide discretion. The court takes into account the circumstances in which the company came to be dissolved, whether, if the order were made, good use could be made of it, and whether any person is likely to be prejudiced by the reinstatement: Re Kilkenny Engineering Pty Ltd (in liq) (1976) 1 ACLR 285; Drysdale v Australian Securities Commission (1992) 10 ACLC 1427; Re Steelmaster Pty Ltd (in liq) (1992) 6 ACSR 494.

371. It is not “just” to resurrect a company which will then be devoid of proper governance and it is for this reason that applicants seeking reinstatement of companies often seek the appointment of a liquidator in conjunction with reinstatement: see, for example, CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd (2006) 201 FLR 296 at [9] per Barrett J. The plaintiffs did not address what should be done to govern the company in the event of reinstatement. No liquidator was proffered.

372. The bigger problem is that I have found that any claim by Gardiner Petroleum against the bank is time barred and without merit. Of course, the Court can make ancillary orders on reinstatement of a company to validate anything done during the period of deregistration or “any other order it considers appropriate”: section 601AH(3), Corporations Act 2001. As I noted in In the matter of Austral Bronze Pty Limited (No 2) [2020] NSWSC 1633, ancillary orders may be made to suspend the limitation period in respect of claims against the company but perhaps not to avoid limitation periods which may apply to a claim to be brought by the company: at [77]-[78].

373. For example, in Chalker v Clark [2008] VSCA 92, the applicant sought to reinstate a company so that he could endeavour to persuade a liquidator appointed to the company to assign the company’s chose in action to him to pursue. The proposed proceedings which the applicant wished to bring on behalf of the company were clearly statute barred. The Court considered that it would not be “just” to reinstate a company as a device to escape a limitation period with the benefit of an ancillary order: at [37] per Osborn AJA, at [45] per Maxwell P. The Court was also mindful as to whether the ancillary orders sought are futile or sought in aid of an unmeritorious claim.

374. As I have concluded that the causes of action sought to be pursued by the present plaintiffs are time barred and without merit, I do not consider it “just” to reinstate Gardiner Petroleum in the event that the plaintiffs in fact moved on those prayers for relief. Nor is it necessary to determine whether Newport Resources is a proper plaintiff where no claim has been established in any event. The bank’s submissions, however, had considerable force.

CROSS CLAIM

375. Mr and Mrs Gardiner admitted that they were liable to the bank in relation to the outstanding facility advanced to them personally and that the amount was secured by the Eleebana mortgage. This amount related to $700,000 advanced by the bank in 2008 to refinance the Rothbury property: see [50] and [58]. The monies owing under the Eleebana mortgage may be established by a Dobbs certificate: clause 1. At the hearing, the bank tendered a certificate evidencing that $1,336,430.40 was secured by the mortgage.

376. The plaintiffs have not established a basis to resist enforcement of the Guarantee. Under the Guarantee, Mr and Mrs Gardiner undertook to pay “all the amounts which the customer [Gardiner Petroleum] owes NAB” up to the limit of $4,248,002, together with any amounts falling outside that limit which represent interest and fees accrued in relation to amounts within that limit and owing by the customer to the bank. A Dobbs certificate established that the monies owed by Mr and Mrs Gardiner to the bank pursuant to the Guarantee of the debt of Gardiner Petroleum was $11,439,192.69.

377. Ms Stacker explained that, since the last demand issued by the bank to Mr and Mrs Gardiner on 6 November 2015, interest continued to accrue on the amount outstanding under the Overdraft Facility in accordance with clause 6 at 9.02% per annum. Interest continued to accrue on the amounts owing under the First Market Rate Facility in accordance with clause 6 at 3.64% per annum. Interest continued to accrue on the amount owing under the Second Market Rate Facility in accordance with clause 6 at 5.56% per annum. In short, in the seven years which had passed since the last demand until the conclusion of the hearing, the amount owing had doubled.

378. The Second Market Rate Facility listed the Guarantee in its list of “Securities” and stated that the Guarantee was supported by the Eleebana mortgage. The Eleebana mortgage is an ‘all moneys’ mortgage. The ‘money hereby secured’ is defined and includes “moneys owing or remaining unpaid to the Bank in any manner or on any account whatsoever by the Mortgagor whether alone or jointly with any other person and whether as principal or surety”. This includes monies owing under the Guarantee. The monies owing have been established by the Dobbs certificate, as permitted under cl.22.1 of the Guarantee.

379. In the result, the bank is entitled to the relief claimed by the cross-claim.

ORDERS

380. The plaintiffs also sought equitable relief, to which the bank objected in the absence of any clear pleading; it was not necessary to resolve that debate where no entitlement to equitable relief was apparent. For these reasons, I make the following orders:

1. Dismiss the Further Amended Summons.

2. Judgment for the defendant against the first and second plaintiffs in the amount of $12,775,622 as at 18 October 2022.

3. Grant liberty to the defendant within seven days to provide an updated Dobbs certificate as at the date of this judgment, so that the judgment debt in Order 2 may be updated accordingly.

4. Order that the first and second plaintiffs give the defendant possession of all the land comprised in Certificate of Title Folio Identifier 690/736691 and known as 8 Wollundry Close, Eleebana in the State of New South Wales (Eleebana property).

5. Grant leave to issue a writ of possession in respect of the Eleebana property.

6. Order the plaintiffs to pay the defendant’s costs of the proceedings.

7. In the event that any party seeks a variation to Order 6:

1. Direct the party seeking the variation to provide any affidavits and submissions (limited to three pages) in support of the variation within 14 days.

2. Direct any other party to provide any affidavits and submissions (limited to three pages) in response within a further 14 days.

3. Such application to be determined on the papers.

8. Grant liberty to the parties within 14 days to advise any errors or omissions.

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Amendments

20 February 2023 - Minor typographical amendments.

Decision last updated: 20 February 2023