McKellar, Donald Campbell & Ors v Commonwealth Bank of Australia Commonwealth Bank of Australia v McKellar, Donald Campbell
[1996] FCA 954
•6 Nov 1996
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY ) No. VG 56 of 1994
)
GENERAL DIVISION )
BETWEEN: DONALD CAMPBELL McKELLAR
(First Applicant)
AND: SUZANNE KAYE McKELLAR
(Second Applicant)
AND: JAMES IAN McKELLAR
(Third Applicant)
AND: JEFFERY DARELL FOSTER
(Fourth Applicant)
AND: JENNIFER MAREE FOSTER
(Fifth Applicant)
AND: COMMONWEALTH BANK OF AUSTRALIA
(Respondent)
AND: COMMONWEALTH BANK OF AUSTRALIA
(Cross-claimant)
AND: DONALD CAMPBELL McKELLAR
(First Cross-respondent)
AND: SUZANNE KAYE McKELLAR
(Second Cross-respondent)
AND: JAMES IAN McKELLAR
(Third Cross-respondent)
AND: JEFFERY DARELL FOSTER
(Fourth Cross-respondent)
AND: JENNIFER MAREE FOSTER
(Fifth Cross-respondent)
CORAM: Ryan J
DATE: 6 November 1996
PLACE: Melbourne
REASONS FOR JUDGMENT
RYAN J: As a result of certain orders which I am told are to be made by consent as between the second, third, fourth and fifth applicants and the respondent ("the Bank"), the relief
claimed in the amended application filed on 11 August 1994 is no longer necessary. The prayer for relief in that amended application was as follows:
An interlocutory injunction restraining the Respondent whether by itself, its agents, attorneys or otherwise from enforcing or seeking to enforce any right as mortgagee in respect of the properties at -
138 Western Branch Road, Kin Kin Queensland
8 Crisp Street, Hampton, Victoria
1-3 Victoria Street, Ulverstone, Tasmania
and being the land more particularly described in the following Certificates of Title -
State of Queensland Volume 6609 Folio 57
State of Victoria Volume 3485 Folio 863
Volume 6153 Folio 540
State of Tasmania Volume 2964 Folio 3
Volume 2673 Folio 24
Orders and Directions for all necessary accounts and enquiries to establish the interest payable to the Respondent by the first Applicant pursuant to the Bill Discount Facility of $315,000 which matured on 3 August 1993 as at 17 August 1993.
Damages under s.82 Trade Practices Act 1974.
Damages.
Order pursuant to s.87 Trade Practices Act 1974 that upon payment by the first Applicant to the Respondent of the amount found payable as at 17 August 1993 the Respondent deliver to the Applicants Discharges of the mortgages held by the Respondent as mortgagee over the land more particularly described in the following Certificates of Title together with Duplicates of such Certificates of Title.
State of Queensland Volume 6609 Folio 57
State of Victoria Volume 3485 Folio 863
Volume 6153 Folio 540
State of Tasmania Volume 2964 Folio 3
Volume 2673 Folio 24
A declaration alternatively an order under s.87 Trade Practices Act 1974 that the respondent is not entitled to rely on the memorandum of mortgage dated 13 February 1989 in respect of the property at Main Street, Ulverstone, Tasmania and being the land more particularly described in State of Tasmania Certificate of title Volume 3541 Folio 71 to secure obligations of Software Innovations R & D Pty. Ltd. to it which exceed the lesser of -
(a)the value of the said land; and
(b)$880,000.
The respondent, the Commonwealth Bank of Australia ("the Bank") has pressed for judgment on its cross-claim against the first respondent ("Donald McKellar"). Liability on that cross-claim is said to arise first under a mortgage executed by Donald McKellar and his wife, Suzanne Kaye McKellar, of a property at 96 Main Street, Ulverstone in Tasmania ("the Main Street, Ulverstone property").
Donald McKellar has at all material times been a director and shareholder of a company, Software Innovations R & D Pty Ltd ("SIRD") and in July 1988 he approached Mr Buncle, the then Manager of the Hampton Branch of the Bank, for a loan of $85,000 by way of extension of a bill discount facility which had been made available to Donald McKellar personally and to which further reference will be made later in these reasons. Donald McKellar's purpose in borrowing that further sum of $85,000 was to buy out the interest of a Mr Butterss in SIRD in which he had been a shareholder and co-director.
By October 1988, SIRD was experiencing financial difficulties and Mr Buncle suggested to Donald McKellar that a registered mortgage be granted over the Main Street, Ulverstone property of which he and his wife were the registered proprietors. The evidence discloses that a form of mortgage in favour of the Bank over the Main Street, Ulverstone property had originally been executed by Donald McKellar but not by his wife. On 31 October 1988, a Regional Manager for the Bank, Mr Pound, said that if the mortgage over the Main Street, Ulverstone property were not granted, the Bank might dishonour cheques drawn by SIRD. The Bank's attitude to the SIRD account at that time is fairly reflected by these paragraphs from a letter dated 22 November 1988 from the Bank to the Secretary, SIRD:
OVERDRAFT ACCOUNT BALANCE $620402 DR
You will note from our letter of 2 May 1988 and subsequent discussions the present overdraft limit is $350000 against which cheques have been paid as a matter of urgency and at your request. Company debt levels and account trends are now unacceptable to the Bank.
At our meeting on the 31st of October last we agreed to pay contractor payments then due with the balance of account scheduled to reduce to $500000 by 4 November and $400000 a week later. We clearly indicated that we were not prepared to allow such substantial limit excesses to continue. Furthermore as a condition of these arrangements, security over the Main Street Ulverstone property was offered and completion of this matter should now be finalized. Decisions regarding additional equity were anticipated by 11 November but we understand a meeting to be held on 25 November may resolve this important issue.
A mortgage over the Main Street, Ulverstone property was ultimately executed by Donald and Suzanne McKellar on 27 November 1988. Suzanne McKellar had been reluctant to sign the mortgage but was prevailed upon by her husband to do so. Donald McKellar and Suzanne McKellar were together identified in the mortgage as "the Mortgagor" and the principal secured by the mortgage was described therein as:
Advances and accommodation granted and to be granted by the Bank at the request of the Mortgagor to Software Innovations R & D Pty Ltd a company duly incorporated under the Companies Act in the State of Victoria and having its registered office at 15-17 Melrose Street Sandringham.
The mortgage contained the following covenant by the mortgagor:
The Mortgagor covenants with the Bank that the Mortgagor will pay the principal sum at such time or times and in such manner as may at any time and from time to time be agreed in writing between the Mortgagor and the Bank and in the absence of such agreement on demand
Interest on the principal sum or on so much thereof as shall for the time being be due or remain unpaid shall be payable at the rate or respective rates agreed upon in writing if any and in the absence of any such agreement then without prior or other notice to the Debtor or the Mortgagor at the prevalent rate charged or chargeable by the Bank for the time being or from time to time to its other customers on the like account such interest to be deemed to accrue from day to day and to be computed from the time or respective times of such moneys being lent provided paid or disbursed or becoming due; and also
Interest on such interest as aforesaid by way of compound interest computed at such time or times and from time to time as the Bank shall think fit at the said rate or respective rates agreed upon if any or if not then at the said rate for the time being or from time to time charged as aforesaid Provided always
(a)that interest on which interest shall have become so payable shall not be deemed thereby or by the inclusion of interest with principal in any balance carried forward or account stated or otherwise than as hereinafter provided to have become capitalized or added to principal, but
(b)the Bank by express entry to that effect in its books and without the necessity of giving notice to the Debtor or the Mortgagor may at any time and from time to time and as from such date as the Bank shall determine capitalize and add to the principal all or any interest on which interest shall have become so payable, and
(c)any such accumulations by way of compound interest or addition to principal may be continued and made notwithstanding that as between the Bank and the Debtor or as between the Bank and the Mortgagor the relation of banker and customer may have ceased and notwithstanding the death bankruptcy winding-up or liquidation of the Debtor or the Mortgagor and notwithstanding any other matter or thing until all moneys hereby secured shall have been paid and satisfied.
The Mortgagor covenants with the Bank that the Mortgagor will pay interest in such manner as may at any time and from time to time be agreed in writing between the Mortgagor and the Bank and in the absence of such agreement on demand
The mortgage as executed by both mortgagors and registered contained this declaration:
It is hereby declared that the moneys expressed to be hereby secured are the same moneys as are expressed or intended to be secured by a certain........ ........ ........ .Mortgage........ ........ ........ .....bearing date the ........ .15th........ ...day of......April.......1987
The mortgage dated 15 April 1987 referred to in that declaration is claimed by Donald McKellar to have been granted by SIRD over a property at 15 Melrose Street, Sandringham. However, the declaration just quoted does not, as Donald McKellar seemed to suggest, limit the liability of the mortgagors under the mortgage of the Main Street, Ulverstone property. It only serves to point out that there is another mortgage in existence securing repayment of the same moneys for which they have covenanted to assume liability.
On 28 November 1988 the mortgage over the Main Street, Ulverstone property as executed was handed over to Mr Pound of the Bank on his assurance, according to Donald McKellar, that the Bank would reassess SIRD's overdraft limit and would revalue the securities which it held in respect of SIRD's debts and, if it found them appropriate, would discharge the mortgage over the Main Street, Ulverstone property.
That assurance, together with the fact that the Bank apparently delayed dating the mortgage and lodging it for registration until 13 February 1989 was relied on by Donald McKellar to found the submission that the mortgage over the Main Street, Ulverstone property was always intended by the parties to be only a temporary security. However, whatever may have been the expectations of Donald McKellar and the Bank in November 1988, it is apparent that the subsequent inability of SIRD to reduce its indebtedness or to provide other acceptable security meant that by May 1989 the use as security of the Main Street, Ulverstone property had become anything but "temporary".
The handing over of that mortgage occurred at a meeting between officers of the Bank and representatives of SIRD on 28 November 1988 of which the following minute was made by Mr Griffiths, the Bank's Assistant Manager, Branches:
Director Don McKellar phoned 25 November 1988 to arrange an interview on Monday 28 November 1988 at Company's new office at Suite 10, 23-25 Melrose Street Sandringham. Present were :-
Don McKellar - Director
Kevin Sharkie - Secretary
David Rist- Company external accountant
Arthur Pound - District Manager
Stephen Griffiths - Assistant Manager Branches
(Branch Manager was absent on RDO)
At outset clients requested we outline the security position as we saw it. Our position was summarised as follows :-
15-17 Melrose Street
Val $433,500 less CDB $103,000 $330,500
G/- by McKellar supported by T/D 150,000
Main Street Ulverstone
(mortgages handed to us) Say 110,000
$590,500
Mr Pound explained that we would not wish to be updating our valuations as they were not very old (approximately 12 months) and the company was experiencing problems. He also explained it was not normal bank policy to lend 100% on freehold. Mr Pound also advised the bank did not see significant value in the remainder of the debtors not factored or the computer systems and equipment also caught up under REM.
On the same day Mr Pound composed a memorandum to the Chief Manager, Branch Network Department, which included this passage by way of explanation of the deterioration in the Bank's exposure to SIRD:
We are trying to get down to and enforce a total commitment figure of $755,000 including bill facilities. Input of additional shareholder funds, outside equity and the bolstering of our security position are being addressed and we could yet extract ourselves from a control nightmare. Mc Kellar is the keyman in these negotiations, he has his substantial personal assets on the line and has proved capable,
honest and open in discussions. These aspects plus the fact that the connection was probably the best at Hampton a few years ago (from 1980) have no doubt been powerful influences in Branch Manager following Mc Kellar as he did. AGC factoring did not perform up to expectations - a failure to date - and the Bank filled the gap.
SIRD continued to be heavily indebted to the Bank and in about May 1990, Donald McKellar agreed to execute a deed of guarantee of SIRD's performance of its obligations to the Bank. He also agreed that the Bank could have recourse to the sum of $150,000 which he had invested on term deposit as part security for repayment of SIRD's debts. That money on deposit represented the net proceeds from the sale of a property at 6 Mildura Avenue, Sandringham, which had been purchased by Donald McKellar personally and which had been mortgaged to provide part of the security for the bill discount facility extended to him by the Bank to which reference has already been made. On 11 May 1990, Donald McKellar signed a standard form letter of acknowledgement to the Bank in these terms:
I hereby acknowledge that the Bank has granted or may be granting from time to time to
SOFTWARE INNOVATIONS R & D PTY LTD
(the Debtor) accommodation and otherwise permitting the Debtor to incur liabilities to the Bank not exceeding an aggregate amount at any one time and from time to time of $880000-00 against the security of my mortgage(s)/guarantee(s) to the Bank referred to in the schedule below.
I clearly understand that my mortgage(s)/guarantee(s) will also secure the payment to the Bank of interest and any costs, charges and expenses with which the Bank shall be at liberty to debit and charge the account of the Debtor or for which I am liable under my mortgage(s)/guarantee(s).
Schedule
REGISTERED MORTGAGE (THIRD PARTY) BY YOU AND SUZANNE KAYE McKELLAR OVER PROPERTY SITUATED AT 96 MAIN STREET ULVERSTONE TASMANIA.
LETTER OF ACKNOWLEDGEMENT BY YOU OVER TERM DEPOSIT 313650019237 HAMPTON BRANCH.
It appears that soon after 11 May 1990, Suzanne McKellar was asked by the Bank to sign a further letter of acknowledgement suggesting that she had given security by way of a guarantee as well as the mortgage of the Main Street, Ulverstone property for repayment of the liabilities of SIRD to the Bank up to an aggregate amount of $880,800. By this time, Donald McKellar had been forced to disclose to his wife that the Bank was insisting on retaining "permanently" the mortgage over the Main Street, Ulverstone property. There is no evidence that any revaluation of the other securities provided by SIRD had occurred with which the Bank expressed itself to be satisfied. Donald McKellar complained to Mr Buncle that Suzanne McKellar was not a guarantor of SIRD's debt to the Bank. According to Donald McKellar, Mr Buncle then acknowledged that Suzanne McKellar had given a mortgage and not a guarantee. When asked by Donald McKellar what was the limit of liability under the mortgage, Mr Buncle replied that it was limited to the value of the property. Donald McKellar then persuaded his wife to sign a letter of acknowledgement, also dated 11 May 1990, in terms similar to those set out above. Apparently, it was not indicated to Suzanne McKellar by her husband that she was thereby acknowledging a liability of up to $880,000. Donald McKellar has deposed that he believed that the worst that could happen to his wife was that "she could lose Main Street, Ulverstone".
However, a further letter of acknowledgement dated 29 May 1990 was signed by Donald McKellar. It was in the standard form already reproduced, also acknowledging that SIRD could be permitted to incur liabilities to the Bank of an aggregate amount of $880,000. The Schedule to the letter of 29 May 1990 recited "Guarantee (unlimited) dated 29 May 1990".
As indicated in that Schedule, Donald McKellar had on 29 May 1990 executed a form of guarantee of performance by SIRD of its obligations to the Bank. The guarantee was embodied in a deed expressed to have been made:
BETWEEN DONALD CAMPBELL MCKELLAR COMPANY DIRECTOR OF 8 CRISP STREET HAMPTON IAN DAVID SPENCE COMPANY DIRECTOR OF 25 DOUGLAS STREET EAST MALVERN LEONHARD KROIS COMPANY DIRECTOR OF 114 WESTMELTON DRIVE MELTON
(hereinafter called the Guarantor) of the first part COMMONWEALTH BANK OF AUSTRALIA (hereinafter called the Bank) of the second part and SOFTWARE INNOVATIONS R & D PTY LTD COMPANY WITH ITS REGISTERED ADDRESS SITUATED AT 644 GLENHUNTLY ROAD SOUTH CAULFIELD VICTORIA
(hereinafter called the Debtor) of the third part ...
It was an "all moneys" guarantee which obliged the guarantors to pay "to the Bank on demand such of the moneys hereinafter mentioned which at any time and from time to time are not paid by the Debtor when due to be paid". The obligation on the guarantors extended to payment of:
(h)interest on all such moneys as aforesaid or on so much thereof as shall for the time being be due or remain unpaid at the rate or respective rates agreed upon in writing if any and in the absence of any such agreement then without prior or other notice to the Debtor or the Guarantor at the prevalent rate charged or chargeable by the Bank for the time being or from time to time to its other customers on the like account such interest to be deemed to accrue from day to day and to be computed from the time or respective times of such moneys being lent provided paid or disbursed or becoming due; and also
interest on such interest as aforesaid by way of compound interest computed at such time or times and from time to time as the Bank shall think fit at the said rate or respective rates agreed upon if any or if not then at the said rate for the time being or from time to time charged as aforesaid Provided always
(i)that interest on which interest shall have become so payable shall not be deemed thereby or by the inclusion of interest with principal in any balance carried forward or account stated or otherwise than as hereinafter provided to have become capitalised or added to principal, but
(ii)the Bank by express entry to that effect in its books and without the necessity of giving notice to the Debtor or the Guarantor may at any time and from time to time and as from such date as the bank shall determine capitalise and add to the principal all or any interest on which interest shall have become so payable, and
(iii)any such accumulations by way of compound interest or addition to principal may be continued and made notwithstanding that as between the Bank and the Debtor the relation of banker and customer may have ceased and notwithstanding the death bankruptcy or winding-up of the Debtor and notwithstanding any other matter or thing until all moneys hereby secured shall have been paid and satisfied
(all of which moneys liabilities and interest as aforesaid are intended to be secured by this Guarantee and are hereinafter referred to as the moneys hereby secured)
By cl. 17 of the Deed of Guarantee it was provided:
A statement in writing made up from the books of the Bank and signed by an authorised officer of the Bank of the amount due or owing of the moneys hereby secured at the date mentioned in such statement shall be prima facie evidence that such amount is so due or owing or secured and of all the other matters therein set forth without it being necessary to produce any books or vouchers to verify the same and without retrospection beyond the preceding half-yearly balance of account in the books of the Bank
Donald McKellar admitted, when cross-examined by Mr Berglund of Counsel for the Bank, that he had executed the Deed of Guarantee from which I have just quoted extracts and that the Bank had demanded payment in satisfaction of his liability thereunder. It was also admitted that no payment had been made in response to that demand. It was objected by Donald McKellar that the identification of the principal debtor in the Deed of Guarantee did not indicate that its indebtedness to the Bank had been incurred in the capacity of a trustee. However, I do not regard that omission as detracting in any
way from the liability to the Bank of either SIRD as principal debtor or of the guarantors.
Pursuant to cl. 17 of the Deed of Guarantee, the Bank called evidence from, and tendered certificates made by, Mr David Miles, the Manager of the Credit Management Section of its Lending Services Department. Those certificates and the evidence of Mr Miles disclosed that as at 15 December 1993 the sum of $1,156,443.21 was the total amount owing to the Bank by SIRD on Account No. 3136 1000 0216 described as "the second Bills Matured Account" and on Account No. 3136 0029 187 described as "the Overdraft Account" and that by 15 October 1996 the total amount owing to the Bank under those accounts in combination had risen to $1,500,183.96.
By the end of 1990, SIRD's liabilities to the Bank had reached the limit of $880,000 contemplated by the letters of acknowledgement of May 1990 and, by letter dated 3 January 1991, Donald McKellar sought a temporary increase to $980,000 in SIRD's accommodation from the Bank. That request elicited this reply from Mr Buncle dated 10 January 1991:
Mr D C McKellar
Software Innovations R & D Pty Ltd
15 Melrose Street
SANDRINGHAM VIC 3191
Dear Don
SOFTWARE INNOVATIONS R & D PTY LTD
ACCOUNT 291-875
We refer to our recent several discussions and confirm the Bank's approval of temporary excesses of $100000 on your working account subject to the following:
.Establishment fee $600-00
.Full clearance by the end of January 1991
.Evidence to be provided by AGC confirming funds will be available to clear excesses
.No excesses of $450000 to be permitted under any circumstances
.Third Party Mortgages/guarantors consents to be provided. (As discussed, in view of the urgency of your request, Mrs McKellar's absence on holiday and her limited liability to the Company, we will waive her consent on this occasion).
.Simple letter from trustee confirming no change to the trust to be provided
.A full review of the account to be carried out in February at which time we will need to know clearance arrangements for the Company Bill Discount Facility and future overdraft requirements.
.Clearance arrangements for your personal Bill Discount Facility
.The position regarding the sale of the Melrose Street properties.
As discussed, in the future the Bank would normally expect the Company to plan for what appears to be an annually recurring situation particularly over the January and post Easter periods.
We have also noted in your letter of 3/1/91 that building plans and quotations for the instalation (sic) of air conditioning in the Melrose Street properties are almost complete. When providing information for the February review we would be interested to learn if these renovations are still to proceed, how the Company proposed to finance the work and any effect this may have on the servicing of the Company's existing commitments.
On 10 January 1991, Donald McKellar signed a further standard form letter of acknowledgement that the Bank had granted or might be granting from time to time accommodation to SIRD or otherwise permitting it to incur liabilities not exceeding $980,000. The Schedule to that letter referred to:
Registered Mortgage (Third Party) by Donald Campbell McKellar and Suzanne Kaye McKellar over property situated at Main Street, Ulverstone, Tasmania.
A year later the limit of SIRD's liability to the Bank was increased to $1,030,000 which Donald McKellar attested by a
further letter of acknowledgement dated 2 January 1992 which instanced in the Schedule:
Guarantee dated 29.5.90
Mortgage dated 13.2.89 over property at 96 Main Street, Ulverstone.
However, by mid 1992 the Bank had ceased to discount bills for SIRD and the company's financial position continued to deteriorate until it was placed in liquidation on 18 November 1992.
The history of the personal discounted bill facility which had been accorded by the Bank to Donald McKellar commenced early in 1984 when he approached the Manager of the Hampton Branch of the Bank for a loan to finance the purchase, with his brother, the third applicant, of a farming property at Kin Kin in Queensland. An offer of finance was made in these terms:
Your application for an advance to assist finance the purchase and development of a farm property at Kin Kin Queensland has been approved on the Bank's usual terms and conditions.
The following special conditions will apply;
*Finance will be by a Bill Discount Facility
*Bill to be discounted at the rate appropriate to Bills of similar size and tenor on the day of discounting
*Facility fee .50% payable ½ yearly in advance
*Usage fee 1.5%
*Facility to be cleared over a maximum period of 5 years
*Applicant to make provision for rollover
We will contact you further when documentation is prepared.
That offer was apparently accepted and the property at Kin Kin was purchased. A mortgage over the Kin Kin land was granted to
secure the amount owing to the Bank under the commercial bills facility. Thereafter the discounted bills facility was "rolled over" as each bill matured and in early 1987 Donald McKellar again approached the Hampton Branch of the Bank, which by then was managed by Mr Buncle, seeking funds to purchase a property at 6 Mildura Avenue, Sandringham and to refinance the Main Street, Ulverstone property. In response to that request the Bank advised:
We refer to our recent discussion and are pleased to advise that your application for finance has been approved on the following basis:
.A Bill Discount Facility of $215,000 (Gross) on the Banks usual terms for these type of facilities.
.Security is to be a Registered Mortgage (3rd Party) over the farm land at KinKin Qld (already held) and a Registered Mortgage over the property to be purchased at 6 Mildura Avenue Sandringham.
.Establishment fee of $1000.
.Usage/facility fee of 1.75% with the bill to be discounted at the rate appropriate to bills of similar size and tenor on the day of discounting.
.Revaluation of the Queensland property to be in line with estimate of $100,000 and consent of your brother being obtained to the increased borrowing against the existing Mortgage over this property.
.Titles to your Hampton and Ulverstone properties being lodged on Naked Deposit (no Mortgages to be taken over these titles).
The reference there to the "Hampton property" was to 8 Crisp Street, Hampton which has at all material times been the matrimonial home of Donald McKellar and Suzanne McKellar. The Bank's proposal of 7 January 1987 was accepted and thereafter discounted bills having a face value of $215,000 were rolled over as previously. The original facility of $45,000 to finance the Kin Kin land had by this time been reduced to $30,000.
Early in January 1988, a further request was made to increase the bill discount facility by a further $150,000 to $365,000. That was to enable Donald McKellar and Suzanne McKellar to purchase a property at 1-3 Victoria Street, Ulverstone ("the Ulverstone Guest House"). That request was also met by the Bank's advising by letter dated 22 January 1988:
We refer to our previous discussions, and confirm that the Bank has approved a Bills Discount Facility of $150,000 to assist purchase of Ulverstone Guest House.
The loan is subject to the Banks usual terms and conditions, and also:
-Establishment Fee $900
-Usage/Facility Fee 2.5% p.a.
-Review of repayment arrangements in 6 months
Security is to comprise registered mortgages over properties situated at:
-6 Mildura Avenue Sandringham
-8 Crisp Street Hampton
-Farm at KinKin Queensland
-Guest house 1-3 Victoria Street Ulverstone
The Bill will mature in approximately six months, and as previously mentioned, a review of reduction/borrowing arrangements will then take place.
In May 1988 the property at 6 Mildura Avenue, Sandringham was sold and, as already noted, the net proceeds therefrom of $150,000 were placed on term deposit at the Hampton Branch of the Bank.
In February 1989, Donald McKellar requested a further advance of $15,000 under the personal bill discount facility. Mr Buncle complied with that request without requiring further
security. As a result, the face value of the bills covered by the facility was increased from $450,000 to $465,000.
To quantify Donald McKellar's liability under the commercial bills facility, Mr Miles gave evidence and produced certificates similar in effect to that relied on in respect of the liability of SIRD as principal debtor and of Donald McKellar as guarantor. The evidence in relation to the personal commercial bills facility disclosed that as at 15 December 1993 a total amount of $331,107.62 was owing by Donald McKellar to the Bank under what was called "the first Bills Matured Account" and as at 15 October 1996 the sum of $160,056.89 was owing under the same account.
By its cross-claim, the Bank has invoked the mortgage over the Main Street, Ulverstone property, the guarantee given by Donald McKellar and his personal liability under the commercial bills facility in support of its claim, as against him, for, amongst other relief no longer relevant, $1,582,541.30 and recovery of possession of the Main Street, Ulverstone property. The amount of $1,582,541.30 is made up of $351,769.30 said to have been owing as at 5 May 1994 pursuant to the commercial bills facility and $1,230,772.00 said to have been owing by SIRD as at the same date and therefore due from Donald McKellar under the guarantee.
By way of defence to the Bank's cross-claim, Donald McKellar contended first, as I understood him, that he should be allowed to set off an entitlement to damages arising from the Bank's alleged contravention in December 1993 of the Trade Practices Act. As pleaded in paragraph 7 of the amended statement of claim filed on behalf of Donald McKellar and the other four applicants, that contravention consisted of a representation made in the context of an agreement between the Bank and Donald McKellar whereby the latter agreed to provide or procure as security only for the performance of his obligations under the commercial bills facility amounting in all to $365,000, a mortgage over each of 8 Crisp Street, Hampton, 6 Mildura Avenue, Sandringham, the land at Kin Kin in Queensland and the Ulverstone Guest House. It was then pleaded in paragraph 8 of the same amended statement of claim:
In order to induce each of the second, third, fourth and fifth Applicants to grant or procure the mortgages as stated in paragraph 7 (a) the Respondent represented to each of them -
(a)that it would rely on the mortgages referred to in paragraph 7 (a) only to secure the payment to it by the first Applicant of sums not exceeding $365,000; and
(b)that it would rely on the mortgages referred to in paragraph 7 (a) only to secure the satisfaction by the first Applicant of his obligations under the Bill Discount Facility of $365,000 then made available to the first Applicant.
("the representations")
The following particulars of the alleged falsity of the representations were appended to paragraph 10 of the amended statement of claim:
(a)The Respondent has relied on the mortgages referred to in paragraph 7 (a) -
(i)as security for the payment to it by the first Applicant of sums exceeding $365,000; and
(ii)to secure the performance by the first Applicant of obligations other than those under the Bill Discount Facility.
(b)On 15 December 1993 demands in writing were made upon the first and second Applicants for payment of $1,156,443.21 upon the basis that payment of that sum by the principal debtor, Software Innovations R&D Pty. Ltd. was guaranteed pursuant to the mortgages over the Hampton land the Ulverstone Guest House that are referred to in paragraphs 7 (a) (i) and (iv).
(c)By Notices to the first, second, fourth and fifth Applicants, dated 16 February 1994 the Respondent has purported to give notice of intention to sell and demanded that they quit both the Main St. Ulverstone land and the Ulverstone Guest House. Copies of those notices may be inspected.
The amended statement of claim went on to allege that by making the representations and denying that it was obliged to discharge the mortgages referred to in paragraph 7 of the amended statement of claim upon payment only of the sums due under Donald McKellar's personal bills discount facility, the Bank was also guilty of unconscionable conduct contrary to s. 52A of the Trade Practices Act. Particulars of the damage allegedly sustained as a result of the Bank's breaches of contract or contravention of the Trade Practices Act were expressed as follows:
The first Applicant has been unable to secure a loan of funds with which to satisfy his obligations under the Bill Discount Facility, since any such loan is conditional upon the grant to the appropriate lender of mortgages in substitution for mortgages held by the Respondent.
The second to fifth Applicants have been deprived of the use of securities that would otherwise have been available to them by reason of discharges of the mortgages referred to in paragraph 7 (a). Full particulars will be provided prior to trial.
Donald McKellar's contention encounters the difficulty that the representations are alleged not to have been made to him but only to the other four applicants. However, even putting that difficulty to one side, the evidence does not support a finding that he has sustained any damage as a result of the Bank's alleged contraventions of the Trade Practices Act. It
is alleged that as a result of the Bank's refusal to discharge the mortgages, he has been unable to secure a loan of funds with which to satisfy his obligations under the commercial bills facility. However, there is no evidence that the loan of alternative funds could have been procured at rates of interest, or on other terms, more favourable to Donald McKellar than those pertaining to his existing facility from the Bank.
Moreover, it is alleged that only the second to fifth applicants have been deprived of the use of securities that would otherwise have been available to them by reason of the discharge of the mortgages which the Bank allegedly refused to provide. There is no suggestion that Donald McKellar had any funds available from his own resources with which to discharge his liability under the commercial bills facility and having regard, even on the view most favourable to him which is available, to the extent of his liability under the guarantee of SIRD's debt, it is inherently improbable that he could have refinanced his personal obligations on any more advantageous terms than those accorded by the Bank.
Proof of damage in some such way as I have just indicated is necessary to fix the Bank with liability for its conduct in making excessive demands as a condition of redeeming the personal discounted bills facility (assuming in Donald McKellar's favour that it did make such demands). Thus, in Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491 the High Court in a joint judgment observed, at 503:
When this principle [in Toms v Wilson (1862) 4 B. & S. 442; 122 E.R. 524] is given full weight the situation in which Cleasby B. thought it appropriate to require the creditor to specify the amount of the debt the subject of the demand is significantly altered. Upon the making of a demand the debtor has a reasonable time to obtain the money. True it is, that in the absence of a specific statement of the debt, he may lack precise knowledge of the amount which he must pay in order to avoid enforcement or realization of the security. On the other hand, to require the creditor in all cases to specify the amount of the debt may operate to impose an onerous burden upon him. Some accounts may be so complex and so constantly changing that it is difficult at any given time to ascertain or to assert the precise amount that is due and payable. Indeed, the ascertainment of the amount may in some instances require the resolution over time of complex issues of fact and law. Yet, in order to preserve the value to the creditor of his security, he may need to call up the debt as a matter of urgency.
It is of some materiality to note that it is not essential to the validity of a notice calling up a debt that it correctly states the amount of the debt. Even a notice given to the mortgagor by the mortgagee as a condition precedent of a power of sale is not rendered invalid because it demands payment of more than is due (Humphrey v. Roberts (1866) 5 S.C.R. (N.S.W.) 376, at pp. 385, 387; Campbell v. Commercial Banking Co. of Sydney (1879) 2 L.R. (N.S.W.) 375, at 385; Clyde Properties Ltd. v. Tasker [1970] N.Z.L.R. 754, at pp. 757-758; MIR Bros Projects Pty. Ltd. v. 1924 Pty. Ltd. [1980] 2 N.S.W.L.R. 907, at p. 926).
I can discern no basis in logic, in the absence of proof of damage, why the claiming of an erroneously excessive amount could give rise to a claim or set-off against the maker of a demand which, as the High Court there held, still remains valid.
In a related way, Donald McKellar contended that the Court should frame an order having the effect of precluding the Bank from recovering interest on the personal discounted bills facility from December 1993. However, such an order could only be justified by a finding that he could have discharged the principal due under that facility without borrowing a corresponding amount from another source at a similar rate of
interest. As I have already indicated, the evidence does not permit such a finding. It is clear that Donald McKellar has had the use since December 1993 of the moneys advanced from time to time under the commercial bills facility and, unless it were shown that his need to use the money in that way resulted solely from the Bank's refusal to discharge the mortgages, the Court could not find that he has suffered, or is likely to suffer, damage from the Bank's presumptive conduct in contravention of Part IV of the Trade Practices Act. Such a finding is a prerequisite to the exercise of the discretion to make an order under s. 87 of that Act.
Donald McKellar, by way of a separate contention, disputes the amount said to be owing to the Bank by SIRD for which he was consequently liable under the guarantee and the mortgage of the Main Street, Ulverstone property. It was suggested that full credit had not been given by the Bank for amounts recovered on the realization of other securities provided directly by SIRD in support of the financial accommodation which the Bank had provided to it. By its amended defence and cross-claim, the Bank alleged:
Donald is indebted to the Bank in the sum of $1,582,541.30 which said sum is due and payable.
PARTICULARS
(a)The sum of $351,769.39 is owing, due and payable by Donald to the Bank (as at 5 May, 1994) pursuant to the Commercial Bill Facility.
(b)The sum of $1,230,772.00 is owing, due and payable by the Company (as at 5 May, 1994) and consequently Donald to the Bank.
Despite demand by notice in writing dated 15 December, 1993 the Applicants have failed to make payment to the Bank of the amounts owing as at such date and remain in possession of their respective properties.
The response to those paragraphs in the reply and defence to cross-claim of the applicants, including Donald McKellar, was in these terms:
They deny the allegations in paragraph 28 thereof.
They have not paid to the Respondent the sums specified in the notices referred to in paragraph 29. They remain in possession of the respective properties. They otherwise deny the allegations in paragraph 29.
Had it been intended to raise specifically a contention that SIRD, and through it Donald McKellar, was not indebted to the Bank in the full amount claimed of $1,582,541.30 or that the amount stipulated in the notice dated 15 December 1993 was erroneously excessive, the defence to the cross-claim should have contained a positive assertion to that effect with appropriate particulars. The form in which paras. 23 and 24 of the defence to cross-claim are cast was effective only to put the Bank to proof of the amount claimed to have been owing by SIRD. An intention to plead a failure to credit specific amounts received from the realization of properties owned by SIRD attracted the obligation imposed by O.11 r.13(3) of the Rules of this Court which provides:
Subject to sub-rule (4), every allegation of fact made in a statement of claim or counterclaim which the party on whom it is served does not intend to admit must be specifically traversed by him in his defence or defence to counterclaim, as the case may be; and a general denial of such allegations, or a general statement of non-admission of them is not a sufficient traverse of them.
See also O.11 r.18 which stipulates:
When a party in any pleading denies an allegation of fact in the previous pleading of the opposite party, he must not do so evasively or generally, but must answer the point of substance in accordance with rule 13 of this Order.
It is apparent that the Bank has given very extensive discovery in this action embracing bank statements of SIRD and other supporting documents going to the extent of its indebtedness. However, Donald McKellar did not seek to inspect any of those documents either while he was represented by the legal advisers for the remaining applicants or after he commenced to appear for himself.
In the absence of anything casting doubt on the correctness of the Bank's calculations of what was due, I regarded it as inappropriate to adjourn the proceedings on the last of four days set aside for the trial to allow Donald McKellar to go through the Bank's discovery to see whether or not the large volume of documents comprised in it supported the quantification of the Bank's claim. Moreover, copies of SIRD's bank statements in respect of its overdrawn account from 1 November 1994 to 15 October 1996 and its bills matured account from 1 March 1996 to 15 October 1996 together with Donald McKellar's personal bills matured account from 4 January 1994 to 15 October 1996 which he did put into evidence appeared to indicate that debits and credits had been made to each account in accordance with the relevant loan contracts. If the debits for "legal fees" to which Donald McKellar drew attention were on account of the costs of the present litigation, they will not be recoverable again pursuant to any order for costs which the Court might be persuaded to make in favour of the Bank.
For these reasons, Donald McKellar has failed to make out a defence to the Bank's cross-claim against him. There must therefore be judgment for the Bank, as against Donald McKellar in the sum of $1,660,240.85 together with an order for possession of the Main Street, Ulverstone property. I shall hear Counsel for the Bank and Mr McKellar on the questions of costs, interest and the form of the orders which should embody the judgment.
I certify that this and the preceding twenty-four (24) pages are a true copy of the Reasons for Judgment of His Honour Justice Ryan.
Associate:
Date:
Counsel for the First Applicant : -
Solicitors for the First Applicant : Applicant in Person
Counsel for the Second, Third, : Mr K. Howden
Fourth and Fifth Applicants
Solicitors for the Second, Third, : Bartley Sharkie &
Fourth and Fifth Applicants Motherwell
Counsel for the Respondent : Mr R. Berglund
Solicitors for the Respondent : I.F. Purbrick
Date of Hearing : 21, 22, 23 and
24 October 1996
Date of Judgment : 6 November 1996
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