Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd

[2001] NSWSC 448

Reported Decision: (2001) 38 ACSR 404
(2001) 10 BPR 18, 717
[2001] NSWSC 448
[2001] ACL Rep 120 NSW 76
[2001] ACL Rep 185 NSW 12

New South Wales

Supreme Court

CITATION:	MARONIS HOLDINGS LTD v. NIPPON CREDIT AUSTRALIA LTD [2001] NSWSC 448
CURRENT JURISDICTION:	EQUITY
FILE NUMBER(S):	SC 1946/94
HEARING DATE(S):	10/07-8/9; 9/10-19/10; 30/10-1/11/00
JUDGMENT DATE:	7 June 2001
PARTIES :	Maronis Holdings Limited - First Plaintiff Girvan Corporation (New Zealand) Ltd (in Liq) - Second Plaintiff Nippon Credit Australia Limited - First defendant Paul Francis Petersen - Second Defendant Warren Alexander Duncan - Third Defendant Alan Raymond Ambler - Fourth Defendant Christopher McCulloch - Fifth Defendant Robert Vincent Ramsay - Sixth Defendant Brian Wilson & Ors (Clayton Utz) - Seventh Defendant Peter Bowen & Ors (Gadens Ridgeway) - Cross-defendants to First Cross-claim
JUDGMENT OF:	Bryson J at 1

COUNSEL :	B.W. Rayment QC, J.E. Marshall & G.R. Kennett for First and Second Plaintiffs F.M. Douglas QC & T.G. R. Parker for First Defendant R. K. Rasmussen for Second Defendant G.E. Underwood & T. Thawley for Third Defendant A. McGrath for Fourth Defendant C. McCulloch in Person Fifth Defendant R. Darke for Sixth Defendant R. Macfarlan QC & J.P.A. Durack for Seventh Defendant J.B. Simpkins SC for Cross-defendants to First Cross-claim
SOLICITORS:	Henry Davis York (Ms S. Lever) for First and Second Plaintiffs Allen Allen & Hemsley (P. Kerr) for First Defendant English Kearns (M. F. English) for Second Defendant Peter W. Hopkins for Third Defendant Thompson Eslick (P. Thompson) for Fourth Defendant C. McCulloch in Person Fifth Defendant Greaves Wannan & Williams (S. Burns) for Sixth Defendant Minter Ellison (Ms S. Hooke) for Seventh Defendant Phillips Fox (Mrs K. Rigney) for Cross-defendants to First Cross-claim.
CATCHWORDS:	CORPORATIONS - Directors' duties - exercise of powers - Directors of Girvan Australia included the only two directors of Maronis, a subsidiary of Girvan NZ which was 74% controlled by Girvan Australia, 26% by public through listing on NZ stock exchange - Directors caused Maronis to mortgage its principal asset to Nippon Credit to secure loan of A$15m to Girvan Australia - no cross-security or recorded arrangement for protection of Maronis - on the facts, the Directors of Maronis were liable for breach of duty - claims against other officers failed. Consideration of - Charterbridge and duty of directors - formalities relating to appointment of directors. Claims against solicitors who acted for Girvan Austrlaia and against Nippon Credit for alleged breaches of fiduciary duties to Maronis failed. Consideration of Res Judicata and Ashun Estoppel. Assessment of equitable compensation based on value of land when Nippon Credit took control.
LEGISLATION CITED:	Conveyancing Act 1919 (NSW) Companies Act 1955 (New Zealand) Evidence Act 1995 Real Property Act 1990 (NSW) Community Land Management Act 1989 (NSW)
CASES CITED:	Advance Bank of Australia Ltd, v. FAI Insurances Ltd (1987) 9 NSWLR 464 Arklow Investments Ltd, v. Maclean [2000] 1 WLR 594 AWA Ltd v. Daniels (1992) 7 ACSR 759 Bank of New Zealand v. Fiberi Pty Ltd (1994) 12 ACLC 48 Banque Belge Pour Uetranger v. Hambrouck & Ors [1921] 1 KB 321 Beach Petroleum NL v. Kennedy (1999) 48 NSWLR 1 Belmont Finance Corporation v. Williams Furniture Ltd & Ors (No.2) [1980] 1 All ER 393 Breen v. Williams (1996) 186 CLR 71 Birtchnell v. Equity Trustees Executor and Agency Co. (1929) 42 CLR 384 Brick & Pipe Industries Ltd v. Occidental Life Nominees Pty Ltd [1992] 2 VR 279 Bristol and West Building Society v. Mothew [19981 Ch 1 Charterbridge Corporation Ltd v. Lloyds Bank Ltd & Anor [1970] Ch 62 Clark Boyce v. Mouat [1994] 1 AC 428 Consul Development Pty Ltd v. DPC Estates Pty Ltd [1975] 132 CLR 373 Corporate Affairs Commission v. Drysdale (1978) 141 CLR 236 Daniels v. Anderson (1995) 16 ACSR 607 Dovey v. Cory [1901] AC 477 Equiticorp Finance Ltd (in liq) v. Bank of New Zealand (1992) 29 NSWLR 260 Equiticorp Finance Ltd (in Liq) v. Bank of New Zealand (1993) 32 NSWLR 50 Equiticorp Industries Group v. The Crown [1998] 2 NZLR 481 Farrow Finance Co. Ltd (in Liq) v. Farrow Properties Pty Ltd (in Liq) & Ors (1997) [1999] 1VR 584 Haira v. Burbery Mortgage Finance and Savings [1995] 3 NZLR 396 Hill v. Van Erp (1997) 188 CLR 159 Hogan v. Howard Finance Limited (1987) AFC 55-594 Howard Smith Ltd v. Ampol Petroleum Ltd [1974] AC 821 Linton v. Telnet Pty Ltd (1999) 30 ACSR 465 Macedone v. Collins (CA NSW unreported December 1996) MacIndoe & Anor v. Parbery (1994) Aust Torts Reports 61 Macquarie Bank Ltd v. Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 MB v. Protective Commissioner [2000] NSWSC 718 Morris v. Kanssen [1946] AC 459 Nelson & Ors v. Larholt [1948] 1 KB 339 Nicholson v. Permakraft Ltd (1983) 3 ACLC 453 Northside Developments Pty Ltd v. Registrar General & Ors (1990) 170 CLR 146 O'Hollaran v. R.T. Thomas & Family Pty Ltd (1998) 45 NSWLR 262; O'Brien v. Gillespie (1996) 41 NSWLR 549 Permanent Trustee v. Boulton (1994) 33 NSWLR 735 Perre & Ors v. Apand Pty Ltd (1999) 198 CLR 180 Selingor United Rubber Estate v. Craddock [1968] 1 WLR 1555 Shuttleworth v. Cox Bros Co. [1927] 2 KB 9 Sinclair v. Brougham & Anor [1914] AC 398 Stacpoole v. Glass [ 1870] 1 VLR (L) 195 Storey v. Advance Bank Australia Ltd (1993) 31 NSWLR 722 Walker v. Winbourne & Ors (1976) 137 CLR 1 Whitehouse v. CarIton Hotel Pty Ltd. (1987) 162 CLR 285 Williams v. Marac Australia Limited (unreported, SC(NSW), Hodgson J, 6 May 1985 Williams v. Marac Australia Ltd (1985) 5 NSWLR 529
DECISION:	Equitable compensation against Directors - see para 550

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON J.

THURSDAY 7 JUNE 2001

1946/94 MARONIS HOLDINGS LTD & ANOR v NIPPON CREDIT AUSTRALIA PTY LTD & ORS

JUDGMENT

1   INDEX Para

The Girvan Group and the takeover 2
Girvan NZ, development of the LTS and related
financial arrangements 24
Mr McCulloch’s Memorandum of 28 March 1989 43
Consideration of the funding arrangements 69
The outcome of the Memorandum dated 28 March 1989 73
The insurance bond as a condition of giving the mortgage 83
Form of the guarantee and mortgage documents 92
Conferral of Power of Attorney 100
Officers of Maronis Holdings Ltd 123
Financial position of Girvan Australia 149
Charterbridge and fiduciary duty of directors 173
The pleaded charges against Mr Duncan and Mr Ambler 193
The position of Mr Ambler 228
Events and meetings on 1 June 1989 272
Conclusions on breaches of fiduciary duty 289
Claims against Mr Petersen 314
Claims against Mr McCulloch 326
Claims against Clayton Utz 337
Claims against Nippon Credit 417
Res Judicata 492
Anshun Estoppel 503
Real Property Act 1900 (NSW) s.42 511
Terms 512
Decision in favour of Nippon Credit 513
Equitable compensation and land value 514
Orders 550

2   The Girvan Group and the takeover. This complex litigation arises out of the affairs of companies associated with Girvan Corporation Ltd, referred to in these proceedings as Girvan Australia, and Girvan Corporation (New Zealand) Ltd, referred to as Girvan NZ; and to proposed development of land at Crossroads, near Liverpool New South Wales, as a transport terminal. The pleadings are very complex and obscure. There were lengthy interlocutory proceedings before trial. Amendments produced the Fourth Further Amended Statement of Claim (FFASC).

3   Building and development enterprises bearing the name Girvan existed for many years before 1987. In 1987 Sift Limited obtained control of companies of that name and changed its name to Girvan Corporation Ltd, and was listed on the Australian Stock Exchange as a public company in September 1987. Mr Paul Petersen the second defendant was a director and a leading figure in its affairs throughout the relevant events. The third defendant Mr Warren Duncan and the fourth defendant Mr Alan Ambler were directors at the time of listing, as were others; and they remained directors throughout the relevant events.

4   Girvan Australia had many subsidiaries. Their relationship to Girvan Australia sometimes descended through chains of subsidiaries. Presently significant subsidiaries included Loc-Tex Holdings Pty Ltd and its subsidiary Loc-Tex International Pty Ltd; these companies were concerned with property development business. Another was Girvan NSW Pty Ltd, which carried on construction business.

5   The Liverpool Truckstop Site (LTS) is a generally triangular site which about 1987 could be recognised as bounded generally on the north and north-west by the road then called the Hume Highway, now called Camden Valley Way, on the south-east by Campbelltown Road, at that time the access road between the Hume Highway and the South Western Freeway, and the planned northern extension of the South Western Freeway, since constructed so as to carry the South Western Freeway, now known as the Hume Highway, north and east towards Liverpool and intersect with the M5 motorway. The state of the property at the opening of events is generally illustrated by the photograph at Exhibit 37 p1.3.

6   The extension of the Freeway completed the definition of a triangle each side of which was to be a major road, and increased the prospects for development related to road usage. In the triangle there were a hotel site in the north-eastern apex and 11 smaller parcels of land in various ownerships used for rural purposes. All 11 parcels of land had Rural zonings, with small variations in their terms. In 1987 and 1988 Loc-Tex International accumulated options to acquire these 11 parcels. Loc-Tex and Loc-Tex International also investigated the feasibility of developing the LTS as a large comprehensive transport terminal. The investigation was extensive and included obtaining costings dated 19 February 1988 prepared by Exley & Associates for work to be done on the site, preparing architects’ drawings, making rezoning applications, drafting tender submissions, preparing feasibility studies and approaching potential investors. Loc-Tex International commissioned Don Fox Planning Pty Ltd to prepare an environmental planning study for the purpose of a rezoning application. A rezoning application was made to Liverpool Council in January 1988, leading to extended consideration by Liverpool Council, preparation and advertisement of a Draft Local Environmental Plan, consideration of submissions and the gazettal of Liverpool Local Environmental Plan No. 182 on 4 November 1988. The effect of LEP182 was to enable approval be given for development as a transport terminal, while leaving the previous zoning instruments to operate otherwise. The Liverpool Development Control Plan No. 5, which was approved by Liverpool City Council on 20 December 1988 and came into force on 8 February 1989, contemplates development of the whole site as a transport terminal.

7   In 1988 arrangements were made for Loc-Tex International to transfer the benefit of the options to Oxford House Ltd. Oxford House was a New Zealand company then controlled by interests associated with Girvan Australia. These arrangements first took the form of an agreement in writing dated 29 June 1988 which was markedly defective. The agreement was rectified by an agreement made on 31 August 1988 to which Loc-Tex International, Loc-Tex and Oxford House were parties.

8   From June to September 1988 Girvan Australia acquired a majority interest in Girvan NZ, the second plaintiff, by a series of events. At that time the company which became Girvan NZ was named St Martins Properties Ltd. It was formed in New Zealand, carried on construction and development business, and did not have any operations in Australia. Its shares were listed on the New Zealand Stock Exchange. 74 per cent of its shares were owned by Unigroup Pacific Ltd and 26 per cent of its shares were owned by others, mostly members of the New Zealand public. Atwood Holdings Ltd, which was wholly owned by Girvan Australia, made a share sale and purchase agreement with Unigroup (the Atwood Agreement) on 29 July 1988 for the purchase of 74 per cent of the shares in St Martin Properties Ltd for NZ$59,180,360.

9   Also on 29 July 1988 Girvan Australia entered into an agreement to sell to St Martins Properties all the shares in Dextran Investments (New Zealand) Ltd. This is referred to in the evidence as the Dextran Agreement. The Dextran Agreement brought about transfer to St Martins Properties of economic control of assets in a Settlement Balance Sheet, with warranties which affected the values of some assets. The parties included two private companies which held the minority shares in Dextran, and also Mr Petersen, Mr O’Neill and Mr Duncan. The Dextran Agreement was interdependent with the Atwood Agreement so that they were to be settled contemporaneously (as they later were). St Martins Properties was to purchase the shares in Dextran for a price to be calculated which later proved to be NZ$46.55m. With control of Dextran would pass control of its subsidiaries, one of which was Oxford House Ltd and another, described as “Buddle Findlay Shelf Company (name to be advised)”, later proved to be the first plaintiff Maronis, which had been formed on 13 June 1988. The assets of Dextran and its subsidiaries were to include the LTS, which for the purposes of the settlement balance sheet was valued at NZ$29m; they also included a freehold property at Nielson Street, Onehunga, Auckland, subject to mortgages, which was leased to Transpac Holdings Ltd, and a leasehold property at Toop Street and Port Road, Seaview, Wellington, also mortgaged and leased in part to Transpac Holdings Ltd. St Martins Properties was to retain from the purchase price funds required to pay out the options over the LTS, and pay them out progressively as required.

10   In cl.8 of the Dextran Agreement Girvan Australia gave St Martins Properties covenants relating to these properties. Clause 8.1 gave St Martins Properties a put option to sell the Wellington property to Girvan Australia on stated terms by giving notice in writing within 12 months following the settlement date. The covenant in cl.8.2(a) is:

(a) The Sydney Property will be re-zoned to permit its development as a comprehensive transport terminal in accordance with the proposal therefor prepared by Girvan (details of which have been delivered to the Purchaser prior to his execution hereof) …

11   Clause 8.2(b) provides for the exercise of the options.

12   Clauses 8.3 to 8.5 read:

8.3 Girvan further covenants and agrees with the Purchaser in respect of the Sydney Property that:
(a) Girvan will spend the first A$8 million in establishing the required infrastructure works provided that such expenditure is first certified as being due and payable by an independent registered quantity surveyor approved by the parties;
(b) the cost of completing the infrastructure works will not exceed A$15 million;
(c) the infrastructure works will be completed within twelve (12) months following the Settlement Date.
8.4 For the purposes of Clause 8.3 the term ‘infrastructure works’ shall have the same meaning ascribed to that term in the development proposal referred to in Clause 8.2(a).
8.5 The Purchaser covenants and agrees with Girvan that from the proceeds received from the sale of parcels of the Sydney Property it will progressively refund to Girvan the A$8 million referred to in Clause 8.3(a) PROVIDED THAT
(a) the prices paid to the Purchaser or the Company on the sale of such parcels shall be at an average of not less than A$9.00 per square foot as determined by the actual sale contract or, where the sales of the parcels are not negotiated on an arm’s length basis, as determined by independent valuation;
(b) the average sale price determined as aforesaid shall be calculated on a continuing basis following every sale by dividing the total prices at which the parcels are sold by the number of sales made;
(c) the Purchaser will in any event refund the said A$8 million in full to Girvan on the first business day following that on which the said infrastructure works are certified by an independent engineer approved by the parties as having reached the stage of practical completion;
(d) the Purchaser shall use its best endeavours to bring the infrastructure works to the stage of practical completion

13   Clause 8.6 provided for Oxford House to be given shares of project management fees and management agreement fees to be earned by Girvan and not to be less than A$1.25m. This was referred to in evidence as the Profit Share Agreement.

14   In 1989 Mr Boscawen and Mr McCulloch, who were the persons most concerned with managing Girvan NZ’s affairs day to day, were unable to locate any documents which showed details of the proposal referred to in cl.8.2(a), or which defined the required infrastructure works referred to in cll.8.3 and 8.4. However, there is no issue in this case which requires it to be established what in detail were the required infrastructure works referred to in these clauses. It is completely clear that far less than A$8m was spent on infrastructure works, and that infrastructure works were not completed within 12 months following settlement date.

15   The covenants in cl.8 were given to St Martins Properties, now Girvan NZ. Maronis was not entitled to enforce the covenants, although the covenants related to zoning of and improvements on land which Maronis later came to own. The contemplation of the parties to the Dextran Agreement was that the LTS would be an asset of a subsidiary of Girvan NZ, not that it would be an asset of or beneficially owned by Girvan NZ. Nothing happened which conferred on Girvan NZ any beneficial interest in the LTS, which was to be transferred to Oxford House or its nominee by Loc-Tex International. Oxford House or its nominee was to be purchaser under the options pursuant to the agreement of 29 June 1988 and rectifying agreement of 31 August 1988. It has never been contended that Maronis, to which Oxford House in some way passed its interest, was not the beneficial owner of the LTS.

16   As between Girvan Australia and Girvan NZ including its controlling shareholder Unigroup Pacific, the Atwood Agreement and the Dextran Agreement were arm’s-length transactions; the boards of the two companies considered the two agreements independently and made their own decisions to commit their companies and subsidiaries to them. The then directors of St Martins Properties formed a favourable view of the LTS project, and expressed that view in their minutes after an investigation which included their visiting the site.

17   On 1 September 1988 an Extraordinary General Meeting of the shareholders of St Martins Properties resolved to approve the proposal set out in an Explanatory Statement circulated with notice of the meeting (Ex A, pp.220-49). The purchase of the shares in Dextran Investments, and the Dextran Agreement, were approved. This resolution fulfilled a condition for the operation of the Atwood Agreement and the acquisition by Girvan Australia of 74 per cent of the shares in Girvan NZ. The approval also brought the Dextran Agreement into operation.

18   There had been some dealings relating to Maronis before 1 September 1988. In some way Maronis became identified as one of the subsidiaries referred to in the Dextran Agreement. Mr Ramsay, who was already Secretary of Girvan Australia, became Secretary of Maronis on 18 August 1988 and Mr O’Neill, who was one of the parties associated with Girvan Australia in the Dextran Agreement, became a director of Maronis. The Foreign Investments Review Board (FIRB) granted Maronis approval to acquire the Crossroads property on 22 August 1988. This approval was granted “… on condition that development of the property commences within 12 months”, that is, within 12 months of the approval or by 22 August 1989. On 29 August 1988 the 10 issued shares in Maronis were transferred, nine to Oxford House and one to Mr Barraket as trustee. Also on 29 August 1988 Mr Hopkins and the defendants Mr Duncan and Mr Ambler became directors of Maronis. On 31 August 1988 the correct parties made the rectifying agreement by which Oxford House became entitled to be the nominee of the options to purchase. In some way which has not been established Oxford House passed the benefit of these nominations to Maronis. Maronis later effectually exercised all the options, completed the contracts, became the owner of the 11 parcels, consolidated them and eventually became the registered proprietor of the consolidated parcel.

19   On 31 August 1988 a Profit Sharing Agreement was made between Girvan Australia and Oxford House; this fulfilled the contemplation of clause 8.6 in the Dextran Agreement. To be effectual it was necessary that there should later be a Project Management Agreement and a Property Management Agreement and that Girvan Australia should earn net profits in respect of them. The arrangements would have had to be accommodated to the facts that it was Maronis and not Oxford House which became the owner of the land, and that it was Loc-Tex International and not Girvan Australia which earned the management agreement fees. Some steps were taken towards the preparation of a Project Management Agreement, but no written agreement of that kind was prepared or executed. At one time Clayton Utz were given instructions to draft an agreement but later these instructions were deferred. Loc-Tex International in fact acted as project manager of the development in 1988 and 1989 (and Girvan Australia did not so act). Loc-Tex International did not act under any written agreement or any other agreement the terms of which can be seen from evidence. As no development took place there was no occasion for a Property Management Agreement. Oxford House, which is not a party to this litigation, is the only person which could have any entitlement to a profit share. There is no sign that any of the persons concerned departed from the assumption that there would be entitlements to shares of profits broadly in accordance with the Dextran Agreement.

20   There were other elements of the proposal presented to and approved by St Martins Properties’ Extraordinary General Meeting. St Martins Properties was to obtain assets including cash receivable and construction plant and equipment to which the value of NZ$4m was attributed. St Martins Properties was also to obtain the right to conduct all existing and future Girvan business activity in New Zealand, a royalty-free and exclusive licence to use specialist intelligent building technology known as Total Asset Protection in New Zealand for 15 years and the exclusive right to the use of the “Girvan” name in New Zealand. Girvan Australia gave St Martins Properties a guarantee of payment of the rent of the warehouse and distribution centres in Neilsen Street, Auckland and Seaview, Wellington for five years (Ex A, p.358). Messrs Duncan, O’Neill and Petersen personally gave a Profit Guarantee: they agreed to underwrite any shortfall below NZ$9m in St Martins Properties’ pre-tax profits for its financial period ending 30 June 1989 (Ex A, p.360), and also to underwrite any shortfall below NZ$27m in the aggregate of the company’s pre-tax profits for its three financial periods to the end of 30 June 1991. There was to be a special interim dividend of seven cents per share. Unigroup, the vendor of the 74 per cent shareholding, was to buy back from St Martins Properties two commercial properties for NZ$10.9m, with a profit share arrangement for any subsequent resale. Directors of St Martins Properties appointed by Unigroup were to resign and be replaced by Girvan-appointed directors.

21   The Atwood Agreement and the Dextran Agreement were contemporaneously settled on 2 September 1988. From then on Girvan Australia, which beneficially owned 100 per cent of the shares in Atwood Holdings, controlled 74 per cent of the shareholding in Girvan NZ. All previous directors of St Martins Properties resigned on 1 or 2 September 1988, and on 1 September Mr Petersen became Managing Director and Mr Duncan, Mr Ambler, Mr Hopkins and Mr O’Neill became directors. On 12 September 1988 Mr Boscawen became Secretary of Girvan NZ. The same directors were elected at the Annual General Meeting on 14 October 1988. At that AGM it was resolved that the name of the company be changed to Girvan Corporation (New Zealand) Ltd. Girvan NZ is the second plaintiff.

22   Girvan NZ controlled Maronis through a chain of subsidiaries; Girvan NZ beneficially owned all the shares in Dextran, Dextran beneficially owned all the shares in Oxford Holdings and Oxford Holdings beneficially owned all the shares in Maronis. Mr Barraket, an in-house lawyer of Girvan Australia, was the registered owner of one share in each of Atwood, Oxford House and Maronis, and two shares in Dextran, on trust for the beneficial owners, which were the registered holders of all other shares.

23   The LTS project is referred to in minutes of meeting between Mr Petersen Mr O’Neill and Mr Boscawen on 26 October 1988 which record (Ex A, p.457):

Girvan NZ as owner of the Liverpool Development Site is forecasting a profit of NZ$10.4m (A$8.0m) for the period ended June 1989. This comprises more than 50 percent of the profit for Girvan NZ and it is absolutely essential that this be achieved. The profit is to be achieved by a partial sell down of the 108 acre development.

24   Girvan NZ, development of the LTS and related financial arrangements. Mr Young of Loc-Tex International undertook work related to development of the Crossroads property. He engaged Capital Management Realty Ltd, a licensed real estate agent controlled by Girvan Australia, for work relating to leasing and leasing strategies. He engaged Peddle Thorpe & Walker Architects to do master planning and concept design works. Loc-Tex International, in the person of Mr Young, also managed the acquisition by Maronis of the 11 parcels of land; the options were exercised and settlements occurred over the period from 28 November 1988 to 7 April 1989. The work and expenditure on acquisition and development were appropriate for serious commitment to the project.

25   Changes in the management structure of Girvan Australia took place in January 1989. Mr Petersen became Executive Chairman and his duties were to include overseeing Girvan NZ. In this structure Mr Duncan was Managing Director, Mr Stephen Bartrop was Director Group Marketing, Mr Bruce Hill was Director Group Investments, Mr D Collis was Director Group Construction and Mr Ambler was Director Group Development. Mr McCulloch was responsible for Corporate Strategy as part of Group Advisory Service.

26   Mr Hopkins resigned as a director of Girvan NZ and Maronis on 23 January 1989 and Mr O’Neill resigned on 19 April 1989. They do not have significant parts in the later events. Mr McCulloch was referred to as Acting Managing Director or as Managing Director of Girvan NZ, and acted appropriately from January 1989 onwards, although he was not appointed as a director until 19 April 1989. Apart from some company officers who were board members for several days, all directors were resident in Australia; they attended New Zealand from time to time but Mr McCulloch was by far the most active. From 19 April 1989 onwards the directors of Girvan NZ were Mr Petersen, Mr Duncan, Mr Ambler, Mr McCulloch and Mr Kanas. Mr Kanas lived in Chelmer, Queensland.

27   Mr McCulloch prepared a document “Girvan NZ Position Paper (Draft 17th February 1989)”. He did this when directed by Mr Duncan to prepare a strategic review of the operations of Girvan NZ. There are several different forms of this paper in evidence, all marked draft, and the document at Ex A, p 590 is probably the last form. Mr Coleman and Mr Boscawen took part in preparing this document.

28   This paper is of very qualified significance because it was not finalised, it was not signed, and it is not referred to in minutes as having been presented at any board meeting or adopted. Mr Duncan saw one or more forms of it. An idea which was not directly expressed in the Position Paper but soon came to the surface was that Girvan Australia should support Girvan NZ’s need for money for its cash flow in some way such as by guaranteeing borrowings by Girvan NZ.

29   A draft of the Position Paper was before the Girvan Australia Executive Board Strategy meeting, referred to in Mr McCulloch’s diary notes of 20 January 1989 (Ex A, p.526). The diary note shows that the expected profit from the LTS was regarded as critical to “final commitment”, which I take to refer to the Profit Guarantee.

30   In what is apparently the last form it shows contemplation of these things about the position of Girvan NZ:

(1) There was to be estimated expenditure of NZ$4.4m on the LTS to June 1989, and this was to be funded by Girvan Australia under the Dextran Agreement.

(2) There could be requirements for progress claims on a project called the Wanganui Site, for which a construction loan was being negotiated.

(3) Girvan NZ required payments from Girvan Australia under rental guarantees relating to the properties in Auckland and Wellington.

(4) It was expected that there would be sufficient profit in the year ended 30 June 1989 to obviate recourse to the Profit Guarantee (which guaranteed NZ$9m).

(5) Girvan NZ was to make a claim under the Dextran Agreement for over NZ$4m under a warranty relating to the net asset position.

(6) Planning the layout of the LTS site was in the final stages and work on roadways was to begin in March 1989. It was expected that A$3m would be spent on site works prior to 30 June 1989 and a further A$12m between 1 July and 31 December 1989.

(7) Girvan Australia was to fund the first A$8m of development expenditure and “It would appear that these funds can be raised against the Liverpool Site asset but be serviced by Girvan Australia.” (Ex A2/597). There were currently no borrowings against the Liverpool asset.

(8) Girvan NZ would require approximately NZ$3.3m to fund its operation to June 1989. This did not include expenditure which would fall into the first A$8M on the LTS site, or additional progress claims on Girvan NZ’s Wanganui project.

(9) Project and design management fees had been budgeted “and agreed” and set out A$600,000 as the fees to 31 December 1988, and A$4,200,000 as the fees chargeable at A$100,000 per month (suggesting that they would be chargeable for three and a half years). Shares of fees were referred to as income to Girvan NZ.

31   This is the first recorded expression of contemplation that the LTS might be mortgaged to raise funds for the first $8m of development expenditure. The plaintiffs’ case involves several strong themes about funding raised by mortgaging the LTS site. One is that Girvan Australia was in a very poor financial position throughout the first half of 1989, to the extent that it was not capable of doing what was necessary to carry out the LTS development, either by bearing the first A$8m of development costs or otherwise by carrying on the enterprise. Related to this is a theme that, at 1 June 1989, there was no intention to use the funds borrowed from Nippon Credit to carry out any work on the LTS site and the real purpose of borrowing was to reduce the overdraft of Girvan Australia and enable its operations to continue. Related to this were contentions that on 1 June it was not possible to carry on with the LTS development, and that there was no intention on the part of the directors to do so.

32   On 17 and 20 February 1989 a Girvan Australia directors’ meeting considered Girvan Australia’s cash position.

33   At a meeting on 23 February 1989 between Mr Ambler, Mr McCulloch and Mr Hill, after discussion of a request by AGC for Girvan Australia to guarantee construction finance to be given to Girvan NZ or a subsidiary to pay for construction at Wanganui, Mr Hill said to the effect that giving guarantees was a real problem because many Girvan Australia loan facilities contained negative pledges and restrictions on the ability of Girvan Australia to give guarantees. Giving guarantees for Girvan NZ impacted on capacity to borrow. The issue of Girvan Australia giving guarantees should be avoided when approaching borrowing for future Girvan NZ projects, especially the LTS.

34   On 13 March 1989 all members of the boards of Girvan Australia, Girvan NZ and Maronis were present at a meeting in the boardroom of Girvan Australia in Walker Street, North Sydney. Mr McCulloch, Mr Ambler, Mr Petersen and Mr Duncan were present, as were Messrs O’Neill, Bartrop, Hill, Young and so was Mr Brian Downes of Capital Management Ltd. This was not treated as a board meeting of any company; no minutes were kept and no resolutions were passed. Mr McCulloch and Mr Duncan made notes which are no more than odd jottings. Matters discussed included Girvan NZ’s needs for Girvan Australia guarantees (referred to by Mr McCulloch): the impact of guarantees on security ratio obligations and the perception that guarantee liabilities appeared twice, in the accounts of the guarantor and in the accounts of the debtor (referred to by Mr Hill); Girvan Australia’s commitment to fund A$8m of infrastructure works (by Mr McCulloch); the need for Girvan New South Wales to be satisfied that Girvan NZ could pay for all the works when required to do so and the need to have facilities for A$15m prior to the works commencing (by Mr Petersen).

35   The meeting ended inconclusively with a statement by Mr Petersen to the effect that Mr Hill and Mr McCulloch needed to investigate further an acceptable solution to have the funding in place and available prior to commencement of the LTS works. There was general acceptance that borrowing funds by Girvan Australia on the security of the LTS site was appropriate to be considered as means of raising funds for Girvan Australia’s A$8M obligation and also for Girvan NZ’s obligation for the balance, and was worthy of being investigated further. The direction taken from then on was influenced by this acceptance.

36   The 13 March 1989 meeting exposed difficulties and did not resolve any. Girvan NZ needed financing for its operations to 30 June 1989. It had entitlements and claims against Girvan Australia which had not been resolved. Financiers sought guarantees from Girvan Australia if they were to finance Girvan NZ projects but there were factors which limited Girvan Australia’s readiness to give guarantees. Girvan Australia was obliged to finance the first A$8m of the LTS development costs but Girvan NZ was obliged to pay the remaining A$7m and to repay the A$8m on practical completion; and Girvan Australia and its subsidiary Girvan NSW reasonably required to be satisfied that Girvan NZ had funding arrangement to meet payments totalling A$15m as and when required. Much money and effort had been spent on acquiring the LTS and preparing for development, and works were expected to start soon. Time constraints arose out of the FIRB approval and the Profit Guarantee, clause 8.3(c) of the Dextran Agreement and the nature of development business. The financing requirements could conceivably be changed by joint venture arrangements with others or by selling the whole project. It would be a disaster for Girvan NZ and Girvan Australia if A$8M was expended on the work and then Girvan NZ could not pay for the work to continue. Girvan NZ was not in a good position to borrow A$7M for the work, or A$15m to be paid on practical completion, because it did not have the income or the means to service the borrowing; to borrow sums like that Girvan NZ needed Girvan Australia’s guarantee, and it had used up all the support of that kind which Girvan Australia was willing to give when the Wanganui financing was obtained. It would not have been responsible or realistic for Girvan NZ to say that it insisted on Girvan Australia seeing to it that the work began and the first A$8M of work was paid for, leaving the means for raising money to meet Girvan NZ’s obligations to be worked out in the future, possibly by some pre-sale of part of the development or joint venture arrangement, but also possibly without any solution emerging. Girvan Australia did not have a right under the Dextran Agreement or otherwise to raise money on the security of the LTS site, but to contemplate that happening was not to desert Girvan NZ’s interests.

37   On 14 March 1989 Mr Petersen gave Mr McCulloch, and Mr McCulloch gave Mr Young a program of work on the LTS site which Girvan NZ required Mr Young and Loc-Tex International to follow. This required Stage 1 internal site works, drainage, sewerage, water and electricity to pass through design and documentation in March and April, contracts to be let in April and May, and construction to proceed from May to September, with landscaping. The program also provided for Stage 2 bridge work and loop road outside the site to pass through design and documentation by the end of June with construction to follow.

38   In March 1989 Mr McCulloch and Mr Hill had further discussions as contemplated on 13 March. These probably occurred before 17 March. Mr Hill raised some concerns which had been voiced on 13 March: that Girvan NSW would not be able to start work until it was assured that funds to cover the full costs were in place; that Girvan NZ had to repay the first A$8m and the remainder of the costs; that there was a need for funding for A$15m to be in place from commencement, that Girvan NZ could not demonstrate a capacity to service a loan of that magnitude without pre-sales and would probably require a Girvan Australia guarantee which it would be difficult to give. Mr Hill said “Maybe the third party mortgage/pre-paid contract idea is the way to go.” Mr Hill referred to a Westpac indicative offer. This appears also to be referred to in the letter of 17 March 1989, but whatever might have been expected, Westpac did not make an offer of financing for the LTS. Mr McCulloch said “This would mean Girvan NZ would have to make the Liverpool land security available to Girvan Australia to raise funds for the LTS development.” He spoke further but made no commitment.

39   This conversation appears to be the first articulation of the concept that Girvan Australia would borrow funds, that Girvan NZ would provide the LTS land as security for the borrowing, and that the borrowed funds (or possibly A$8m of them) would be paid to Girvan Australia as a pre-paid contract for the work. The concept was unclear in detail and there was no commitment to it on either side at that time.

40   On 17 March 1989 Mr Hill as Director of Girvan Australia wrote a letter (Ex A, p.673) in formal terms to the directors of Girvan NZ which included the following:

Girvan Corporation is about to commence the infrastructure works at the Liverpool Transport Centre and wish to ensure sufficient funds are available to meet the initial expenditure of A$15m.
Girvan Corporation are required to spend the first $8m in development costs with Girvan New Zealand providing the balance. In order to fund the development costs Girvan Corporation recommend that Girvan New Zealand make available the Liverpool site as security.
Assuming the Liverpool site is available as security, Westpac are prepared to lend up to 70% of the current valuation of $27 million - namely A$19M. The first $8 million would be paid to Girvan to meet the initial development costs.

41   Copies were sent to each director of Girvan NZ. Mr Petersen noted on a copy “Ask Chris to organise a board meeting to discuss” (referring to Mr McCulloch).

42   Though Mr Hill’s letter of 17 March 1989 is not completely explicit it referred to Girvan NZ making the LTS site available as security for a borrowing by Girvan Australia. Westpac was at that time considering an application to increase credit to Girvan Australia by A$30m on security over property at a loan to security ratio of 17 per cent; the proposed borrowing credit was for A$30m. Westpac declined this proposal on or by 22 March. Although Mr Hill’s letter said “the first $8 million would be paid to Girvan to meet the initial development costs”, there was no restriction of this kind in the dealings then taking place with Westpac, in which all money advanced on the LTS site as security was to be advanced to Girvan Australia. Mr Hill did not propose any machinery which would restrict use of the funds, or any advantage or protection for Girvan NZ or Maronis of any kind.

43   Mr McCulloch’s Memorandum of 28 March 1989. A memorandum by Mr McCulloch dated 28 March 1989 dealt with the matters raised by Mr Hill’s letter of 17 March 1989. This memorandum was circulated to the directors of Girvan NZ namely Messrs Duncan, O’Neill, Petersen and Ambler and also to Mr Boscawen and Mr Hill. The Memorandum was probably circulated on 3 April 1989. Copies are at several places in evidence: Ex A, p.748, Ex A, p.754 and Ex 20, p.108A (which has most of the annexed schedules with it.) Mr McCulloch opened the memorandum by restating the letter of 17 March 1989:

As you are aware, the Board has been approached by Girvan Corporation Ltd (GVN/A) to give consideration to:
(a) giving a third party mortgage over the Liverpool Truck Stop (LTS) in favour of GVN/A;
(b) GVN/A borrowing A$19.0M against the Liverpool site as part of a working capital facility;

(c) GVN/A borrowing A$19.0M or 70% of the security value of A$27.0M.

…

it is my recommendation that the Board of GVN/NZ approves a borrowing by GVN/A against the (LTS) security in line with signed contracts for work on the site which are fixed in terms of price, time to complete and other loan settlement conditions which are discussed later.

44   The memorandum went on to set out passages from the Dextran Agreement and to say:

In summary it is my contention that GVN/A has, via the Dextran Agreement, committed to:
(a) completing the defined ‘infrastructure works’ for a maximum of A$15.0M by 1st September 1989, i.e. which is twelve months from the date of the Dextran Agreement;
(b) GVN/A must fund (without access to the LTS security) the first A$8.0M [see Clause 8.3(a)] with repayment as per Clause 8.5 …

45   The memorandum went on to discuss the infrastructure works and the basis for the figure of A$15m. The Memorandum contended that the covenant and agreements in cl.8.3 of the Dextran Agreement were substantially unfulfilled in that:

(i) no real work has commenced;
(ii) the contract price of A$15.0M as per the Dextran Agreement has not been locked in to date and GVN/A faces quotes in excess of that figure even allowing for a variation imposed by the Department of Main Roads (DMR) in respect to the loop entry onto the site and other matters.
(iii) GVN/A is now asking for access to the security to fund the initial A$8.0M instead of internally funding that amount with repayment via the process outlined in Clause 8.5 …

46   The Memorandum then referred to a re-estimate made in September 1988 by Exley & Associates of the costs of the works at A$16.3m, as a result of conditions imposed on rezoning after making the estimate on which A$15m referred to in the Dextran Agreement was based.

47   The Memorandum made the following recommendation:

Although I expressed in paragraph 3 of this memo a preparedness to recommend a GVN/A borrowing I cannot recommend the GVN/NZ Board approves a loan in excess of A$16.3M and can only recommend that level of borrowing if GVN/A commits to the fulfilment of its obligations under Clause 8.3 of the Dextran Agreement with the variations as discussed above.
Given the above, I propose the following motion be put to the GVN/NZ Board for approval:-
(a) GVN/A is allowed to draw down A$16.3M against the Liverpool Truck Stop security on the following conditions:
(i) if GVN/A signs a new contract to complete the ‘infrastructure works’ as defined, including consultants’ charges, for a fixed price not exceeding A$16.3M to be completed in a negotiated time frame not exceeding 18 months;
(ii) if GVN/A agrees to be responsible for all financing charges on the first A$8.0M and any repayment or excusing of this interest liability would occur in accordance with Clause 8.5 of the Dextran Agreement;
(iii) if GVN/A immediately on draw down repays from the borrowed funds all moneys outstanding to GVN/NZ as at March 31, 1989 on its own behalf and on behalf of Oxford House Pty Ltd.
…
(iv) that GVN/A agrees that the current costings prepared by GVN/A (via Girvan NSW Pty ltd) on which progress claims to date are being based are withdrawn as irrelevant given the existing commitment of GVN/A at a lower price (see Schedule G);
(v) a performance or insurance bond to cover GVN/A’s cost to complete the service works;
(vi) If GVN/A pays a 2% facility fee to GVN/NZ for the use of the security (i.e. 2% of $16.3M or $326,000);
(vii) GVN/A agrees to discharge the borrowing against the LTS security on demand of GVN/NZ to enable it to joint venture the LTS project.

48   The total of Girvan NZ’s claims against Girvan Australia was given as NZ$7m.

49   The Memorandum and recommendations set out in it were discussed between Mr McCulloch and Mr Duncan and also between Mr McCulloch and Mr Boscawen while the Memorandum was being prepared up to 3 April 1989. After copies of the Memorandum were distributed there was no meeting, formal or informal, of the directors of Girvan NZ in which the Memorandum or the recommendations were discussed, accepted, rejected, or any decision was taken on them. There was no such event either before 19 April 1989 when Mr McCulloch was acting as and was reputed to be the Managing Director, or on or after 19 April when he was appointed to the Board of Girvan NZ. Mr Ambler recollects a meeting or meetings at which the Memorandum was discussed in the presence of Duncan, Petersen, McCulloch and Hill, but he is unable to give any matter of detail and does not say that any decision was taken.

50   On 12 April 1989 Mr Downes told Mr McCulloch that the Westpac facility fell through, that Girvan Australia was now making arrangements with Custom Credit and/or Nippon Credit and that he would keep Mr McCulloch advised.

51   On 14 April 1989 Mr McCulloch sent Mr Ambler and Mr Young a memorandum emphasising that A$16.3m for infrastructure works was the ceiling figure and included items priced in a schedule by Exley & Associates in September 1988, with deductions if any of these items were deleted. He said that the detailed estimates by Exley & Associates must be treated as “the Bible”.

52   Mr Boscawen prepared a summary statement of claims by Girvan NZ against Girvan Australia and related parties and sent it to Mr McCulloch with his memorandum of 17 April 1989 Ex A3/795. This represented the result of some months’ work, involving employment of a consultant accountant, on claims arising out of the settlement of the Atwood Agreement and arrangements relating to the take-over. Mr Boscawen reported that there was a variance from the Settlement Statement of NZ$8,570,332, and after adjusting amounts payable to or receivable from various members of the Girvan Group he reported that the final amount due to Girvan NZ was NZ$5,368,586, although he recognised that various details within the claim would need to be discussed.

53   On 24 April 1989 Liverpool Council informed Loc-Tex International that the development application for the LTS had been approved on 18 April 1989, subject to conditions. On 1 May 1989, the development consent was given, on conditions set out in it.

54   Minutes of the Girvan NZ Executive Committee Meeting of 27 April 1989 attended by Mr McCulloch Mr Boscawen Mr Hoskins and Mr Fielding do not deal with the subjects in the Memorandum dated 28 March 1989. (I do not suggest that they ought to have done so). Item 23 is:

LIVERPOOL
23.1 Girvan NZ about to sign a contract for earth works.
23.2 Girvan Corporation propose joint venture with Petro Limited for the joint operation of the truck stop at Liverpool.
23.3 Possible joint venture partners include I.E.L. and A.E.L.

55   Minutes of the Executive Committee Meeting of Girvan NZ of 11 May 1989 attended by Mr Boscawen, Mr Fielding, Mr Hoskins contained an identical Item 23 (Ex A, p.877).

56   On 10 May 1989 Girvan NSW sent Loc-Tex International a budget estimate of $24,256,774 for the site works for the LTS project - Ex A3/870. Girvan NSW contemplated a target construction start date of 3 July 1989 to meet which there were a number of requirements including:

“1. No amendments to current design brief (by Loc-Tex).
2. Written approval for the availability of funds by 16/6/89 (by Loc-Tex).
3. Evidence of lodgement of the consolidation plan by 23/6/89 (by Loc-Tex).
4. Submission of DA application for loop road and bridge by 16/6/89 (by Loc-tex).
5. Execution of contracts for the site works and Project Management by 16/6/89.
6. Outstanding authority approvals anticipated by 2/6/89.”

Girvan NSW also stated “… as per our programme we are calling tenders for the site works on the 17/5/89.”

57   On 3 May 1989, according to Mr Duncan’s evidence, he met Mr McCulloch and there were discussions about the Liverpool Truckstop, settling the outstanding balance of the Dextran Agreement, the funding of the commencement of the infrastructure works on LTS and other topics (t1463). Mr McCulloch informed Mr Duncan that there had been a finalisation of the arrangements for funding for the commencement of the infrastructure works on the Liverpool site (t1476). These passages in evidence do not mean that Mr McCulloch withdrew or modified the conditions in his memorandum of 28 March 1989. If the evidence had that meaning, I would not accept that such an agreement was reached. In any event, Mr McCulloch’s recommendation and conditions were not something which Mr McCulloch and Mr Duncan could arrange between them.

58   In a memorandum of 12 May 1989 from Mr McCulloch to Messrs Duncan, Ambler and Petersen relating to “… the request by Girvan Corporation Ltd for working capital advance …”, it was reported that there was “agreement with Girvan NSW Ltd / Rose Church NSW Ltd for the agreed scope of works as outlined in the Girvan NSW Cost Plan 2 dated 10th May 1989 and supporting schedules to be completed for A$19.425M …”. Figures and reasons were set out for this:

Original Exley Price 9966 1
Escalation 1300 2
Agreed Variation 7756 3
Less Exley Fees +
Contingency (1100)
Water Contruction ( 803)
Sewer Construction (1056)
16063 4
Capital cost of site
office 225
Consultants fees (incl long
service leave contribution) 1700 5
Preliminaries 337
Contingency 800 6
Profit/Project Man 900
Less fees paid by Loc Tex
(12 x 50) ( 600)
19425

59   In a memorandum also of 12 May 1989, from Mr McCulloch and Mr Young to Mr Payne with a copy to Mr Ambler, Mr McCulloch said:

Regarding the site works at Liverpool for A$19.425M.
It has been agreed that Girvan NZ allow Girvan NSW to finalise the previously contracted Earthworks by:
(1) Borrowing $15.0M from Nippon Bank under a working capital facility which is supported by the Liverpool Truck Stop land (held by Moranis Holdings Pty Limited).
(2) Financing the balance from internal resources i.e. $4.425M.

60   He also said:

It has been agreed that the contract will be open in every respect and if tender prices are favourable there will be an equal sharing of that benefit between both sides.
The other conditions that require agreement are:
(i) A performance guarantee to cover Girvan Australias cost of A$19.425M to complete the job.
(ii) Girvan Australia recovers the outstanding progress claims for fees from the job.
(iii) If Girvan Australia immediately on draw down repays from the borrowed funds all moneys outstanding to Girvan NZ as at April 30, 1989 on its own behalf and on behalf of Oxford House Pty ltd. The call on Girvan Australia in regard to Oxford House Pty limited is subject to conditions in Clauses 7 in conjunction with Schedule C of the Dextra Agreement. This amounts to $NZ 60 approximately.
(iv) If Girvan Australia pays a 2% facility fee to Girvan NZ for the use of the security (i.e. 2% of $150M or $300,000);
(v) Girvan Australia agrees to discharge the borrowing at its own cost against the LTS security on demand of Girvan NZ to enable it to joint venture the LTS project.

61   (The reference in para (iii) to NZ$60 was intended to refer to NZ$6.0m: see t2379.)

62   In this memorandum Mr McCulloch sought to have some important conditions referred to in his memorandum of 28 March 1989 incorporated in the contract for performing the infrastructure works. Statements in this memorandum imply that Mr McCulloch would have accepted a decision to borrow A$19.425M on the security of the LTS.

63   On 15 May 1989 Mr Duncan and Mr Ambler are recorded in a minute of the directors of Maronis Holdings Ltd as conducting a directors’ meeting and approving entry into the Nippon Credit transaction. Also on 15 May 1989 Mr Hill and Mr Petersen as directors of Girvan Australia resolved to approve the Nippon letter of offer relating to A$15.0m advance. The amended Letter of Offer from Nippon dated 17 May 1989 was also signed by Messrs Hill Petersen Duncan and Ambler, without further directors’ meetings.

64   On 29 May 1989 Mr Duncan met Mr Petersen and Mr Hill and discussed settlement of the Nippon loan and the conditions sought by Mr McCulloch. The fact that they discussed the conditions sought by Mr McCulloch confirms that no decision had then been taken accepting or rejecting Mr McCulloch’s proposed conditions for giving security over the LTS site to support financing for Girvan Australia. This is so whether the conditions required by Mr McCulloch are those set out in the Memorandum of 28 March 1989 or were modified by the memorandum from Mr McCulloch and Mr Young to Mr Duncan, Mr Ambler, Mr Petersen of 12 May 1989.

65   There is evidence, which is disputed, that in the course of the discussions Mr Hill said “I should be able to get the bond but I will not be able to do so by completion”. Mr Petersen said “[w]e’ve been talking about this re-financing long enough. Everyone has agreed on the terms.

66   The project is important for both companies. So long as Bruce thinks he can get the bond to satisfy Chris, go ahead and do it.”

67   The consolidating Deposited Plan 788987 was registered in May 1989 and Folio Identifier 102/788987 was issued on 30 May 1989 for Lot 102, which is the LTS site.

68   On 1 June 1989 Mr Ambler and Mr Duncan are recorded in a minute of Maronis as having resolved to enter the Mortgage and the Guarantee and Indemnity and to seal those documents.

69   Consideration of the funding arrangements. Mr Petersen voiced a requirement on 13 March 1989 that funding for A$15m be in place at the commencement of work. It was only realistic to require that there be clear and reliable arrangements for funding, such as a commitment by a financial institution, before Girvan NSW did work for which Girvan NZ would be obliged to pay A$15m in total by or at practical completion. By voicing this concern Mr Petersen did not indicate a repudiation of or serious departure from the commitment in the Dextran Agreement that Girvan NZ fund the first A$8m; the commitment only meant that payment of that A$8m was deferred until practical completion, which did nothing to reduce the importance of ascertaining Girvan NZ’s capacity to pay it. The need to have funding in place could not realistically have been met unless the LTS land was mortgaged to raise A$15m. However, it could have been met without paying the money borrowed to Girvan Australia, and it could have been met by obtaining a commitment from a financier to advance money from time to time to make payments as work progressed and the claims for payment exceeded A$8m, and then to pay the balance of A$15m on practical completion. There was no actual need to satisfy Mr Petersen’s concern by borrowing the whole A$15m in one advance and doing so before any work was commenced; but if that were done, there was no need for the money to leave the control of Maronis, or perhaps of Girvan NZ, before Girvan NSW became contractually entitled to some payment.

70   Maronis was in no position to obtain finance of that kind, as it had no business or affairs except to own the LTS land, no revenue and no capacity to service borrowings. If Girvan NZ guaranteed borrowings by Maronis, the borrowings would have to be supported by the capacity to repay and the financial position generally of Girvan NZ. Girvan NZ had difficulty in obtaining construction finance for large sums, and this was exemplified by experience in raising construction finance for the Wanganui project, which Girvan NZ could not obtain without guarantee support by Girvan Australia. Girvan NZ’s borrowing capacity was limited by the Equity-to-Tangible-Assets ratio conditions of its existing financing from the Bank of New Zealand and the ANZ Bank; further borrowing might water down the equity and reduce the ratio below BNZ’s requirements. Any other financier would probably have treated the ratio as important. Mr McCulloch commented on the impact of the ratio on borrowing capacity in one of the drafts for the Position Paper (see Exhibit A/2 p534) and Mr Boscawen took part in preparing this document. On behalf of Girvan Australia difficulties were perceived and expressed by Mr Hill against giving further guarantees to support borrowings by Girvan NZ.

71   Clause 8.5 in the Dextran Agreement shows contemplation that there might be sales of parcels of land forming parts of the LTS which would produce proceeds before practical completion of the infrastructure works. This could not have happened in the project which was under consideration in 1989 for which development consent was obtained on 1 May 1989. The development consent was not a consent to subdivision and expressly made no commitment to Council’s giving consent to a subdivision, and according to ordinary conveyancing practices no proceeds of sales could be available unless first there were a subdivision and a registered plan of subdivision. However in the development industry there may be feasible transactions in which joint venture interests or other interests raise proceeds before practical completion. Unless some such arrangement was made, or the whole project was onsold before practical completion, the prospects appear to have been that Maronis would have to find at least A$7m to pay for works while the works were proceeding and pay the balance of A$8m at practical completion, without assistance from proceeds of sales in the meantime.

72   In the circumstances I regard it as unremarkable that arrangements for raising finance for carrying out work on the LTS took a form in which Girvan Australia was the borrower, Maronis gave security over the LTS land and both Maronis and Girvan NZ were to incur guarantee liability. However, the elements in the situation which suggested that the financing arrangement should take this form did not carry with them any requirement that any funds, or that the whole of the funds raised be paid over to Girvan Australia immediately. There was obvious room for concern and arrangements about the protection of the interest of Maronis as owner of the land, and about regulating access by Girvan Australia to the funds.

73   The outcome of the Memorandum dated 28 March 1989. The memorandum from Mr McCulloch to the directors of Girvan NZ dated 28 March 1989 was a realistic presentation of the interests and point of view of Girvan NZ (and also of Maronis) raised for consideration by the letter from Mr Hill of 17 March. It brought forward and set out Girvan NZ’s entitlements under the Dextran Agreement and emphasised those which had not been fulfilled. It made recommendations which would have protected Girvan Australia (and also Girvan NZ) and then set out in detail his proposed resolution for Girvan NZ’s Board in which safeguards were spelt out. It would have been appropriate for the same matters to have been considered by the Maronis Board; Mr McCulloch did not point that out expressly, but that should have been obvious to Mr Duncan and Mr Ambler, who in fact were the directors of Maronis and both saw the Memorandum dated 28 March, if they had given any consideration to Maronis’ position.

531   My finding is that a developer who brought forward a proposal, in 1990, for a rezoning of the LTS site would probably have obtained a rezoning decision which allowed some of the site to be available for general industrial uses, but only as part of arrangements which did bring about a development of a large transport terminal occupying a significant part of the site, in the order of a third or half the site. A purchaser contemplating purchasing the site in 1990 could reasonably have regard to the prospects of obtaining a rezoning allowing general industrial uses only if he also had regard and brought into account the lack of certainty about a favourable outcome and about the proportion of the area which would be available for general industrial uses, and the indefinite nature of the period of time required for obtaining an outcome.

532   There could be no certainty in the view of a hypothetical purchaser addressing purchase the land in 1990. Rezoning would be the outcome of political and administrative processes, not only of the Liverpool City Council but also of the State Government, and there could be no certain prediction of the outcome. Mr Crawford was in a good position to gauge what might be the outcome of consideration by Aldermen and the hypothetical reasonable purchaser was not, and would probably have been guided by advice from a Town Planner such as Mr Grech on the prospects of obtaining a rezoning. The existing zoning and the availability of redevelopment as a transport terminal would have been the principal use in the view of a hypothetical reasonable purchaser, the prospects of obtaining a favourable redevelopment would also have been considered but would be a relatively small influence.

533   Mr Valuer Retallick, whose evidence was called by the plaintiffs, had regard to a number of sales of land for which zoning permitted industrial use and the land was available for development. In his report Exhibit L Mr Retallick said to the effect that while the LTS site was ideally located for use as a transport terminal, the commercial viability of the project as at February 1990 was questionable and might not represent highest and best use at that time. The size of the site and the magnitude of the project might well exceed the requirements for a transport terminal complex; the economic climate would lead to deferment of large scale property development projects. In valuing the property he had regard to alternative uses of the whole of the land or use of part of the land as a scaled down transport terminal with consideration given to subdivision and alternative uses of the balance of the site. He regarded the zoning for transport terminal as intrinsically an industrial use. When proceeding from a value per hectare derived from comparable sales he made discounts so as to allow for the larger area of the subject land than the area in any comparable sale, and a further discount to allow for a period of 10 months during which time an amended zoning might be expected to be achieved to allow uses of a more generalised industrial nature.

534   In my finding Mr Retallick did not make sufficient allowance for the restrictive nature of the zoning. He assumed that an amendment to the zoning would be available in 10 months; that in my view is much too short a time for the processes involved. Mr Retallick assumed that a rezoning to general industrial uses or general industrial uses combined with use of part for a transport terminal would be available; but in fact a favourable outcome was uncertain, there were significant prospects that change of the zoning would not be available and that the existing zoning would remain for some years, and zoning permitting subdivision was not readily available. In my judgment to accommodate all these uncertainties by simply discounting the present value for 12 months at 12 % per annum was altogether inadequate. Uncertainties particularly as to subdivision meant that Mr Retallick’s hypothetical development approach based on subdivision of the land into eight large area parcels of which seven could be utilised for general industrial purposes was unreliable in my view. There is no Town Planning evidence establishing that there were prospects of obtaining subdivision into eight large area parcels, or dealing with the possibility at all. The inherent unreliabilities of hypothetical development exercises were compounded by the contingencies of rezoning and in particular of obtaining subdivision approval, so much so that the hypothetical development exercise was not useful.

535   The nature of the LTS site and the difficulty of finding comparable sales led Mr Retallick to have regard to sales of industrial land at ranges of value much further from the value attributable to the LTS site than he ordinarily would. In dealing with comparable sales Mr Retallick did not have regard to sales in Campbelltown. While comparability is very difficult to perceive because of the size of the LTS land and its site-specific zoning, I am of the view that it is an unsatisfactory feature of Mr Retallick’s valuation that he did not look at sales in Campbelltown and did not allow those sales to have some influence on his thinking. His approach may be contrasted with the position taken by Mr Valuer McRae, who attributed great significance to sales near Campbelltown.

536   Mr McRae also had regard to sales of land with general industrial zoning, and saw the zoning of the LTS site as a restriction to a particular type of industrial undertaking. In my view it was a correct method to have regard to sales of land zoned for general industrial use; there is no other method of identifying comparable sales or material for comparison, as there is no more closely analogous zoning classification and the valuers did not know of any sale of land with site specific zoning as a transport terminal.

537   In principle it was less than ideal to refer to such sales, having regard to the site-specific zoning and the difficulty and delay which stood between a purchaser and obtaining some modification of the zoning which would permit industrial development other than as a transport terminal for part of the land. Purchasers who might be interested in the LTS site can be taken to be equipped with information and advice about the uncertainties involved in rezoning. In my judgment a hypothetical purchaser in 1990 would have in view the opportunity to develop a transport terminal on the site, by the purchaser or by someone else, as the highest and best use and the most significant advantage of ownership, but would also treat the prospect of obtaining a rezoning to develop part of the site for general industrial purposes as important. The location and advantages of the LTS site for a transport terminal were very great, as it was located at the southern gateway to the Sydney metropolitan area and could be made directly accessible from the Freeway. No other land in any sale put forward by Mr Retallick or Mr McRae had comparable advantages for a transport terminal. A further large difficulty for comparability was the size of the LTS site at 45.88 hectares. Most of the sales referred to by Mr McRae and Mr Retallick were of sites less than half this area, usually far less.

538   Mr McRae’s approach involved drawing heavily on the influence of general movements in the economy as well as on matters particular to land sales and comparable sales. In his report he said “From mid-1989 vendors were still seeking maximum prices but purchasers were becoming exceedingly cautious.” From this passage and from other treatment in his evidence I understand his position to be that in the first half of 1990 sales were few, not that the prices at which sales were effected had fallen below the previous year.

539   In Mr McRae’s Schedule of Comparison Sales (which should be distinguished from comparable sales), Exhibit 37 Schedule 1.12, Sale 4 was the sale of a transport terminal of 27.7 hectares at Minto completed on 13 November 1996. The property did not have the same locational advantages as the LTS site and the sale was more than six years removed from the relevant date. Mr McRae’s Sale 7, a transport terminal at Ingleburn of 22.04 hectares completed on 30 November 1996, was also far removed in time and different in locational advantages. Mr McRae derived an average of $219,097 per hectare from 12 sales in his Schedule 1.12; these sales range in completion date from 3 June 1987 to 1 December 1997, in size from 2.02 hectares to 27.7 hectares and in analysed price per hectare from A$78,253 to A$340,000. What they had in common was relative proximity to the LTS site; they were all generally located near Campbelltown in the south-western approaches to the metropolitan area, principally at Minto and Ingleburn. I see no validity in averaging these sales as a valuing method. The result of the averaging process was adopted by Mr McRae and is supported by the weight of his opinion, which is very considerable in view of his decades of experience as a valuer and also as an agent for buyers and seller of industrial land; his opinion is of more importance than the arithmetical process.

540   Mr McRae identified three of the comparable sales referred to by Mr Retallick of which he said “There are only three properties to which Mr Retallick refers which, I believe, could be considered to be anywhere near comparable.” Using the references in Mr McRae’s Schedule 1.10 to Exhibit 37 these were Sale 6 at Huntingwood, Sale 11 at Mt Druit and Sale 14 at Smithfield. All these three transactions took place in 1989 or 1990; this has some advantages as a claim to attention. Sale 6 was a sale of 8.94 hectares at Huntingwood in October 1990 at a price which yielded a rate per hectare of $460,000. Mr McRae regarded this as a comparable property although of course he observed on the locational differences and what he said were established differences in the market levels of industrial land values to the West of Sydney from values to the South-west. Mr McRae commented “The parent company in the UK was flush with money and wanted to build a large new head office, bottling plant and distribution facility.” I do not regard this comment, which was based on Mr McRae’s knowledge as an agent in the sale, as seriously qualifying the utility of the sale in a valuing exercise; the comment did not indicate that the purchaser was under any compulsion or circumstances of stress, and purchasers usually have good reason to buy land and enough money, but stay rational. Sale 11 at Mr Druit in November 1989 of 10.78 hectares at a price which yielded $525,000 per hectare was regarded by Mr McRae as a comparable property but a superior site. In my view, for reasons given by Mr McRae it plainly was a superior site in respect of location for an industrial development, and its advantages included access to transport and facilities which would influence an industrialist with a large staff. Sale 14 related to a site at Smithfield, and the sale in April 1990 of 12.46 hectares at a price which yielded $350,000 per hectare. Mr McRae regarded this as a comparable property having some bearing on comparative value.

541   While Mr McRae’s views have had a large influence on my findings having regard to his experience in valuing and his immersion in the market for industrial land, I conclude that overall he has been unduly influenced by sales at too great a distance in time from the first half of 1990 and by sales of industrial land, including land with uses for transport terminal or transport support, in the south-western approaches to Sydney which were much smaller in area and had far less inherent locational advantages than the LTS site. Direct and convenient access for large trucks from the Freeway and enough room to provide a wide range of facilities in support of motor transport, including transport of persons as well as of goods, cumulatively represent a difference in kind to much smaller properties away from the Freeway and used as transport terminals or facilities.

542   In cross-examination it was put to Mr McRae that the sum of the costs of acquisition of the LTS land represented a minimum for the value which should be attributed to this; Mr McRae rejected this reasoning, and in doing so he was correct in principle, as there is no necessary relation between the cost of aggregation and the value of the land aggregated.

543   As recurringly happens in the assessment of damages or compensation, a conclusion must be reached even though the evidentiary material does not point in any well-defined way to some particular conclusion. The valuation of land is an inherently difficult process and for the LTS site the difficulties of addressing the subject with any precision are unusually large. In my view the value of $219,097 per hectare which was the basis of Mr McRae’s conclusion about the open market value was insufficient. I am also of the view that the two adjustments he made of the value of access to the Orbital Route Transport System and the value of what he called the Signature Address, totalling A$1m, did not represent a sufficient allowance for these factors. These adjustments are more than usually imponderable, but my view is that the adjustments made by Mr McRae were inadequate, and his valuation at A$9.5m is much too low. I regard Mr Retallick’s conclusion and professional opinion as entitled to respect and as having some weight in my findings. In my view the value of the LTS land was in the order of A$300,000 per hectare.

544   In my finding the value of the LTS site when it was lost to Maronis was A$13.75m.

545   When the preparation of my reasons had reached this point and judgment had been reserved for seven months, I was informed that agreement had been reached between the plaintiffs and the first defendant Nippon Credit for disposal of the proceedings as between them, both on the plaintiffs’ claim and on the cross-claim against Maronis. This will have a chain of consequences for other cross-claims. No liability will fall on Maronis under the personal covenant in the mortgage, or under the Guarantee and Indemnity. Equitable compensation will be assessed on the loss of the LTS land and interest since the loss.

546   During the hearing I said that I would defer consideration of cross-claims, other than Nippon Credit’s cross-claim against Maronis, until I had come to conclusions on the principal claims. Disposition of cross-claims will be considerably simplified, but there are some matters remaining to be considered and I will leave it to the parties to bring forward drafts of what they assert are the proper orders after I publish these reasons.

547   During the hearing an agreement between the plaintiffs and the sixth defendant Mr Ramsay, and a ruling which I gave on a cross-claim against Mr Ramsay, had the effect that he was dismissed from the proceedings.

548   I have not yet considered any question of costs.

549   Interest at the rates usually allowed on judgment debts from 25 May 1990 to today 7 June 2001 is A$17,921,429.79.

550   The orders which I am now in a position to make for the reasons which I have stated are as follows:

(1) Upon the plaintiffs’ claim against the second defendant Mr Petersen, give judgment for the second defendant.

(2) Upon the claim of the first plaintiff Maronis Holdings Limited against the third defendant Mr Duncan and the fourth defendant Mr Ambler give judgment for the first plaintiff for A$31,671,429.79.

(3) On the claim of Girvan Corporation (New Zealand) Limited (in Liquidation) against the third defendant Mr Duncan and the fourth defendant Mr Ambler give judgment for the third and fourth defendants.

(4) Upon the plaintiffs’ claim against the fifth defendant Mr McCulloch give judgment for the fifth defendant.

(5) Upon the plaintiffs’ claim against the seventh defendants Mr Wilson and others practising as Clayton Utz give judgment for the seventh defendants.

(6) Reserve liberty to apply with respect to cross-claims and with respect to costs.

551   By consent I make the orders in the Short Minutes and note as in para.6.

552   I publish the reasons and I ask the parties to please bring in their drafts about disposition of cross-claims and take up any questions of costs on Thursday next 14 June 2001.

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Last Modified: 06/12/2001