International Skin Care Suppliers Pty Ltd v Commonwealth Bank of Australia; Commonwealth Bank of Australia v Scott William Michaelson; Commonwealth Bank of Australia v Stephen John Ruskin

[2013] NSWSC 1768

Supreme Court

New South Wales

Medium Neutral Citation:	International Skin Care Suppliers Pty Ltd v Commonwealth Bank of Australia; Commonwealth Bank of Australia v Scott William Michaelson; Commonwealth Bank of Australia v Stephen John Ruskin; Commonwealth Bank of Australia v Scott William Michaelson [2013] NSWSC 1768
Hearing dates:	26, 27, 28, 29, 30 August, 2, 3, 4, 9, 10, 11, 12, 16, 17, 18, 30 September and 1, 2, 3, 8, 9, 10 October 2013
Decision date:	29 November 2013
Jurisdiction:	Equity Division - Commercial List
Before:	Hammerschlag J
Decision:	Plaintiffs' claims dismissed. Bank entitled to judgment against each of the cross-defendants. Bank entitled to judgment against each of the female guarantors. Bank entitled to orders for possession of Seaforth and Allambie Heights.
Catchwords:	FINANCIAL SERVICES - ss 12CA and 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) - whether bank misleadingly or deceptively represented that it would not regard appointment of voluntary administrators as an Event of Default under a loan facility - whether bank unconscionably procured and relies on releases and bars in a Deed of Forbearance - whether loss suffered by appointment of receivers to properties which were security under the facility and guarantees - whether quantum is established - CONTRACTS - s 7(1) of the Contracts Review Act 1980 (NSW) - whether personal guarantees were unjust in the circumstances relating to them at the time they were made - whether it is unconscionable under the general law to enforce them
Legislation Cited:	Australian Securities and Investments Commission Act 2001 Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth)
Category:	Principal judgment
Parties:	Proceedings 2010/326659 International Skin Care Suppliers Pty Ltd ACN 134 156 004 - First Plaintiff Mascot Property Group Pty Ltd - Second Plaintiff Eminence Pty Ltd - Third Plaintiff Sunlovers Partners Pty Ltd - Fourth Plaintiff Tanning Systems Australia Pty Ltd - Fifth Plaintiff Barun Concepts Pty Ltd as Trustee of The Macintosh Unit Trust - Sixth Plaintiff CPL Australasia Pty Limited (subject to Deed of Company Arrangement) - Seventh Plaintiff Commonwealth Bank of Australia - Defendant Proceedings 2011/139468 Commonwealth Bank of Australia - Plaintiff/ Cross-Defendant Scott William Michaelson - First Defendant/First Cross-Claimant Suzanna Michaelson - Second Defendant/Second Cross-Claimant Proceedings 2011/260157 Commonwealth Bank of Australia - Plaintiff/ Cross-Defendant Stephen John Ruskin - First Defendant/ First Cross-Claimant Simone Nanette Ruskin - Second Defendant/Second Cross-Claimant Proceedings 2011/260163 Commonwealth Bank of Australia - Plaintiff/Cross- Defendant Scott William Michaelson - First Defendant/ First Cross-Claimant Suzanna Michaelson - Second Defendant/Second Cross-Claimant Kimberley Gay Whyte - Third Defendant/ Third Cross-Claimant Gay Elizabeth Daly - Fourth Defendant/ Fourth Cross-Claimant
Representation:	Counsel: F.M. Douglas QC [days 1 and 2] with D.E. Baran with D. Robertson [days 1 to 19] - Plaintiffs/Cross-Defendants A. Leopold SC with J.E. Hynes and T.L. Wong [days1, 20 and 21] - Defendants/Cross-Claimants F.F.F. Salama - Related Proceedings Guarantors Solicitors: McCabes - Plaintiffs/Cross-Defendants Henry Davis York - Defendants/Cross-Claimants Birchgrove Legal - Related Proceedings Guarantors
File Number(s):	2010/326659; 2011/139468; 2011/260157; 2011/260163

INDEX

INTRODUCTION...........................................................................	[1]
BACKGROUND............................................................................	[17]
The early days..............................................................................	[17]
Introduction of BankWest and the first facilities....................................	[32]
The salient terms of the facility.........................................................	[36]
Execution of the guarantees............................................................	[39]
The conception of the restructure.....................................................	[78]
The voluntary administration of CPL..................................................	[162]
Events immediately after the voluntary administration...........................	[189]
The DOCA and the Deed of Forbearance...........................................	[235]
The non-refinancing.......................................................................	[277]
The Equiset offers.........................................................................	[289]
The receivership and subsequent events............................................	[306]
THE PROCEEDINGS.....................................................................	[323]
THE WITNESSES.........................................................................	[331]
Michaelson and Ruskin...................................................................	[332]
Kalogerou....................................................................................	[336]
Wise...........................................................................................	[337]
Smith..........................................................................................	[341]
Hornstra......................................................................................	[342]
ISC'S CLAIM IN THE PRINCIPAL PROCEEDINGS	[343]
The relevant statutory enactments....................................................	[343]
The issues...................................................................................	[349]
The misleading and deceptive conduct...............................................	[362]
The Deed of Forbearance...............................................................	[398]
Loss and damage..........................................................................	[437]
Loss...........................................................................................		[441]
Quantum.....................................................................................		[484]
THE GUARANTORS......................................................................		[512]
The Contracts Review Act...............................................................		[529]
The Banking Code of Conduct.........................................................		[538]
Consideration...............................................................................		[547]
THE ABANDONED CASES.............................................................		[577]
The clawback arrangement claim......................................................		[578]
The Singleton-Prudential misleading conduct claim..............................		[606]
THE NON-SET-OFF DEDUCTION POINT..........................................		[611]
CONCLUSION..............................................................................		[614]

JUDGMENT

INTRODUCTION

1. HIS HONOUR: Before the Court are four sets of proceedings being heard together.

1. In the principal proceedings, seven corporate plaintiffs aver that the Bank of Western Australia Ltd ("BankWest" or "BWA") engaged in misleading or deceptive, or unconscionable, conduct during 2008 and 2009 in relation to financial services in contravention of ss 12CA and 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) ("the Act").

1. The plaintiffs are:

• International Skin Care Suppliers Pty Ltd (referred to variously as "ISC", "Indio Skin" or "Indio")
• Mascot Property Group Pty Ltd ("Mascot")
• Eminence Pty Ltd ("Eminence")
• Sunlovers Partners Pty Ltd ("Sunlovers")
• Tanning Systems Australia Pty Ltd ("Tanning")
• Barun Concepts Pty Ltd
• CPL Australasia Pty Ltd ("CPL")

1. All except Barun Concepts Pty Ltd are in receivership. Directors and shareholders bring these proceedings on behalf of those in receivership with leave.

1. Only ISC claims that it suffered loss by the conduct complained of.

1. With effect from 19 December 2008, the Commonwealth Bank of Australia acquired BankWest from the Halifax Bank of Scotland ("HBOS"). BankWest's business, and all its rights and obligations, were transferred to the Commonwealth Bank on 1 October 2012 under a certificate of transfer pursuant to the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth). Unless it is necessary to distinguish between them, references to the Bank include references to the Commonwealth Bank and BankWest.

1. The Bank cross-claims against each of the plaintiffs (except Barun Concepts Pty Ltd) in debt or under guarantees. Its claims are not disputed. It is entitled to judgment against each of the plaintiffs in the amount of $7,672,545.94 plus interest from 27 November 2012.

1. In the three other proceedings, the Bank sues personal mortgagors and guarantors. It seeks orders for possession of two properties mortgaged to it as security.

1. ISC's claim fails at every hurdle.

1. First, no conduct on the part of the Bank has been shown to be misleading or deceptive or unconscionable.

1. Secondly, by solemn Deed of Forbearance made by ISC and the Bank on 14 May 2009 ISC further released and discharged the Bank from the claim now made.

1. Thirdly, ISC has failed to establish that even if the conduct complained of occurred, it suffered any damage by it.

1. Fourthly, if it suffered any damage it has failed sufficiently to establish the quantum of it.

1. Various demonstrably untenable claims were brought by the plaintiffs and abandoned during the course of the hearing, some in final submissions.

1. Unsupportable and indeed irresponsible allegations of dishonesty and misconduct on the part of the Bank and its officers were made and promoted, but then abandoned.

1. The Bank's claim against the mortgagors and guarantors succeeds and it is entitled to orders for possession as prayed.

BACKGROUND

The early days

1. Scott William Michaelson ("Michaelson") worked in the film and television industry for some years as an actor and manager. In 1995 he became involved in the skin care industry.

1. Stephen John Ruskin ("Ruskin") is an accountant with experience in buying, selling and developing commercial properties.

1. The two went into business together. They incorporated a number of companies. Initially they focused on skin tanning, including renting solarium equipment to fitness clubs and servicing and maintaining it.

1. Michaelson took responsibility for marketing, brand development, customer relations and developing the future vision of the group. Ruskin was head of accounting.

1. In 2004 they incorporated CPL to sell skin care products and equipment. Ruskin became more of a general manager. Michaelson's mother Gay Daly ("Gay") was in charge of administration and Michaelson's sister, Kimberley Whyte ("Kimberley"), undertook general administrative duties. Both Gay and Kimberley hold shares in CPL.

1. In 2004 Mascot and Eminence acquired a rundown warehouse at 410-412 Botany Road, Alexandria ("Botany Road"), which they refurbished. It is a large two storey building with significant street exposure. It became their headquarters.

1. In April 2007 Sunlovers and Eminence (as trustees for a unit trust), bought a property at 12-14 MacIntosh Street, Mascot ("MacIntosh Street"). The purchase was financed with a loan from Suncorp Bank.

1. Michaelson and Sunlovers acquired a further property at 580 City Road, South Melbourne, Victoria ("City Road").

1. CPL and other entities controlled by Michaelson and Ruskin from time to time were commonly described as "the CPL Group".

1. From January 2008 CPL began manufacturing skin care products branded "Indio", connoting "industry only". Indio was not available to retail customers through department stores or pharmacies, but only through beauty salons. By all accounts, Michaelson devoted significant effort to developing and selling high quality skincare products.

1. A primary source of CPL's products was an Israeli company, Holy Land Cosmetics Ltd ("Holy Land"), represented by Zvi Dekel ("Dekel"). At first, Holy Land supplied bulk product to CPL which CPL packaged.

1. Dekel apparently came to Australia in about April 2008, at which time he informed Michaelson that Holy Land's prices were to increase. Michaelson says that in June 2008 Dekel told him in a telephone conversation that Holy Land could no longer supply bulk product but that Dekel would re-examine things after they had signed an exclusive supply agreement. Michaelson says that through May and June 2008 Dekel would not take phone calls or respond to basic product requirements. He says that a formal contract under which CPL agreed that Holy Land would be its exclusive supplier was signed in about June 2008. An unsigned instrument entitled "Private Label Agreement" is in evidence. It has a minimum period of five years.

1. As at early 2008 the CPL Group had loan facilities with the National Australia Bank ("NAB").

1. Michaelson and his wife, Suzanna Michaelson ("Suzanna") (together "the Michaelsons"), had a home loan with NAB secured by a mortgage over their property at 21 Seaforth Road, Seaforth ("Seaforth"), which is owned by them as tenants-in-common as to three-quarters and one-quarter respectively.

1. Simone Ruskin ("Simone"), Ruskin's wife (together "the Ruskins"), had a home loan with NAB secured by a mortgage over her property at 6 Derna Crescent, Allambie Heights ("Allambie Heights").

Introduction of BankWest and the first facilities

1. Michaelson and Ruskin were apparently dissatisfied with NAB and wished to refinance. Kelvin (Kel) Smith ("Smith"), a finance broker whose services they had previously used, introduced them to Deborah Lea Wise ("Wise"), a business development manager at BankWest. Wise reported to Martin (Marty) Lee ("Lee"), Senior Manager Credit Sanctioning.

1. As at early May 2008, the total borrowings of the CPL Group and associated individuals was $12.153 M. In a Credit Risk Submission dated 5 May 2008, Wise recommended that the Bank provide accommodation to the CPL Group and associated individuals. Wise became the day-to-day manager of the CPL Group's accounts and over time undoubtedly acquired knowledge of its affairs.

1. As part of the wider refinancing, by letter dated 14 May 2008, the Bank offered a facility to CPL ("the facility") of $2.8 M comprising $2 M to assist with the refinance of the NAB facilities and $800,000 for working capital and general purposes. The Bank's offer was accepted by no later than 19 May 2008. The facility was governed by the Bank's General Terms for Business Lending version December 2007.

1. The wider refinancing included refinancing of a loan of approximately $2.6M from NAB to Mascot and Eminence in connection with Botany Road, refinancing of a loan of approximately $2.6 M from Suncorp Bank to Sunlovers and Eminence in connection with MacIntosh Street, a loan of $350,000 to Tanning Systems, refinancing of the Michaelsons' home loan and mortgage over Seaforth for approximately $2.24 M and refinancing Simone's home loan and mortgage in respect of Allambie Heights for approximately $400,000.

The salient terms of the facility

1. Clause 16.1 of the facility provides, relevantly, that:

An "Event of Default" occurs, whether or not it is in your power to prevent it, if:

(a) you do not pay on time any amount payable by you under any Facility Document in the manner required under it;

(o) you are or become Insolvent or steps are taken to make you Insolvent;

(p) an event described in this clause occurs in respect of any Guarantor, any Related Entity of you or any Related Entity of a Guarantor.

1. Clause 16.2(b)(i) of the facility provides, relevantly, that:

If an Event of Default has occurred we may at any time: [...] give you notice declaring the Total Outstanding Amount is [...] payable on demand.

1. Clause 22 of the facility provides, relevantly, that:

Insolvent, in respect of a person, means the happening of any of these events:

(b) the person has had a controller (as defined in the Corporations Act) appointed over any of its property, are in liquidation, [...] under administration or wound up;

(d) an application or order has been made (and, in the case of an application, it is not stayed, withdrawn or dismissed within 30 days), resolution passed, proposal put forward, or any other action taken, in each case in connection with the person, which is preparatory to or could result in any of the things referred to above;

(e) the person is taken (under section 459F of the Corporations Act) to have failed to comply with a statutory demand.

Outstanding Amount means, at any time, in respect of a Facility, the total of all amounts which you owe us or which you may owe us under or in connection with that Facility...

Execution of the guarantees

1. Mr Steven Pirintji ("Pirintji") is a solicitor who practices under the name Populaw Legal Services. In about March 2008 Michaelson had approached Pirintji, who was selected as the new lawyer for entities associated with Michaelson. The first substantial matter for which he was retained was the proposed refinance. He understood that Suzanna, Simone, Gay and Kimberley (to whom I shall refer collectively as "the female guarantors") would be guarantors for the group.

1. Pirintji was asked to act for the borrowers as well as all guarantors. He formed the view that there was a potential conflict of interest between the borrowers and the guarantors and that he could only act for both groups with the informed consent of both. He initially told Michaelson or Ruskin that the female guarantors would need to get independent legal advice from another solicitor.

1. From 22 May 2008 Pirintji was in contact with Mr Murray-Nobbs of Kemp Strang, solicitors acting for the Bank on the refinancing.

1. In an affidavit sworn 19 October 2012, Wise gave evidence that during the evening of 14 May 2008 she prepared, with the assistance of her assistant, guarantor packs, staying at work late to get the material prepared. She says she prepared letters to be sent, amongst others, to the Michaelsons, the Ruskins, Gay and Kimberley, CPL, Mascot, Eminence, Sunlovers and Tanning. With respect to the personal guarantors, she says she made copies of documents to be included with the letters, put them in A4 envelopes, and wrote the addressees' names on them. She says she put the envelopes for Suzanna and Simone in the postal out-tray for delivery the following day. She says that she personally delivered the packages for Gay, Kimberley, Michaelson and Ruskin at Botany Road on 15 May 2008. The guarantees, which she identified as being in the pack, describe the Guaranteed agreement as "[a]greement between the debtor and us constituted by acceptance of an offer from us dated 14 May 2008 and Variation Letter dated 29 May 2008". Self-evidently, the variation letter was not in existence at 14 May 2008. Wise readily accepted this and revised her evidence, maintaining that, while she was mistaken about the date, the events she described took place, but rather on the evening of 29 May 2008 and during the day on 30 May 2008.

1. The facility was varied on 29 May 2008 by including a condition that by 31 December 2008 certain proceeds to be received from the sale of City Road were to be applied to permanent debt reduction.

1. In her affidavit sworn 13 July 2012, Suzanna does not deal with the question of whether she received a guarantor pack prior to 4 June 2008. In her affidavit sworn 13 July 2012, Simone says to the best of her recollection, she had not previously been provided with disclosure documents but may have been provided with them at the offices of Kemp Strang on 4 June 2008. She cannot recall. In her affidavit sworn 13 July 2012, Gay does not deal with the question of whether she received a guarantor pack prior to 4 June 2008. In her affidavit sworn 13 July 2012, Kimberley does not deal with the question of whether she received a guarantor pack prior to 4 June 2008. Under cross-examination, Kimberley agreed that she received a guarantor pack before signing, but not before 4 June 2008.

1. On 4 June 2008 the following securities, all cross-collateralised, were executed in favour of the Bank:

(a)   Mascot and Eminence executed guarantees and a mortgage over Botany Road;

(b)   Sunlovers and Eminence executed guarantees and a mortgage over MacIntosh Street;

(c)   Michaelson executed guarantees for the obligations of each of CPL (limited to $2.8 M plus interest, fees, costs and other expenses), Mascot and Eminence (limited to $2.675 M plus interest, fees, costs and other expenses), Sunlovers and Eminence (limited to $2.64 M plus interest, fees, costs and other expenses) and Tanning (limited to $350,000 plus interest, fees, costs and other expenses);

(d)   Suzanna executed guarantees for the obligations of each of CPL (limited to $2.56 M plus interest, fees, costs and other expenses), Mascot and Eminence (limited to $2.56 M plus interest, fees, costs and other expenses), Sunlovers and Eminence (limited to $2.56 M plus interest, fees, costs and other expenses) and Tanning (limited to $350,000 plus interest, fees, costs and other expenses);

(e)   Ruskin executed guarantees for the obligations of each of CPL (limited to $2.8 M plus interest, fees, costs and other expenses), Mascot and Eminence (limited to $2.675 M plus interest, fees, costs and other expenses), Sunlovers and Eminence (limited to $2.64 M plus interest, fees, costs and other expenses) and Tanning (limited to $350,000 plus interest, fees, costs and other expenses);

(f)   Simone executed guarantees for the obligations of each of CPL (limited to $1.12 M plus interest, fees, costs and other expenses), Mascot and Eminence (limited to $1.12 M plus interest, fees, costs and other expenses), Sunlovers and Eminence (limited to $1.12 M plus interest, fees, costs and other expenses) and Tanning (limited to $350,000 plus interest, fees, costs and other expenses); and

(g)   Gay executed guarantees for the obligations of each of CPL (limited to $2.8 M plus interest, fees, costs and other expenses), Mascot and Eminence (limited to $2.675 M plus interest, fees, costs and other expenses), Sunlovers and Eminence (limited to $2.64 M plus interest, fees, costs and other expenses) and Tanning (limited to $350,000 plus interest, fees, costs and other expenses; and

(h)   Kimberley executed guarantees for the obligations of each of CPL (limited to $2.8 M plus interest, fees, costs and other expenses), Mascot and Eminence (limited to $2.675 M plus interest, fees, costs and other expenses), Sunlovers and Eminence (limited to $2.64 M plus interest, fees, costs and other expenses) and Tanning (limited to $350,000 plus interest, fees, costs and other expenses).

1. Pirintji gave evidence that on 4 June 2008 he attended a meeting at Kemp Strang's offices, having been earlier informed that the transaction documents would be available for review by him.

1. He says he was shown into a meeting room where present were Michaelson, Ruskin and the female guarantors. One of the female guarantors had a toddler in a pusher. On the table were various piles of documents, each approximately the thickness of a couple of telephone books. On the top of each pile was a covering letter from Kemp Strang addressed to the individual guarantor referring to the documents to be executed. He cannot recall the specific details of his initial conversation, but he says that he asked each female guarantor to tell him her name and her relationship to the CPL Group.

1. Pirintji had with him a copy of Rule 45 of the Solicitors' Rules which concerns solicitors advising on loan or security documents. The rule says that a solicitor should advise the proposed signatory of those matters that the solicitor, in exercising the professional skill and judgment called for in the circumstances of the particular case, considers appropriate, but goes on to describe a number of matters of which a solicitor, where necessary, should advise. In evidence is a copy of the rule that Pirintji took with him, on which appears ticks made by him adjacent to individual matters stated in the rule as appropriate for advice.

1. The rule also contains as Schedule 5 a form of consent by guarantors to legal advice from a solicitor after having been informed that the interests of the parties to the transaction may conflict and the solicitor may only act for more than one such party with the informed consent in writing of those parties to the solicitor acting for them.

1. Pirintji says that he said words to the effect:

I can't advise any of you individually. I am acting for the companies. You need to take these documents away and see another solicitor and get advice before you sign them as there is a potential conflict of interest.

1. One of the female guarantors, to the best of his recollection Gay, said words to the effect:

We can't it's urgent. We are all in the same boat. We do not want to go and seek legal advice from someone else.

1. He says the other female guarantors nodded and he said words to the effect:

If you are not going to see another solicitor, I will need you to sign a form which acknowledges that you have decided to waive your right to seek independent legal advice.

1. Each of the female guarantors either said words to the effect of "ok" or nodded.

1. During the course of the meeting, Michaelson and Ruskin were walking in and out of the meeting often speaking on their mobile phones.

1. Following the initial discussion, Pirintji sat down with Michaelson and Ruskin and ran through the documents which he understood to be relevant to them, namely, loan documents, security documents, the corporate guarantees and the guarantees given by Michaelson and Ruskin themselves. Thereafter, they signed those documents in his presence.

1. He says that he then dealt with each of the female guarantors in turn, although he does not now recall in which precise order. Each in turn provided him with identification. Following identification, he sat with that female guarantor for approximately 15 to 20 minutes.

1. He says that his invariable practice when advising guarantors, following identification, is to run through and explain all aspects of each individual document that he considers to be salient to their interests, particularly the risks for them that he perceives.

1. Although he cannot recall the specific details of his conversation with each female guarantor, he says he ran through with each female guarantor in turn a form of document giving consent to him giving them advice. In his presence, each signed the form.

1. Once each female guarantor had signed the form, in accordance with his invariable practice, he went through the salient features of the loan documents and guarantees with each female guarantor prior to each signing. At the conclusion of that process, each female guarantor signed the guarantees and related documents, including a declaration of having received independent legal advice and an acknowledgement of having received disclosure documents prior to signing.

1. Simone holds degrees in education and teaching. She worked as a teacher for a short time and then in a succession of marketing and public relation roles and presently works as a marketing assistant for a coffee company. She says she had no involvement in or understanding of the commercial operations of the CPL Group. She says that Ruskin told her she needed to guarantee the new facilities and give the Bank a mortgage over their house. She says that she asked him whether the guarantee would be capped at the value of the house and that he answered that that was all they had to offer and that is all the Bank could claim back.

1. She gave evidence of attending the meetings on 4 June 2008 and of Pirintji explaining to her and the others the importance and seriousness of becoming a guarantor of the obligations of the CPL Group. She says she assumed that Pirintji was acting on behalf of all guarantors. She understood that the Bank would not lend the money to the CPL Group if she did not guarantee its obligations.

1. Under cross-examination she agreed that Pirintji spent around 15 to 20 minutes with her. She understood that it was an important and serious matter that she was undertaking in becoming a guarantor of the obligations of the CPL Group.

1. Suzanna gave affidavit evidence that on 4 June 2008 Michaelson told her she needed to go into the city to sign some documents for the refinancing. She left Seaforth and went to an office in the city to sign the documents. She had her son Ollie with her at the time. She remembers having to wait for a while before she was taken into a large boardroom. Pirintji was sitting at one end of the table. There were piles and piles of documents on the table. Gay and Kimberley may have been there and Simone arrived later. They were not all there at the same time. Michaelson was not there. She remembers having to wait for a while before she was given a number of documents to sign.

1. She says this was the first time that she had seen the documents. She understood that she would have to sign contracts as part of the refinancing and knew that the documents related to the refinancing but she could not read the documents properly as there were so many of them. She signed the documents and her signature was witnessed by Pirintji. She believes that she left and came back again at some point for a reason which she cannot now recall. She cannot recall any specific conversations that she had whilst in the boardroom or when she was signing the documents. She knew at the time that as part of the documents she was signing she was signing guarantees for the CPL Group. Whilst she now understands what a guarantee is, it was not so clear to her at the time.

1. She says that at the time, she did not fully understand the limit of the guarantees and did not know the value of the loans, businesses or properties which formed part of the refinance which she was guaranteeing. She understood that she was required to sign the documents because she was Michaelson's wife, and that their home was being used as security for the refinance. She signed the documents to do with the refinance because she wanted to support her husband and she believed in the CPL Group. She did not believe it would fail.

1. Under cross-examination she gave evidence that she formed the belief that there was not a significant risk associated with the guarantees having regard to what she knew about the businesses and the brands associated with them, Indio in particular. Under cross-examination she agreed that she was prepared to put at risk everything she had.

1. Although she did not say so in her affidavit, under cross-examination she gave evidence that she was of the understanding that she was guaranteeing her home as security and not the full exposure of the loan because her home was all she had to offer apart from a business (in which she was the sole trader) which was worth nothing.

1. She did not recall Pirintji giving specific numbers as to what the exposure was and does not know what the full amount of the exposure was.

1. She denied that at any point Pirintji spoke to her one on one. It was put to her that Pirintji spoke to her on a range of matters over 15 to 20 minutes relating to her obligations and her risks under guarantees. Her response was that she did not recall.

1. Gay gave affidavit evidence of working in the business of the CPL Group as an office administrator responsible for paying bills, ensuring orders were dispatched on time, paying accounts and entering data in the MYOB system.

1. She gave affidavit evidence of undergoing medical treatment after mid 2009 and that she has since suffered some memory loss. She says she only recalls having to sign documents at Kemp Strang once, that she thought she was signing something for the business and understood that it had to be done fairly quickly but cannot recall the reason for any urgency.

1. She had no recollection of spending time individually with Pirintji. She cannot remember meetings on 4 June 2008.

1. Kimberley gave affidavit evidence of her employment history. Her roles have generally been of an administrative nature and she has not been involved in management or in substantial or complex financial transactions. She became involved in the Michaelson family business in about 1997, then known as Eminence, subsequently known as the CPL Group. She was told about the refinancing in April or May 2008 and that she needed to sign some documents in connection with it. She assumed that BankWest would provide more favourable commercial terms than the prior bank.

1. As to the 4 June 2008 meeting, her affidavit evidence was that Pirintji was not acting in her interests and that his role was to obtain her signature for the refinancing of the CPL Group. She says that she thought her signature was a formality to give effect to the loan facilities for the benefit of the family business. She says that at the time she signed the guarantees no one took any steps whatsoever to explain how the guarantees worked and what the nature and effect of her obligations under them were. She says she agreed to sign the guarantees because it was for the benefit of the CPL Group which was the family business and it was needed to move forward. She totally believed in the products and the brand and did not actually believe there was a risk being a guarantor because she did not believe that the family business had any chance of failing. She says that whilst at the office of Kemp Strang on 4 June 2008, she was not offered the opportunity to obtain legal advice and did not observe her mother being afforded such an opportunity. She says that neither her mother nor her were asked by anyone whether they had received legal advice or wished to receive any and that when she signed the declarations she had not received any legal advice regarding the guarantees or the commercial terms of the facilities she had guaranteed.

1. The facility was varied by letter dated 11 June 2008 signed on behalf of the CPL Group and by all guarantors on 12 June 2008 in a manner which is not material.

1. On 13 June 2008 Simone executed a mortgage in favour of the Bank over Allambie Heights securing her obligations as direct borrower on the refinanced home loan and under the guarantees she had given.

1. On 13 June 2008 the Michaelsons executed a mortgage in favour of the Bank over their interests in Seaforth, securing their direct obligations to the Bank under their home loan and their obligations under the guarantees given by them.

The conception of the restructure

1. The CPL Group operated at least three accounts with the Bank.

1. Almost immediately from the inception of the relationship between the Bank and the CPL Group, the CPL Group's accounts were out of order. This became a common state of affairs thereafter. On various occasions Wise arranged increases in facility limits and additional facilities ex post facto to assuage the irregularities. From time to time Wise exhorted Michaelson and Ruskin to take steps to regularise the accounts.

1. By the middle of 2008 CPL was having cash flow difficulties. A significant contributing factor was said to be interruptions to supply and increases in prices attributable in part to Holy Land no longer supplying in bulk. Michaelson says that Dekel of Holy Land wanted a contract in place to protect Holy Land's exclusive position.

1. Michaelson gave evidence that Holy Land wanted an exclusive supply arrangement, and to ensure supply, in June 2008, he signed a formal five year exclusive arrangement with Holy Land. But he says that he did so without any intention of continuing with the sale of its products and when it was intended to obtain supply elsewhere, albeit indirectly, through another entity. Somewhat remarkably, the extensive Court Book contains no contemporaneous communication between CPL and Holy Land on any subject, including negotiations, supply and pricing.

1. Michaelson and Ruskin also say they feared that CPL might be sued by users of tanning equipment it sold, asserting that use of it caused cancer.

1. On 30 June 2008 Michaelson resigned as a director of CPL, leaving Ruskin as the sole director.

1. On 5 July 2008, at the invitation of Wise, Michaelson and Ruskin attended an Australian Rules football game at ANZ Stadium, Homebush. Michaelson and Ruskin say that Wise raised concerns about their ability to hit their sales budgets and meet their loan commitments. They say that Michaelson told Wise that they were having serious problems with Holy Land and that due to the onerous sole supplier agreement with Holy Land they needed to consider a new structure with multiple suppliers. They anticipated buying new bulk products through new suppliers which would allow increased cash flow with them becoming more profitable.

1. Wise denies, amongst others, that Michaelson informed her at this time of difficulties the CPL Group was having with Holy Land, of any other matters concerning Holy Land or CPL's contracts with it, of a new way of sourcing suppliers which would supply in bulk, or of any need for CPL Group to consider a new structure to ensure that CPL was able to meet its loan repayments.

1. In July 2008 CPL requested a temporary overdraft of $180,000 to be repaid out of the released deposit of City Road, which money had earlier been designated for permanent debt reduction. The Bank approved the temporary overdraft on 14 July 2008.

1. In early August 2008 the Michaelsons advised the Bank that they wanted to sell Seaforth and intended to spend money on improvements to obtain a premium price. On 7 August 2008 the Bank approved an additional $235,000 temporary home loan facility for the Michaelsons to fund renovations.

1. In August 2008 Michaelson and Ruskin were introduced by Smith to an accountant, Mr Tony Kalogerou ("Kalogerou"). They retained Kalogerou as a business advisor.

1. On about 9 August 2008 Michaelson, together with Wise and Kalogerou, attended Smith's wedding at the Grappa restaurant in Leichhardt. Michaelson says that they later went on to the Piano Room in King's Cross, where he says a conversation took place which included him telling Wise about the progress of their transition to having new supply lines, that on expert advice they would need to set up a new company to trade separately from CPL because of its exclusive relationship with Holy Land and that they were in a holding pattern to ensure that they looked after their current loyal clients. He says that Wise said she was happy to help them because she believed in them and their products, and would give them the funding and the support that they needed, and that they needed to have other options apart from Holy Land.

1. Wise does not recall being seated near Michaelson or having any specific conversations with him at the restaurant. She does not recall whether she went to the Piano Room. She says it is possible that Michaelson spoke to her during the evening but does not recall this occurring. She denies, amongst others, that Michaelson discussed with her setting up a new company to trade separately from CPL because of its exclusive arrangement with Holy Land. She denies having said that she was happy to help because she believed in him and his products, that she would give them the funding and the support that they needed, or that they needed to have other options apart from Holy Land.

1. Michaelson says he went to Israel in August to source other supplies and to follow up an appointment to see another manufacturer, Anna Lotan.

1. According to Ruskin, he and Michaelson met with Kalogerou on about 4 September 2008, when they told Kalogerou that their difficulties with Holy Land's refusal to supply bulk product and increased prices were causing cash flow problems. Ruskin says that they asked Kalogerou what solutions he could provide. He says that Kalogerou suggested that they could substitute CPL for another company that would trade in its place and then place CPL into voluntary administration ("VA") and that Kalogerou said that he had a wealth of experience in the area. Ruskin says that Kalogerou said he could provide them with restructure options to consider, that he was well regarded within the Bank, had a great relationship with Wise and could manage "the VA process".

1. In early to mid September 2008 there was correspondence between Wise and Michaelson and Ruskin concerning the problematic cash flow position of the CPL Group and in relation to its accounts being irregular.

1. From about September 2008, on the advice of Kalogerou, Ruskin and Michaelson embarked on what might euphemistically be called a restructure. In its ultimate emanation this restructure entailed setting up a new company to replace CPL as the trading entity, putting CPL into voluntary administration (which ultimately happened on 3 February 2009) and transferring CPL's business (except for its contract with Holy Land) to the new entity by way of a deed of company arrangement ("DOCA").

1. Kalogerou introduced Mr John Vouris ("Vouris") of Lawler Partners Chartered Accountants, a registered liquidator, as the proposed voluntary administrator and DOCA administrator.

1. Somewhat presciently, on 5 September 2008, Smith wrote to Ruskin of the proposed restructure:

This is a big decision and handled correctly will be fine.

Handled poorly could be fatal.

1. It turned out to be fatal.

1. Later that day Kalogerou sent Smith an email asking him to tell Ruskin to set up a company and call it "Indio". Somewhat intriguingly, he added:

Do not set up the company yet. Do not email him this. Tell him over the phone.

1. On 15 September 2008 Ruskin sent Wise a strategy paper which referred to the price increase from their sole supplier and its refusal to supply bulk. The paper included, amongst others, statements that:

It was always our strategy to diminish the very considerable control our supplier had over us so we have recently chosen to appoint 2 other main suppliers in order to provide indio products and to source the ingredients for our indio products so as to be ready to market from November onwards.

[...]

In the short term we plan to continue to order 6 products from our original sole supplier until we can better organize our stock.

1. On about 17 September 2008 Smith, Michaelson and Ruskin attended a boardroom lunch with Wise at the BankWest head office in Sydney. They say Kalogerou was present. Michaelson says that at the lunch he told Wise of proposed new suppliers to CPL. He says that he spoke of the challenges they had had in moving away from Holy Land and reducing its role as their exclusive supplier. They spoke of being in a holding pattern and about their strategy being on course. They said they were moving towards a more profitable structure which would increase their cash flow dramatically.

1. Wise says that she sat next to another client of hers and did not have the opportunity to speak with Michaelson, during the presentation, about any substantive matters relating to his business or the CPL Group. She denies the conversations which Michaelson says took place on this occasion.

1. Michaelson and Ruskin say they met with Kalogerou again on 7 October 2008, together with Smith and Vouris. Vouris had been invited by Kalogerou as the person who would be the administrator of CPL and would organise the DOCA. Michaelson says that Kalogerou spoke of substituting a new company for CPL which would replace all obligations and responsibilities of CPL, except for the Holy Land agreement. He says that Vouris said he would arrange for the VA through a company and that it would not be a problem once CPL ceased trading. He attributes to Smith statements that BankWest would not have a problem once the new entity was doing all the trading and CPL ceased to trade, and that they would then transfer the loans. He attributes to Smith a statement that he and Kalogerou would meet with Wise when the time was right and that there would not be a problem as the Bank was fully protected. Smith denies having said that the Bank would have no problem.

1. CPL was at this time undoubtedly under pressure from its creditors and suffering significant cash flow problems. It had a number of trade creditors with claims outstanding for over 90 days.

1. In evidence is a document entitled "Minutes of Indio Director's Meeting held at Boardroom at 11AM Monday, November 3, 2008", which records as being present Ruskin, Michaelson, Gay, Kimberley and Matt Harold. The minutes record, amongst others, the following:

• The name Indio Incorporated is not available to use.
• Therefore, Indio Skin Care Pty. Ltd. to replace CPL Australasia Pty. Ltd.
• Matt Harold to have a 20% shareholding with an anticipated injection of $200K from Matt Harold.
• CPL Australasia Pty. Ltd. is no longer viable due to Holyland's non-supply of bulk product, their increase in pricing and large minimum orders now required. Freight costs are also prohibitive.
• New supplier's products being very well received into the marketplace.

1. On 11 November 2008 Wise prepared a Credit Review Facility Amendment report ("CRFA"). In relation to Seaforth she recorded that there had been various cost overruns and time delays and that Michaelson had requested an extension of the Seaforth bridging finance loan facility, granted in August 2008, to the end of April 2009. The Bank approved this on 12 November 2008.

1. On 13 November 2008 ISC was incorporated to be the new entity.

1. On the same day, Rite Pak (Aust) Pty Ltd dispatched to CPL, by ordinary post, a creditor's statutory demand claiming $63,657.40 for packaging services provided in January 2008. The demand was sent to CPL's registered office, care of its accountants, in South Melbourne. There is some issue as to the date of actual receipt because the copy of the covering letter in evidence has a stamp on it "03 DEC 2008". The circumstances in which the stamp came to be affixed are not explained by any admissible evidence sufficient to rebut the statutory presumption of receipt by CPL on the fourth working day after posting (see s 160(1) of the Evidence Act 2008 (Vic)) but nothing ultimately turns on this.

1. On 17 November 2008 the sale of City Road was completed for $2.4 M. Proceeds of approximately $2 M were appropriated to permanent reduction of the CPL Group's debt to the Bank.

1. On the afternoon of 19 November 2008 Michaelson, Ruskin and Smith met Wise at Sabia restaurant at Brighton-le-Sands. The meeting was preceded by an email from Smith to Michaelson and Ruskin, copies to Vouris and Kalogerou, with suggestions for the anticipated discussion. The email included the following:

CPL Future

It would look bad to not at least hint at this and then spring it on Deb when Tony and I meet with her next Monday.

This will be the Mantra from you guys

- The contractual arrangement with Holyland was done under much duress and as is detrimental to your business it will be rectified

- You are taking advise from Tony Kalogerou on how best to maneuver the situation and you are very happy with his direction

- He will deliver to you late this week his recommendations on

various business planning

- You are quite the innocent bystanders awaiting his advice

Upon our meeting we will be informing her

- The only benefit you are seeking from wind Up is to rectify the contract and protect against tanning Litigation

- Any other benefits are inconsequential

- The bank at all times will be fully covered security wise & all obligations met fully

- Charges and securities will be positioned to suit the bank and Indio with no erosion of each position.

(emphasis added)

1. Wise was last to arrive. Michaelson attributes to Smith, before Wise arrived, statements to the effect that once the new company was doing all the trading and all the funds were flowing into its account, with CPL having ceased trading, the Bank would not be concerned about rewriting the loans to be with ISC. He attributes to Smith a statement that it was important that information be given to BankWest the right way, via a face-to-face meeting with Kalogerou, who was well respected and an expert in this area, and well-known to Wise who respected his expertise.

1. Michaelson says that after Wise arrived, the discussion included reference to the Holy Land contract, to obtaining supply from new suppliers, to the fact that they had opened up a new company which would be a substitute for CPL and that they needed to open a new bank account in the name of Indio Skin Care Pty Ltd. Michaelson attributes to himself informing Wise that CPL would cease to trade and that all funds would be directed to Indio Skin Care Pty Ltd.

1. Michaelson attributes to Kalogerou a statement that the new company would essentially be the new trading arm and would take over all the existing loan facilities and obligations of CPL, except for the Holy Land contract.

1. Ruskin says that before Wise arrived, they spoke of the settlement of the sale of City Road and of the need to inform Wise of the substitution of companies from CPL to Indio and that CPL would soon cease to trade. He attributes to Smith a statement that the Bank would not care about the restructure of CPL if it no longer traded because the Bank was always covered by its charges and security. He says that Smith told them to leave discussion with the Bank regarding the restructure to the expert, Kalogerou, and himself when the time was right.

1. Ruskin says that once Wise arrived, they talked of the settlement of City Road, the onerous Holy Land agreement and their new structure. He says Michaelson said they had opened a new company, Indio Skin Care Pty Ltd, on the advice of Kalogerou, to substitute CPL, which would allow them to buy bulk products and use multiple suppliers at much better margins. He says that Michaelson said the new company would essentially do everything that CPL did, apart from being obligated to the Holy Land agreement, and it would also service the loan.

1. Ruskin attributes to Wise the words "[o]kay, so Indio replaces CPL Australasia?" and to Michaelson words to the effect "[n]ow that we are going to drop most of Holy Land products apart from the best sellers, we will relaunch to the market place under the Indio Skin Care name. Yes, as soon as we open the new bank account in the name of Indio Skin Care Pty Ltd we can notify clients."

1. Wise says Michaelson informed her that they had established another company called Indio Skin Care Pty Ltd, which would order the new stock from their new suppliers. She says that a conversation to the following effect took place:

Michaelson: The reason we are doing this is to protect the business against Holyland. Holyland have tried to take a share of the business. They've already done this to a company in Romania.

Wise: What will be the impact of setting up this new company on your supply arrangements with Holyland?

Michaelson: I'm not involved in the new company, but we will continue to get some stock from Holyland so as not to breach our agreement. We will be reducing our orders. Also, the stock we are ordering from our new suppliers is not identical to the product supplied by Holyland.

Wise: I need to see a new business plan as to what is happening. The Bank would also need to obtain a fixed and floating charge over the assets of the new company to secure the cashflow of the business.

1. She denies that Michaelson informed her that CPL would cease to trade and that all funds would be directed into Indio Skin Care Pty Ltd. She says that at no stage did Michaelson, Ruskin or Smith inform her that CPL would cease to operate or that the restructure would or may involve CPL being placed in voluntary administration. She says her understanding, from what was said, was that CPL would continue to trade for the purpose of selling products supplied by Holy Land in order to avoid breaching its agreement with that supplier.

1. Smith says that the reference in his email of 19 November 2008 to "hinting at this" was a reference to the potential or negotiated voluntary administration of CPL.

1. Smith denies that he said "[o]nce the new company Indio Skincare is doing all the trading and all funds are flowing into this account, with CPL having ceased trading the bank will not be concerned about rewriting the loans". He also denies that Michaelson said "[w]e have set up a new company, Indio Skin Care Pty Ltd which will be a substitute for CPL" or "CPL will cease to trade and all funds will be directed to Indio Skincare Pty Ltd". Instead, he recalls Michaelson saying words to the effect of "CPL's operations will be wound down".

1. The meeting contemplated "next Monday" (24 November 2008) in Smith's email of 19 November 2008 did not take place. Smith attempted to schedule such a meeting but was unable to arrange it to occur before 3 February 2009.

1. In evidence is a document entitled "Minutes of Indio Director's Meeting held at Boardroom 11AM Monday, November 24, 2008" which contains the following:

• Meeting last week with Debbie Wise during which she advised she is happy to substitute the new indio company for CPL Group and knows all trading will now go through Indio Skin Care Pty. Ltd., to avoid possible litigation with Holyland.

[...]

• CPL will cease to trade.

1. At this time, Ruskin's father, Mr John Ware Ruskin ("John Ruskin"), then retired, but who had held various senior positions in the superannuation industry, was providing business consultancy services to the CPL Group. He was asked to look at the Group's trading results. John Ruskin had also been asked by Michaelson to assist with cash flow and funding for CPL to manufacture its own brand.

1. On 25 November 2008 Ruskin received from CPL's accountant, Steve Danielson, a valuation of CPL. The valuation disclosed that for the year ended 30 June 2008, CPL had made a net loss of over $1.7 M and a loss of over $300,000 for the three months ended 30 September 2008. As at 30 September 2008 it had a net deficiency of assets of over $3.1 M. Danielson's opinion was that the company had a nil value. He also expressed the view that based on the trading results, the company was unlikely to be able to meet its debts as and when they fell due.

1. John Ruskin saw the valuation at the time. His evidence was that he was asked to look at the trading results and was concerned when he received the report, but gave unconvincing evidence that he was not in a position to come to a judgment as to the solvency of the company.

1. On 1 December 2008 Ruskin emailed Wise stating, amongst others, that there was a "payment plan" with Rite Pak. He said:

As discussed I am pushing all creditors terms as long as possible as our debtors are doing to us. Only the urgent cheques are sent which enable us to continue trading.

1. Also on 1 December 2008 Michaelson emailed Smith a draft plan of required funds "to fuel international sales". It included $90,000 for an order from Holy Land, which Michaelson agreed (under cross-examination) would only be delivered well after 8 December 2008.

1. On 3 December 2008 Michaelson says he met with Smith and Wise at a Kingsgrove café when, according to him, he handed to Wise a business plan dealing, amongst others, with CPL's new supplier arrangements. The business plan states that as of 15 October 2008, the CPL Group had 26 lines including 8 products still being supplied by Holy Land, to reduce to 5 by March 2009. Michaelson says they discussed further funding for CPL and the need for funds to be in hand to capitalise on the Christmas trade. He says that he told Wise that they were relaunching their brand Indio with many new lines and deleting most existing formulas from Holy Land, that all invoices would now be in the name of Indio and not the CPL Group, which would substitute CPL for Indio Skin Care. He says that he told her CPL would cease to trade, that all funds would go through Indio and that everything the CPL Group did would now be done by Indio Skin Care. He attributes to Wise words to the effect "[o]kay, so basically Indio Skincare replaces CPL Australasia?" and to himself the response "[y]es that is correct, except the Holy Land agreement".

1. Wise does not recall any meeting with Michaelson and Smith at the Kingsgrove café on 3 December 2008 and her diary does not record it. However, amongst others, she denies that Michaelson said CPL would cease to trade and all funds would go through Indio, that everything the CPL Group did would now be done by Indio Skin Care and that she said "[o]kay, so basically Indio Skin Care replaces CPL Australasia?" She says that at no stage during any of the conversations that she had with Michaelson in December 2008 (or prior to this time) did Michaelson inform her that the restructuring of the CPL Group would involve CPL ceasing to operate the skin care business or would involve CPL being placed into voluntary administration. She says it was her understanding that CPL was going to continue to trade.

1. On 8 December 2008 Ruskin spoke to Elizabeth Naumovski, a relationship support officer who worked with Wise, who told him that Wise had informed her that they would like to open some new accounts for Indio Skin Care. She undertook to send him documents. There was an exchange of emails between Wise and Michaelson on that day concerning a director of the new company, Matt Harold, whose name appeared on a company search. Wise wrote to Michaelson, relevantly:

Company search is showing he is a Director with a 20% shareholding in this entity.

I need to understand the relationship and and what income this entity will be generating. I am making some assumptions here that this entity is as a protection from the Holyland Manufacturing Agreement??

It is quite likely that we will need to take a Charge and Guarantee from this entity to secure the cashflow of the business.

1. Ruskin replied, relevantly:

On Tony Kalogerou's advise we need to set up a new bank account.

Mat Harold is a short term necessity for protecting Indio's interest in the Holyland agreement.

Its fine to take a charge and guarantee from this entity.

1. Ruskin says he spoke to Wise on 8 December 2008, when she told him that she was going to need to take a fixed and floating charge over Indio Skin Care as well as a guarantee, and she agreed that Indio Skin Care would have the same type of trading account as CPL and Indio would take over all loan repayments.

1. Michaelson says that CPL ceased trading and servicing the CPL Group loans on 8 December 2008. Ruskin says that from around 8 December 2008 onwards ISC began operating the business previously operated by CPL, then CPL subsequently ceased trading other than receiving debts owed to it pursuant to invoices it had previously issued.

1. Michaelson says that he had a conversation with Wise in which there was agreement that there would be a cessation in trading by CPL immediately. Also on 8 December 2008, Ms Naumovski emailed to Ruskin details for a new ISC business cheque account facility which would be added to the existing CPL Australasia Online Business Banking Facility and that cheque and deposit books would be mailed out over the next 7 to 10 days. Later on that day there were email exchanges between Wise and Smith. There had been a credit review carried out by a credit review officer, Tim Kitchen, whose risk assessment was that the CPL Group's viability was unclear and that performance of its accounts indicated viability was "borderline insolvent". Wise wrote to Smith "just got smashed on the Review for these guys. Increase is now a shot duck I would think..."

1. On 10 December 2008 the 21-day period for compliance with the Rite Pak demand expired.

1. On 17 December 2008 Mark Addison ("Addison") of solicitors Dibbs Abbott Stillman ("Dibbs") wrote a letter to ISC setting out the basis upon which Dibbs would advise ISC on the restructuring of CPL Australasia.

1. On 17 December 2008 Ruskin emailed Wise about cheques which had been drawn on one of CPL's accounts.

1. Also on 17 December 2008 Rite Pak commenced proceedings in the Supreme Court of Victoria to wind up CPL.

1. Wise prepared various CRFAs in December 2008 and January 2009. One of these, apparently prepared on 17 December 2008, refers to the establishment of a new trading entity, Indio Skin Care, for the purpose of seeking new suppliers. It refers to a reduction in supplies from Holy Land.

1. On 18 December 2008 Ruskin emailed Wise about stock to be paid for in the last week of December or early January including stock to be delivered from Holy Land. The amount anticipated to be payable to Holy Land was $60,000.

1. On 22 December 2008 Kalogerou emailed Mr Tony Doyle ("Doyle") of Lawler Partners:

Better get the forms ready for the VA. Can they be left undated for now?

Steve Ruskin is the director who will execute the documents.

1. Doyle sent the forms to Kalogerou, who on-sent them to Ruskin, on 23 December 2008 under cover of the following email:

Here are the forms as discussed.

Kel is confident that Debbie will come good.

Let me know when you want to get together.

1. On 12 January 2009 Wise sent an email to Ruskin and Michaelson in which she stated, amongst others:

As you are aware we have had some issues with the request for an increase. Once Credit had a full look at the position of the accounts, they were very concerned about the drop in sale of approx 42% and they requested a more thorough analysis of the accounts.

Given the situation however they agree that you require some assistance in the short term and I am preparing this request today.

At this stage I will be requesting a limit of $120k to cover the current position plus a further $200[k] to assist with working capital and stock.

This is only a short term solution and is very much reliant on the sale of Seaforth to alleviate your cashflow position. It is the expectation that this property will be finished in February and placed for sale during this time.

1. On 14 January 2009 Wise sent Michaelson and Ruskin a fairly lengthy email dealing, amongst others, with the current balances of the various accounts and the Bank's concerns about the current position. It shows the $2 M loan to CPL and additional excesses of $132,000 on its accounts. CPL's No. 3 account was $54,143.76 in debit. ISC's account was in debit in the amount of $51,878.62. She referred to the fact that the overall amount overdrawn was at $196,000 and proposed a limit of $200,000 for the day-to-day requirements of the business. In the penultimate paragraph, she said:

I am sorry that I cannot be more positive but we are at crunch time now and I have to see improvement in the business to gain confidence in its ongoing viability and be able to support to Credit.

1. Michaelson gave evidence of a conversation with Wise on 16 January 2009 in which he says he said, amongst others, "[a]s you know CPL has ceased trading" and "[c]an you please confirm the transfer of loan documents from CPL to Indio is almost complete? As we want to ensure we follow Tony's advice with Indio Skin Care". Wise denies this conversation.

1. On 17 January 2009 Michaelson sent an email to Wise which contained the following:

I will have to make an order to Holyland also in the next few days but this will get us rolling again.

1. In evidence is a document entitled "Minutes of Indio Director's Meeting held at Boardroom at 11AM Monday, January 19, 2009" which records as being present Ruskin, Michaelson, Gay and Kimberley. It contains, amongst others, the following:

• Scott advises Debbie Wise will make supplier payments via the new Indio account. Debbie agrees with the substitution of Indio Skin Care Pty. Ltd. for CPL Group and all of its borrowings. This comes from Scott's discussion with Debbie last Friday evening.

[...]

• Debbie has approved and will process payments to both international and local suppliers.

1. On 22 January 2009 the Bank agreed to vary CPL's existing facilities by providing an additional facility for working capital of $120,000 for a period of four months and a new business bonus overdraft facility of $200,000 repayable on demand. All the companies in the CPL Group and all guarantors signed a variation letter on 27 January 2009.

1. Michaelson says that he spoke to Wise after receiving the variation letter and said:

These are in the wrong name. It is Indio that pays the loan. CPL no longer trades and has no capacity to repay the loans.

1. He says that Wise responded:

Leave it with me and I will sort it out.

1. Ruskin says that after seeing the documents he spoke with Michaelson about the fact that the documents were in the wrong name. They both say that they signed the variation documents in the expectation that the Bank would issue corrected documents shortly thereafter. Wise denies that there was ever any request for CPL's facilities to be transferred into the name of ISC.

1. Ruskin gave evidence that on or about 7 January 2009 he observed that Wise had transferred the sum of $83,862 from ISC's account into the CPL No. 1 account. He says at this stage the balance of the CPL No. 1 Account was "zeroed out" which was what they expected to occur as CPL had ceased trading and it was not supposed to be repaying any loan commitments. He also gave evidence that Wise's email of 14 January 2009 confirmed his understanding that CPL's loan commitments and facility had been transferred to ISC and that CPL's obligations to Bankwest had been taken over by ISC.

1. Michaelson says that he understood from these transfers that the substitution of companies from CPL to ISC was complete and the transfer of loans would follow shortly as the process was well underway. This to him was validation that the CPL loan was transferred to ISC.

1. Michaelson and Ruskin both also say that they had conversations between themselves in January 2009 about CPL's loan having been zeroed out and the transfer of CPL's loan to ISC having occurred.

1. On 22 January 2009 May Kupresak ("Kupresak") sent to, amongst others, Michaelson and Ruskin a Cash Flow Review showing the net position of the various accounts.

1. Kalogerou gave evidence of a meeting with Wise, Smith and another bank officer at BankWest's Kingsgrove premises on 28 January 2009. He does not now recall if he raised the voluntary administration of CPL with her at this meeting but says there is no question in his mind that he raised it with her in meetings, one of which he identifies as the 28 January 2009 meeting and one was at a coffee shop in Kingsgrove (on 3 February 2009), to which further reference is made below.

1. Both Michaelson and Ruskin say that they expected that at the 28 January 2009 meeting Kalogerou and Smith were to provide Wise with further information about the proposal to appoint a voluntary administrator to CPL.

1. Ruskin says that he spoke with Kalogerou on or about 28 January 2009, when Kalogerou told him that Wise knew about the pending VA and transfer of loans. He says that up until that point he expected that if it was the case that Wise considered any aspect of the information provided to her by Kalogerou or Smith on 28 January 2009 to be problematic she would have advised them accordingly.

1. Both Smith and Wise deny that any meeting took place with Kalogerou on 28 January 2009. An exchange of emails on 28 January 2009 between Wise and Smith concerning the proposed meeting with Kalogerou that day clearly establishes (and the plaintiffs correctly concede) that the proposed meeting was cancelled and did not occur.

1. At the end of January 2009 CPL needed US$20,000 to pay, by telegraphic transfer, Holy Land for stock.

1. On 30 January 2009 Kupresak sent to, amongst others, Michaelson, Ruskin and Wise an email referring to the CPL Group's active accounts, which included 3 CPL accounts.

1. On 2 February 2009 Kupresak emailed Michaelson and Ruskin, copy to Wise, that Wise had asked her to tell Michaelson and Ruskin that with the then existing account excesses of nearly $248,000 and with a $70,000 interest payment due later in February, there was an insufficient balance to cover the requested US$20,000 for the Holy Land stock.

The voluntary administration of CPL

1. Although the 28 January 2009 scheduled meeting did not occur, there was a meeting on 3 February 2009 at the Kingsgrove café between Smith, Kalogerou and Wise. What occurred at this meeting is of central importance because the plaintiffs assert that Kalogerou informed Wise of CPL's intention to appoint voluntary administrators and that either expressly or by implication Wise assented to this course on the footing that the Bank would not treat this as an Event of Default under the facility.

1. On 2 February 2009 Wise received an email from Doriano (Dori) Meta ("Meta") of the Bank's Portfolio Enhancement section informing her that CPL featured on a list of companies in respect of which winding up applications had been commenced. He asked whether this was the Bank's customer or related to it.

1. On 2 February 2009 Smith emailed Kalogerou as follows:

Debbie called me today re Winding up proceeding on CPL from Rite Pak.

I said I didn't know and would discuss tomorrow at our meeting.

1. Kalogerou replied (copies to Michaelson and Ruskin) as follows:

These are the creditors that have been pushing us to liquidate the company.

We will tell Debbie the amount is in dispute and it is another reason with the tanning health issues and the Holyland contract for winding up CPL.

We are in court on 10 February 2009 with Rite Pak.

That is why it is imperative that we tell Deb that we are putting CPL into administration with Vouris tomorrow at the latest.

When we appoint Vouris the court action by Rite Pak goes away.

(emphasis added)

1. Michaelson then emailed Kalogerou, Smith and Ruskin as follows:

deb is aware that the ritepak debt is around and may or may not know if the debt is being disputed. Steve can you shed some light on this?

1. Ruskin emailed Michaelson, Kalogerou and Smith as follows:

She is aware of this debt but as far as bank is concerned we are disputing the debt.

Debbie is unaware whether the debt is in dispute or not.

1. Wise then emailed Ruskin and Michaelson as follows:

We have been advised CPL has a winding up notice against it from Ritepak.

Please advise as a matter of urgency as this is a trigger for default and credit are requesting urgent clarification.

1. Ruskin then emailed Wise and others as follows:

Tony Kalogerou is dealing with this and will discuss it when he meets with you tomorrow.

1. Next, Michaelson emailed Wise about the difficulties he was having with the Seaforth project which he said was 6 weeks behind schedule. He had tried every avenue to gain further finance but found it difficult with no security. He assured Wise that he was absolutely committed to the sale of Seaforth but had to have it completed in order for it to sell quickly and for the best possible price.

1. Wise responded to Michaelson as follows:

The winding up notice for CPL is a default trigger and complicates this to the Max.

I am unsure of where this will now head.

1. Michaelson forwarded Wise's email to Smith.

1. Smith then emailed Michaelson, Kalogerou and Ruskin as follows:

Please do not panic as yet

There is only one wind up notice

Whilst its not good hopefully the bank will be convinced we are almost there

Trust me there will be no more support from BW credit Wise so do not even think of it but lets hope they don't pull the rug from under us

Tony and I will convince Debbie you will make it and meet their commitments and with a little more patience it will be fine

Either they or you can sell down the assets and lets hope they see the benefit of you maintaining control

I have quite strong influence there and Tony and I will do our best

1. On 3 February 2009 at about 9.00am Wise met Smith and Kalogerou at a café named the Grove, near BankWest's Kingsgrove office.

1. Wise says that a conversation to the following effect took place:

Kalogerou: I've been reviewing the CPL Group's viability. They are too highly geared and they need to reduce their debt. They have no way of getting out of the manufacturing agreement with Holyland. If they do not make drastic changes, they will not survive.

Wise: What about the strategy in place with Indio Skin to source their products from other suppliers?

Kalogerou: This is not going to work. The agreement is iron clad. Their only option is to VA the company.

Wise: They can't VA the company. It is an event of default. If you feel this is the only option, then you will need to put together a business plan or a strategy paper to outline why it is necessary and I will need to go to Credit with that strategy. The Bank needs to support this strategy. I can schedule a meeting with credit to discuss this and try to get the Bank's support.

Kalogerou: Ok.

1. Wise says that at the end of the meeting, as she stood up to leave, she said to Kalogerou and Smith words to the following effect:

You need to put together something for me in writing ASAP. You can't VA the company without the Bank's support.

1. She says that the meeting with Kalogerou and Smith on 3 February 2009 was the first time that she had heard of a proposal to appoint a voluntary administrator to CPL.

1. According to Michaelson, at about 3:30pm on 3 February 2009 they acted to appoint voluntary administrators to CPL. An Instrument of Appointment signed by Ruskin is in evidence, but no resolution was produced in the proceedings. At the time, Ruskin was the sole director of CPL. Vouris and his partner, Mr Bradley John Tonks, were appointed as voluntary administrators ("the administrators").

1. Wise says that later that afternoon on 3 February 2009, she received a telephone call from either Meta or Lee during which she was informed that a voluntary administrator had been appointed to CPL. She says that she then called Smith and had a conversation to the following effect:

Wise: Kel, they VA'd the company. Was I not clear in my instructions to Tony this morning that the client would need the Bank's approval prior to the VA being appointed.

Smith: Absolutely. I'm as shocked as you are.

1. According to Smith, at the meeting, Kalogerou explained the problems that the CPL Group were having with Holy Land and their concerns about potential litigation from the sale of tanning beds. He says there was then a discussion in the following effect:

Kalogerou: The plan is to VA CPL.

Wise then swore.

Wise: This is a major issue. We have only ever allowed this for one client and they had a seventeen year relationship with the Bank. Don't do anything until I speak with Marty. This will be a clear default under the loan.

1. He says that at no stage during the meeting did Wise make any statements to the effect that she was comfortable with or that the Bank would support the appointment of a voluntary administrator to CPL.

1. He says that later that afternoon, he received a telephone call from Wise and they had a conversation in words to the following effect:

Wise: They have appointed the VA.

Smith: I don't know anything about it. I'll find out.

Wise: I told them not to do this. I made it very clear this morning that they were not to do it.

1. Kalogerou deposed to three affidavits. In his first affidavit sworn 4 June 2012 he says that sometime in October or November 2008 he suggested to Michaelson, Ruskin and Smith to put CPL into voluntary administration in order to deal with issues being caused by some insistent creditors and also to overcome liabilities which it may have had in connection with the sale of sun beds. He deposed as follows:

21. I do not recall when it was that Kel Smith and I first mentioned to Debbie Wise that we believed it would be beneficial to put the current trading entity into voluntary administration. I may have raised it at my meeting with Debbie Wise, Kel Smith and an officer of the bank (whose name I do not now recall) at the bank's Kingsgrove premises on 28 January 2009 but I do not now recall if I raised the voluntary administration at this meeting. However, I am confident that l raised the voluntary administration with Debbie Wise prior to my meeting with her on 3 February 2009, which is referred to in paragraph 22 below. My recollection is that Debbie Wise's initial reaction when I first raised the issue was to say words to the effect of 'Why are we supporting you if that's what's going to happen?'. She seemed concerned about the prospect of one of the companies in the group going into voluntary administration but did not indicate that the bank would regard it as being a default or otherwise advise against this course of action. I recall discussing her concern with John Vouris, who responded by pointing out to me that the bank would not be disadvantaged in any respect by the voluntary administration because its security position was unchanged. Mr Vouris also observed that the voluntary administration would resolve certain creditor issues for the Group and had the potential to take away risks of unknown liabilities flowing from the involvement in the sun bed industry.

22. I cannot now recall precise details of the conversations which I had with Debbie Wise prior to the trading entity going into voluntary administration on 3 February 2009. I have reviewed my diary for the time (which I keep on my telephone) but cannot find reference to the meetings which I attended with Ms Wise. However there is no question in my mind I had meetings with Ms Wise at which the restructure was discussed before it took place - one of those taking place at the bank's offices in Kingsgrove on 28 January 2009 and one at a coffee shop in Kingsgrove (a meeting which Kel Smith also attended) on 3 February 2009. My recollection is that I spoke to Ms Wise to indicate that the restructure was a possibility. I recall that I did not go into technical details in my discussion with her about the issue but I do recall that I continued to emphasise the benefit to the Group of restructuring the company which had exposure to potential tanning industry liability claims and supplier issues.

23. As to her response to the prospect of a company in the CPL Group going into voluntary administration, I recall that she expressed concern that it would not be looked upon favourably by the bank but she did not suggest that the bank would regard it as being a default under its mortgage documentation. However, I cannot recall the words that she used.

24. Eventually, it was an intransigent creditor that caused us to proceed with the voluntary administration at the time that we did.

1. In his second affidavit sworn 9 May 2013 he denies that 3 February 2009 was the first time Wise had heard about the proposal to appoint a voluntary administrator to CPL. He deposes that throughout the period October 2008 to February 2009 he was in regular contact with Wise. The focus of the meetings and telephone conversations he had with Wise were on the need to restructure the CPL Group to avoid the commercial risks it faced. He says that he cannot now recall every conversation nor all the words spoken in these conversations, however, he can recall saying on numerous occasions in 2008 and early 2009 words to the effect: "We are looking at all possible ways to manage the issues including selling the business to a new entity. In the end it is likely that CPL will be wound up but let's cross that bridge when we have to."

1. He denies that at the 3 February 2009 meeting he said to Wise words to the effect: "Their only option is to VA the company". He denies that Wise said words to the effect: "They can't VA the company. It is an event of default. If you feel this is the only option, then you will need to put together a business plan or a strategy paper to outline why it is necessary and I will need to go to credit with that strategy." He denies that Wise said words to the effect: "You need to put together something in writing ASAP. You can't VA the company without the Bank's support." He denies that Wise said words to the effect: "This is a major issue. We have only ever allowed this for one client and they had a 17 year relationship with the Bank. This will be a clear default under the loan."

1. He says he does not recall Wise saying words to the effect: "The Bank needs to support this strategy. I can schedule a meeting with credit to discuss this and try to get the Bank's support." However, he does recall her saying, in response to the VA proposal, words to the effect: "I will need to get this through credit." He says he does not recall Wise saying words to the effect: "Don't do anything until I speak with Marty".

1. He says that at no time in any of the numerous discussions he had with Wise in the period October 2008 to 3 February 2009 when the issues of restructuring the CPL Group, incorporating a new trading entity and winding up CPL were discussed, did Wise say to him that the appointment of an external administrator to CPL was a default under the various securities held by the Bank and that the Bank would not accept it. He says that Wise did express her concerns but always indicated to him that she was confident that she "could get it through credit". He says she would regularly say to him during these discussions words to the effect: "I am confident I can get this through credit". He says he was aware from his previous dealings with the Bank and with Smith that Wise was very good at presenting proposals to the credit department which maximised their prospects of being fully approved.

1. I record that during the course of the hearing, at my request, the experts produced calculations based on an assumption of 10% growth for the DCF period. It is not necessary to deal with these calculations as I do not consider that it would be appropriate to adopt that assumption.

THE GUARANTORS

1. The Bank cross-claims against each of the plaintiffs (except Barun Concepts Pty Ltd) as guarantors. They proffer no defence.

1. As at 27 November 2012, each was indebted to the Bank in the amount of $7,672,545.94. Subject to adjustment to bring the figures up to date, the Bank is entitled to judgment against each for that amount.

1. In separate proceedings, the Bank sues the Michaelsons in respect of their direct liability under home loan facilities made available to them and secured by mortgages over Seaforth. It seeks an order for possession of Seaforth.

1. Under an agreement dated 18 May 2008 between the Bank and the Michaelsons ("the Rate Tracker"), the Bank advanced $2.24 million (by way of refinancing their home loan with NAB). The advance was repayable over three years and one month by way of 37 monthly instalments. Under a second agreement with the Michaelsons dated 15 August 2008 ("the Bridging Loan") the Bank advanced $235,000. This advance was repayable over five months in monthly instalments.

1. The Michaelsons executed mortgages over Seaforth. The mortgages have registered numbers AE32058K and AE32059H. Under their terms, a breach of the Rate Tracker Agreement or Bridging Loan Agreement is a breach under the mortgages entitling the Bank to possession of Seaforth.

1. There is no dispute that the Michaelsons are in default, and that the Bank has made due demand.

1. As at 27 November 2012, the Michaelsons were indebted to the Bank for $2,642,613.77 under the Rate Tracker and for $282,211.39 under the Bridging Loan, making a total of $2,924,825.16. Subject to adjustment to bring the figures up to date, the Bank is entitled to judgment against the Michaelsons for that amount, and an order for possession of Seaforth.

1. In further proceedings against the Michaelsons, the Bank sues to enforce the guarantees given by them for the obligations of the CPL Group. In the same proceedings, the Bank sues Gay and Kimberley under their guarantees.

1. Michaelson proffers no defence. As at 27 November 2012, Michaelson was indebted to the Bank under his guarantees as follows:

The facility	$2,320,000.00
Mascot and Eminence	$87,517.36
Sunlovers and Eminence	$1,764,257.72
Tanning Systems	$350,000.00
Total	$4,521,775.08

Subject to adjustment to bring the figures up to date, the Bank is entitled to judgment against Michaelson for that amount.

1. Suzanna, Gay and Kimberley deny liability under their guarantees, contending that they were unjust in the circumstances relating to them at the time they were made, within s 7(1) of the Contracts Review Act 1980 (NSW). By cross-claim they move the Court for orders refusing to enforce their provisions.

1. As at 27 November 2012, Gay and Kimberley were each indebted to the Bank under their guarantees as follows:

The facility	$2,320,000.00
Mascot and Eminence	$87,517.36
Sunlovers and Eminence	$1,764,257.72
Tanning Systems	$350,000.00
Total	$4,521,775.08

1. In further proceedings the Bank sues the Ruskins under their guarantees.

1. Ruskin proffers no defence. As at 27 November 2012, Ruskin was indebted to the Bank under his guarantees as follows:

The facility	$2,320,000.00
Mascot and Eminence	$87,517.36
Sunlovers and Eminence	$1,764,257.72
Tanning Systems	$350,000.00
Total	$4,521,775.08

Subject to adjustment to bring the figures up to date, the Bank is entitled to judgment against Ruskin for that amount.

1. By mortgage dated 13 June 2008, registered number AE32087C, Simone mortgaged Allambie Heights to the Bank as security for her liabilities, including under her guarantees. Under the provisions of the mortgage, default under her guarantees is default under the mortgage. The Bank seeks an order for possession of Allambie Heights.

1. The Bank makes no claim against Simone for repayment of the home loan presently outstanding and secured over Allambie Heights (which the Bank refinanced in 2008) because monthly mortgage payments are up to date. It claims only under her guarantees. As at 27 November 2012, Simone was indebted to the Bank under her guarantees as follows:

The facility	$1,300,000.00
Mascot and Eminence	$87,517.36
Sunlovers and Eminence	$1,120,000.00
Tanning Systems	$350,000.00
Total	$2,857,517.36

1. As with the other female guarantors, she denies liability under her guarantees, contending that they were unjust in the circumstances relating to them at the time they were made, within s 7(1) of the Contracts Review Act. By cross-claim she moves the Court for orders refusing to enforce their provisions.

1. I turn then to the position of the female guarantors.

The Contracts Review Act

1. By s 7(1) of the Contracts Review Act, where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, if it considers it just to do so, and for the purposes of avoiding as far as practicable an unjust consequence or result, it may make certain orders including refusing to enforce any or all of the provisions of the contract, declaring it void in whole or in part or varying it.

1. "Unjust" is defined in s 4(1) to include "unconscionable, harsh or oppressive, and 'injustice' shall be construed in a corresponding manner".

1. Section 9 of the Contracts Review Act provides:

Matters to be considered by Court

(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of:

(a) compliance with any or all of the provisions of the contract, or

(b) non-compliance with, or contravention of, any or all of the provisions of the contract.

(2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following:

(a) whether or not there was any material inequality in bargaining power between the parties to the contract,

(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation,

(c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract,

(d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract,

(e) whether or not:

(i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or

(ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented,

because of his or her age or the state of his or her physical or mental capacity,

(f) the relative economic circumstances, educational background and literacy of:

(i) the parties to the contract (other than a corporation), and

(ii) any person who represented any of the parties to the contract,

(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed,

(h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act,

(i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect,

(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:

(i) by any other party to the contract,

(ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or

(iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract,

(k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and

(l) the commercial or other setting, purpose and effect of the contract.

(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made.

(4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made.

(5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made

1. Consideration of whether relief should be granted to a party under the Contracts Review Act requires a determination, on the particular facts of the case, whether the contract was unjust in the circumstances relating to it when it was made and then, if the contract was unjust, the exercise of a discretion whether or not to grant relief and if so, the form of any such relief, in order to avoid an unjust consequence or result.

1. The circumstances described in s 9 of the Contracts Review Act are not exhaustive and each case must be determined on its own facts. Relief may be available in circumstances where the conscience of the counter party is not affected and even where relevant circumstances were not known to it when the contract was entered into. A contract, or a provision thereof, may be unjust in circumstances where there was no pre-existing duty owed by a lender to a borrower to act in a particular way.

1. A contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to a party or because of the way in which it was made or both. A contractual provision may be unjust simply because it imposes an unreasonable burden on a party when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision.

1. The public interest requires the Court to consider the position and rights of the party against whom relief is sought. Orders may be made in favour of a party to a contract who proves that at the date of the contract that he or she suffers from a relevant disability even though the other party to the contract is unaware of it. In general the Court should be reluctant to exercise the jurisdiction where the effect may be to deprive an innocent person of valuable contractual rights.

1. Where a bargain is obtained by a stronger party unconscientiously using its power against a weaker party, equity has jurisdiction to relieve the weaker party of the bargain.

1. The focus, in the exercise of this jurisdiction, is not upon the quality of the weaker party's assent, as is the case with undue influence, but upon the conduct of the stronger party. The weaker party must have a disabling condition, or the circumstances must be such, so as seriously to affect the ability of that party to make a judgment as to his, her or its own best interests. The weaker party's need or distress must be such as to leave that party in the power of the stronger. The disadvantage of the weaker party may arise because of illness, ignorance, inexperience, impaired facilities, financial need, lack of assistance or explanation where necessary, lack of relevant language competence, emotional dependence or other circumstances. It is not necessary for the stronger party to have actual knowledge of the weaker party's special disadvantage. It is sufficient if the stronger party is aware of the possibility or of facts that would raise that possibility in the mind of any reasonable person that the weaker party is suffering some special disadvantage. The stronger party must take advantage of the opportunity presented by the weaker party's disadvantage. The stronger party's conduct in taking such advantage must be unconscientious. Where a stronger party has taken advantage of a weaker one to obtain a beneficial bargain, the onus is on the stronger party to show that his conduct was fair, just and reasonable. The presence of independent advice can be an important factor in showing that the transaction was fair, just and reasonable.

The Banking Code of Conduct

1. The Australian Bankers' Association has published an instrument called the Code of Banking Practice ("the Code"). In 2006 the Bank adopted the Code.

1. Clause 1 of the Code recites that it is a voluntary code of conduct which sets standards of good banking practice for banks to follow when dealing with persons who are or who may become individual and small business customers and their guarantors. Clause 40 defines "small business" to mean, relevantly, a business having less than 20 full time (or equivalent) people.

1. Clause 39.1(a)(ii) of the Code provides:

On and after the commencement date:

(a) we will be bound by this Code in respect of:

(ii) any Guarantee (as described in clause 28) we obtain from you,

1. Clauses 28.4 and 28.5 of the Code, relevantly, provide:

28.4 We will do the following things before we take a Guarantee from you:

(d) we will provide you with a copy of:

(i) any related credit contract together with a list of any related security contracts which will include a description of the type of each related security contract and of the property subject to, or proposed to be subject to, the security contract to the extent to which that property is ascertainable and we will also give you a copy of any related security contract that you request;

(ii) the final letter of offer provided to the debtor by us together with details of any conditions in an earlier version of that letter of offer that were satisfied before the final letter of offer was issued;

(iii) any related credit report from a credit reporting agency;

(iv) any current credit-related insurance contract in our possession;

(v) any financial accounts or statement of financial position given to us by the debtor for the purposes of the Facility within 2 years prior to the day we provide you with this information;

(vi) the latest statement of account relating to the Facility (and any other statement of account for a period during which a notice of demand was made by us, or a dishonour occurred, in relation to which we are required to give you information under clause 28.4(b)(i));

28.5 We will not ask you to sign a Guarantee, or accept it, unless we have:

(a) provided you with the information described in clause 28.4 to the extent that that information is required by this Code to be given to you; and

(b) allowed you until the next day to consider that information.

We do not have to allow you the period referred to in clause 28.5(b) if you have obtained independent legal advice after having received the information required by clause 28.4.

The female guarantors' submissions

1. In argument, counsel for the female guarantors narrowed the submissions significantly from those contained in his final written outline. A number of manifestly unsustainable propositions, including some that were not pleaded, were initially put in final argument but then abandoned. One was that the guarantees were discharged because the terms of the facility were varied from time to time. Another was that as a matter of construction the guarantees did not cover obligations under amendments to the facility. These propositions were abandoned, doubtlessly because each variation was consented to in writing by each female guarantor who acknowledged that the guarantee covered the amendment concerned.

1. Firstly, it was put that

(a)   the terms of the Code became express or implied terms of each guarantee;

(b)   the Bank had, in breach of cl 28.5 of the Code, not provided the female guarantors with the information described in cl 28.4 before 4 June 2008 and had not allowed them until the next day to consider the information; and

(c)   the guarantees were thereby discharged or otherwise unenforceable.

1. Secondly, it was put that the guarantees were unjust in the circumstances relating to them at the time they were made because:

(a)   the female guarantors executed acknowledgments of receiving the "Disclosure Documents" without in fact having received them;

(b)   they did not understand the limit of the guarantees;

(c)   the female guarantors had no real practical opportunity to obtain independent legal advice and no-one represented the interests of the female guarantors independently;

(d)   there were no negotiations between the parties and it was not reasonably practicable for the female guarantors to negotiate for the alteration of or to reject any of the provisions of the guarantees;

(e)   there was a material inequality in bargaining power between the Bank and the female guarantors;

(f)   at its highest, the option to obtain independent legal advice was first offered at or around 3pm on 4 June 2008 at the offices of Kemp Strang; and

(g)   a settlement was taking place in a pressured and urgent environment.

1. It was put that in obtaining the guarantees, the Bank acted unconscionably because it knew that the female guarantors had not received any of the disclosure documents as required by the Code, that they could not have reviewed the immense amount of documents during their attendance at Kemp Strang and that a solicitor was not acting in their interests, independently and specifically.

1. It was put that "unconscionability by the Bank enforcing the guarantees must arise" as:

(a)   the female guarantors did not understand the purport and effect of the transaction;

(b)   the transaction was voluntary (in the sense that the female guarantors obtained no gain from the contract, the performance of which was guaranteed);

(c)   the Bank understood the female guarantors reposed trust and confidence in their husbands and relatives, in matters of business, and therefore understood that the borrowers may not fully and accurately explain the purport and effect of the transaction to the female guarantors; and

(d)   the Bank did not itself take steps to explain the transaction to the female guarantors or find out that a stranger had explained it to them.

Consideration

1. The proposition that the Code became an express or implied term of each guarantee was not developed. It is not necessary to deal with it or with the consequences of breach, because it has not been established that the provisions of the Code relied on, applied in this case. Even if it did, and it was breached, the nature of the breach was of no meaningful consequence.

1. In a position paper which Ruskin sent to the Bank on 3 August 2009 he stated "since last November we have downsized from 25 personnel to 13 over the last 9 months..." The Court's attention was not directed to evidence which would sustain a finding that there were less than 20 full time employees at the time the guarantees were given.

1. If the Code did apply, the female guarantors obtained independent legal advice after having received the information required by cl 28.4, so that the Bank did not have to allow the period in cl 28.5(b).

1. As against Wise's evidence that on 29 May 2008 she put envelopes containing guarantor packs for Suzanna and Simone in the postal out-tray for delivery the following day and personally delivered guarantor packs to Gay and Kimberley at Botany Road on 30 May 2008, there is no evidence from Suzanna or Gay that they did not receive guarantor packs before 4 June 2008, there is a statement by Simone that to the best of her recollection she did not receive one, and an acceptance by Kimberley that she received one but not before June 2008.

1. I accept Wise's evidence. I accordingly do not accept that the female guarantors did not receive guarantor packs earlier than 4 June 2008, but in any event, each of them signed an acknowledgement on 4 June 2008 of having received disclosure documents.

1. Pirintji impressed me as a competent, thorough and careful practitioner.

1. Perhaps unsurprisingly, his evidence was not challenged and I accept it. Where Pirintji's evidence conflicts with that of the female guarantors, I prefer it.

1. In any event, and by contrast, the evidence of the female guarantors, viewed both individually and collectively, was unsatisfactory in a number of important respects.

1. Whilst Simone agreed that Pirintji spent about 15 to 20 minutes with her, Suzanna denied that at any point Pirintji spoke to her one on one, but then agreed that she did not recall. Gay had no recollection of spending time individually with Pirintji. Kimberley denied that Pirintji spoke to her individually. It is inherently unlikely that Pirintji would have spent one on one time with some but not all of the female guarantors.

1. I find that Pirintji spent some hours at Kemp Strang and spoke individually to each of the female guarantors as he says he did.

1. As to their understanding of the import and effect of the guarantee each was signing, and the risk each was undertaking, I am satisfied that Pirintji provided them with adequate advice and that they understood it.

1. He gave them the opportunity of taking other advice and they voluntarily and consciously eschewed it. Each also signed a statutory declaration (which was part of the guarantee), witnessed by Pirintji, that she had received independent legal advice and had freely and voluntarily signed the guarantee.

1. Each of the female guarantors is intelligent. Simone is particularly articulate and has other business experience. Gay was office manager and her duties extended to supervising administrative staff and checking MYOB entries. She is clearly numerate.

1. The evidence of each female guarantor as to her understanding of the import and effect of the guarantee she was signing and the risk she was undertaking, differed.

1. For example, Suzanna said that she could not recall any specific conversations whilst in the boardroom or when signing the documents, but said under cross-examination that Pirintji advised her that by signing the documents she could be liable for payment of monies to the value of her house, which she understood was used as security for the loans. Simone agrees that Pirintji explained to her, amongst others, the importance and seriousness of becoming a guarantor of the obligations of the CPL Group and she absorbed the message. Gay, apparently as a consequence of medical treatment, has no meaningful recollection of the occasion of signing documents on 4 June 2008. In her affidavit evidence, Kimberley says that not only was she not offered or afforded the opportunity to obtain legal advice, and had not received any regarding the guarantees, she agreed to sign them because she believed in the products and the brand and did not actually believe there was a risk in being a guarantor because she did not believe that the family business had a chance of failing. However, under cross-examination she agreed that she did understand, particularly having heard what Pirintji said about the nature of guarantees, that it imposed a serious legal obligation on her and that her affidavit evidence needed to be qualified accordingly.

1. Added to the fact that Pirintji's evidence was not challenged, it is inherently unlikely that his explanation to each of the female guarantors differed in material respects.

1. Little attention, if any, was devoted by counsel for the female guarantors to the contentions that there was a material inequality in bargaining power between the Bank and the female guarantors; that there were no negotiations between the parties; that it was not reasonably practicable for the female guarantors to negotiate for the alteration of or to reject any of the provisions of the guarantees; that the female guarantors reposed confidence in their husbands and relatives; and that the settlement was taking place in a pressured and urgent environment.

1. The borrowers and the female guarantors were well represented by a competent solicitor who protected their interests.

1. No urgency or deadline was imposed by the Bank. No hurdle was placed by the Bank in the way of the female guarantors having further time, whether to obtain further legal advice or otherwise. Any urgency came from the CPL Group.

1. It is not put that any particular term of the facility or any guarantee was or is harsh, oppressive or unnecessary, or that but for the matters complained of, any of the female guarantors would have refrained from proceeding or have acted differently.

1. The guarantees were part of a wider transaction for the refinancing of the CPL Group's facilities, to its advantage.

1. The female guarantors were not strangers to the CPL Group. Each, to a greater or lesser extent, had some personal direct or indirect economic stake in it or its prospects.

1. Suzanna's company Nuala Design did business with it. Gay and Kimberley worked there.

1. Michaelson Family Pty Ltd held shares in CPL. It was a trustee of the Michaelson Family Trust, of which Suzanna was a beneficiary. Ruskin Group Pty Ltd held shares in CPL, Mascot, Sunlovers and Tanning. It was a trustee of the Stephen Ruskin Family Trust, of which Simone was a beneficiary. Gay was a beneficiary of the Michaelson Family Trust and held a beneficial shareholding in CPL and Eminence. Kimberley was a beneficiary of the Michaelson Family Trust and held a small non-beneficial shareholding in CPL and a beneficial shareholding in Eminence.

1. There is no basis for the submissions that there is unconscionability in enforcing the guarantees because the Bank understood that the borrowers may not fully and accurately explain the purport and effect of the transaction to the female guarantors and did not itself take steps to explain it to them or find out if a stranger had done so.

1. None of the female guarantors were under any specific disability or disadvantage. In the circumstances which occurred, given especially the presence and intervention of Pirintji, the Bank was neither in a position to, nor did it, in any way unconscientiously take advantage of the position of the female guarantors.

1. The submissions that the guarantees were unjust in the circumstances relating to them at the time they were made, that they were unconscionably obtained and that unconscionability arises in the Bank enforcing them are rejected.

1. In the circumstances of this case, I would in any event not exercise any discretion in favour of the female guarantors.

1. It follows that the Bank is entitled to judgment against each of the female guarantors.

1. The Bank is entitled to an order for possession of Allambie Heights.

THE ABANDONED CASES

1. Ordinarily, I would not consider it necessary to deal in any detail with claims made in proceedings but abandoned. In this case, however, for reasons which will become apparent, I consider it necessary and appropriate to do so in respect of two claims which were brought but abandoned during the hearing. They should be dismissed on their merits.

The clawback arrangement claim

1. Prior to 19 December 2008 BankWest was owned by HBOS. On 8 October 2008, by Share sale deed ("the sale deed"), the Commonwealth Bank as Buyer purchased HBOS's shares in BankWest and the settlement of the transaction took place on 19 December 2008.

1. The purchase price was $2.1 billion, subject to adjustment in accordance with cl 10.1 of the sale deed. That provision required HBOS as Seller to prepare and deliver to the Buyer a draft completion balance sheet of BankWest and its controlled entities, no later than 40 days after completion.

1. Under cl 10.4 of the sale deed, the Buyer could within 40 business days after receipt of the draft balance sheet state that it did not agree with specific items in the draft balance sheet, in which event cll 10.5 and 10.6 of the sale deed provided a procedure for resolution of disputes and finalisation of the completed balance sheet by the expert determination of a person appointed by the chairman of the Institute of Chartered Accountants in Australia, Sydney branch.

1. The expert determination would be final and the draft completion balance sheet would be adjusted to reflect the resolution of all disputed items. Accordingly, if a value of an asset reflected in the draft balance sheet was determined by the expert to be worth less than as reflected, the purchase price would be adjusted downwards. This mechanism the plaintiffs described as the clawback arrangement.

1. The plaintiffs claimed that on or about 19 December 2008 the Commonwealth Bank replaced senior personnel of BankWest and that it was to the economic advantage of BankWest and/or the Commonwealth Bank to call Events of Default on facilities such as the facility and the CPL Group's facilities for the purpose of the clawback arrangement. They claimed that there was a significant economic advantage to the Bank to impair loans.

1. Leaving aside questions of whether this claim had been adequately pleaded, its thrust was that the Bank had (after 5 February 2009) classified the CPL Group facilities as impaired when it knew that they were not, so as to derive, unconscionably, an economic advantage by a reduction in the purchase price in the shares in BankWest under the clawback arrangement.

1. The three central elements of this claim (which I will refer to as the clawback arrangement claim) are that:

(a)   the CPL Group facilities were to the knowledge of the Bank not in fact impaired;

(b)   the Bank nevertheless classified them as impaired; and

(c)   its commercial motivation was to obtain an advantage under the clawback arrangement.

1. However it is characterised, it is a charge of serious and deliberately dishonest commercial misconduct.

1. Between June 2009 and June 2011 McEniery was responsible for the day-to-day management of the Bank's file concerning the CPL Group. Hornstra transferred management of the CPL Group's facilities to her.

1. On 10 September 2009 she submitted a strategy paper to senior officers in the Credit and Asset Management section (CAM) seeking approval for, amongst other things, the appointment of receivers to Botany Road and McIntosh Street and recording a provision for loss of $2.988 M. She gave as reasons for impairment the establishment of ISC to take over CPL's trading, the Rite Pak winding up application, and the appointment of the voluntary administrators.

1. As part of the assertion of commercial misconduct, it was put to McEniery that the strategy paper was prepared for the purpose of impairing the loan no matter what, that it was part of a review of loans to determine whether loans which had been impaired after the Commonwealth Bank acquisition of BankWest could be identified as loans impaired prior to the acquisition, and that she was given those instructions by persons working at the Commonwealth Bank. She denied that this was so.

1. Later, the following exchange occurred:

Baran: And I am suggesting to you you created this particular document for the sole purpose of dishonestly portraying that the CPL group of facilities were impaired requiring the raising of provision when that was not the case?

McEniery: I don't agree with that statement.

1. Still later, the following exchange occurred:

Baran: And again I suggest to you your 10 September document, the strategy paper, is a document which falsely and dishonestly purports to put the CPL group into a category of impaired loans for the raising of provision well-known by you to be false when you wrote it?

McEniery: That's not true.

1. In response to the clawback arrangement claim, amongst others, the Bank called Peter Anthony Ogilvy ("Ogilvy"), who between 16 March 2009 and 1 October 2012 was the Chief Manager CAM (NSW) at BankWest and Kathryn Margaret Porteous ("Porteous"), General Manager of Group Provisioning, Credit Risk at the Commonwealth Bank.

1. On 19 March 2009 Ogilvy received an email from Alan Pavisich, the Head of CAM, ("Pavisich") initiating a review, in the context of the Commonwealth Bank's acquisition of BankWest, of accounts as at 19 December 2008 which required a provision.

1. On 20 March 2009 Pavisich sent Ogilvy, amongst others, an email attaching a list headed "BankWest Business Specific Provisions", which identified a number of accounts. The email referred to a meeting where the Bank had asked them to come forward with some detail on why the Bank had a provision or provision estimate greater than HBOS. Amongst others, Pavisich asked "Did we have a reasonable idea that they were impaired on or before 19/12/2008?"

1. Ogilvy then oversaw members of CAM (NSW) undertake a review of files, including files identified on the Specific Provisions List to assess whether any other loans should be included in the Specific Provisions List.

1. He gave evidence that the CPL Group was not considered during the review process for inclusion in the Specific Provisions List because the impairment event (being the appointment of the voluntary administrators) occurred after 19 December 2008 and was outside the time frame referred to by Mr Pavisich in his 19 March 2009 email.

1. The plaintiffs did not suggest that any of the CPL Group facilities were on the list or reviewed.

1. On 19 February 2009 HBOS submitted a Draft Completion Balance Sheet as required by the sale deed. It recorded both individual provisions and a collective provision for impairment losses on loans.

1. Porteous was one of the persons involved in the Commonwealth Bank's acquisition from HBOS. She was responsible for reviewing and consolidating individual impairment information for inclusion in a Dispute Notice which the Commonwealth Bank sent to HBOS on 20 April 2009 giving notice that it did not agree with a number of items contained in the Draft Completion Balance Sheet, including certain individual provisions.

1. The dispute was ultimately referred to and settled by Ernst & Young, as the expert.

1. I observe that if the Commonwealth Bank had intended to act as was suggested in the clawback arrangement claim, its objects could only have been achieved if HBOS had not taken issue with a relevant challenge to the Draft Completion Balance Sheet or, if it had taken issue, the independent expert would, notwithstanding that the loan had wrongly been impaired, have determined that it was correctly impaired.

1. It is apparent, as Porteous says, that the CPL Group is not included in the Dispute Notice.

1. There was no evidence that impairment of any of the CPL Group facilities could, let alone did, have any downward effect on the price paid by the Commonwealth Bank.

1. There was no evidence that the CPL Group facilities were impaired as at any date earlier than September 2009. No default was called until after 3 February 2009 and thereafter, under the Deed of Forbearance, the Bank agreed not to take enforcement action until August 2009.

1. There was no evidence of any instruction to McEniery dishonestly to impair loans, as was put to her.

1. There was no proper basis for the charges of dishonesty against the Bank or its officers which were levelled in the clawback arrangement claim. It is difficult to see how the view could properly have been formed that there was any basis for the allegations. They should not have been made.

The Singleton-Prudential misleading conduct claim

1. ISC brought a claim that on 11 November 2009 Singleton, on behalf of the Bank, misled Ruskin and Michaelson into not progressing Prudential's indicative offer of finance because he said his recommendation was that the Bank should keep the CPL Group as a client and rewrite their loans, and that ISC thereby suffered damage. This is on the footing that had the Prudential offer been progressed, it would have been implemented and ISC would have been able to refinance with Prudential. Singleton denied having conveyed to them that they should not progress Prudential's offer, either for the reason asserted, or at all.

1. For good reason, the claim was abandoned during submissions. It was bound to fail in its own right. Although it did not assert dishonesty on Singleton's part, it did assert misleading conduct in the course of discharging his professional obligations.

1. First, the assertion as to what Singleton had held out was inconsistent with an email he sent two days earlier, on 9 November 2009, in which he agreed with Ruskin's own proposal that all options should be kept open, including the Prudential offer.

1. Secondly, the offer, even if it had been implemented, would not have enabled ISC to refinance because a significant shortfall remained. At the time, the debt owing to the Bank was some $11.05 M. The Prudential offer was for $6.768 M and assumed the sale of Botany Road at $3.5 M. The total of $10.268 M available was insufficient to discharge the Bank debt. In fact Equiset at the time had offered $3.03 M, increasing the shortfall by $470,000. Added to this, $100,000 was required for Prudential's establishment fee and another $330,000 was required for the Bank's break costs.

1. Thirdly, there was no realistic possibility of ISC meeting the stringent conditions to which the Prudential offer was subject, either in a time span short enough to have staved off receivership, or at all. The conditions required completion of the Seaforth redevelopment, which was still some months away, and MacIntosh Street to be redeveloped jointly with a nominee of Prudential on unspecified terms. This is in addition to the requirement for Botany Road to be sold for $3.5 M.

THE NON-SET-OFF AND DEDUCTION POINT

1. ISC itself is liable under four guarantees. Each of its guarantees incorporates the Banks' Guarantee and Indemnity - Terms (Commercial) (December 2008), which contains provisions that ISC will not reduce its liability to the Bank by claiming a right of set-off against the Bank so long as any of the guaranteed money remains outstanding (cl 9(a)), and that ISC will pay the guaranteed money in full without set-off, counter-claim or deduction (cl 13.1).

1. In its claim, ISC seeks no relief directed to setting aside its guarantees or to directly impeaching its debt obligation to the Bank.

1. The Bank put that the guaranteed money is thus unpaid and its non-payment is a contractual bar to the making of a claim such as ISC's, which is, in effect, asserting a set-off or deduction. Such issues usually arise at an early stage in proceedings, where a lender seeks to raise it as a plea in abatement to a counter-claim brought by a guarantor or borrower. Having regard to the fact that these proceedings are being disposed of on a final basis, and to the fact that ISC has failed, it is not necessary to deal with this issue.

CONCLUSION

1. The plaintiffs' claims are dismissed.

1. The Bank is entitled to judgment against each of the cross-defendants.

1. The Bank is entitled to judgment against each of the female guarantors.

1. All cross-claims against the Bank are dismissed.

1. The Bank is entitled to orders for possession of Seaforth and Allambie Heights.

1. The parties are to bring in short minutes. I will hear them on costs and on any issues which they draw to my attention as still requiring to be dealt with.

1. The Exhibits are to be returned.

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Decision last updated: 29 November 2013