Metcalfe v NZI Securities Australia Ltd

CATCHWORDS

TRADE PRACTICES - misleading and deceptive conduct in relation to a finance facility for a retirement village - failure to point out discrepancy between facility agreement and prior representations regarding the term of the facility - reliance - misleading or deceptive conduct played a minor, but non-trivial, part in inducing the contract - assessment of damages - loss of commercial opportunity - assessment by reference to chances of avoiding receivership.
Trade Practices Act 1974, ss 51A, 52, 82, 87
Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112
Demagogue Pty Ltd v Ramenski (1992) 39 FCR 31
Gates v City Mutual Life Assurance Society Ltd (1960) 160 CLR 1
Gould v Vaggelas (1985) 157 CLR 215
Janssen-Gilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526
Malec v J.C. Hutton Pty Ltd (1990) 169 CLR 638
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
Ricochet Pty Ltd v Equity Trustees Executor and Agency Company Ltd (1993) 31 FCR 229
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97
METCALFE v NZI SECURITIES AUSTRALIA LTD & ORS
NG 397 of 1992
Sackville J.
31 May, 1995
Sydney

IN THE FEDERAL COURT OF AUSTRALIA    )
NEW SOUTH WALES DISTRICT REGISTRY    )    No. NG397 of 1992
GENERAL DIVISION                 )
BETWEEN:

PETER WILLIAM METCALFE
Applicant

AND:

NZI SECURITIES AUSTRALIA LTD
First Respondent

AND:

NZI CAPITAL CORPORATION LTD
Second Respondent

AND:
MICHAEL EDWARD WAYLAND

Third Respondent

CORAM:    SACKVILLE J.
PLACE:    SYDNEY
DATE:     31 May 1995
MINUTES OF ORDER

THE COURT ORDERS THAT:
1.The applicant prepare and submit to the Court short minutes of order giving effect to this judgment.

NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA    )
NEW SOUTH WALES DISTRICT REGISTRY    )    No. NG397 of 1992
GENERAL DIVISION                 )
BETWEEN:

PETER WILLIAM METCALFE
Applicant

AND:

NZI SECURITIES AUSTRALIA LTD

First Respondent

AND:

NZI CAPITAL CORPORATION LTD
Second Respondent

AND:

MICHAEL EDWARD WAYLAND
Third Respondent

CORAM:    SACKVILLE J.
PLACE:    SYDNEY
DATE:     31 May 1995
REASONS FOR JUDGMENT

I.THE PROCEEDINGS

Introduction
This is the retrial of a representative action brought pursuant to Part IVA of the Federal Court of Australia Act 1976. The applicant, Mr Peter William Metcalfe, was the secretary of Ripoll Holdings Pty Ltd ("Ripoll"), which was from 29 August 1985 until 29 March 1992 the trustee of a unit trust known as the DYV Unit

Trust ("the Trust"). The name of the Trust reflects the fact that Ripoll was formed for the purpose of acquiring land at 155 Fisher Road North, Dee Why for the construction of a retirement village, to be known as the Dee Why Gardens Retirement Village.
The village, which was located near the Dee Why Shopping Centre, was to be built as a seven-stage development. It was designed to contain 201 full brick self-contained units, 38 serviced apartments and common facilities such as a club house, pool, library and dining room in a "country club format".
The construction of the village commenced in 1985 with the assistance of a facility granted by AGC (Advances) Ltd ("AGC"). In order to complete the project, Ripoll entered into a loan facility agreement with NZI Capital Corporation Ltd ("NZI Capital"), the second respondent, which provided for advances of up to $15 million. As will be seen, NZI Capital was substituted as the financier after a letter of offer had been previously made by a related company, NZI Securities Australia Ltd ("NZI Securities"), the first respondent. On 16 March 1992 NZI Capital appointed a receiver, Mr Michael Edward Wayland, the third respondent, to Ripoll. In April 1994 the receiver sold the Village, prior to completion of all stages of the development.
It is these events that have given rise to the present proceedings and to related litigation. I note that no point was
taken by the respondents about the fact that two corporate entities within the NZI group were involved in dealings with Ripoll. Accordingly, I use the abbreviation "NZI" to refer to dealings concerning one or both of the NZI entities, where there is no need to differentiate between them.
History of the Litigation
The procedural history of the litigation is complex. In order to understand the issues in the present proceedings (which I shall refer to as "the representative proceedings") some background is necessary.
On 19 March 1992, NZI Capital instituted proceedings in the Commercial Division of the Supreme Court of New South Wales to enforce guarantees given in respect of the facility granted to Ripoll. I shall refer to these as the guarantee proceedings. Ten guarantors were named as defendants. Orders for payment of $15,005,895, plus interest, were claimed against each of eight of the ten defendants. These were:
lRoger James Poignand, one of the original directors of Ripoll;
lJohn Dalton Courtney (now deceased), also an original director of Ripoll;
lMr Metcalfe, the secretary of Ripoll;
lW.L. Hawke Holdings Pty Ltd;
lArthur John Emmett;
lDr Victor Malcolm Pannikote;

lVictor Pannikote Holdings Pty Ltd ("Pannikote Holdings"); and
lHarold Victor Holden.

An order for payment of $250,000 was sought against the remaining respondents, Margaret Isobel Fulton and Margaret Fulton Enterprises Pty Ltd. These more limited claims reflected the fact that the guarantees executed by the Fulton guarantors limited their liability to $250,000.
Of the defendants, Mr Emmett has never been served and the estate of Mr Courtney has filed no defence. All the remaining defendants in the guarantee proceedings filed defences and cross-claims. The parties to the cross-claims are as follows:
Cross Claimant(s) Cross Defendant(s)

First defendant (R.J. Poignand) NZI Capital; NZI Securities
M.E. Wayland

Third defendant (P.W. Metcalfe) NZI Capital

Fourth defendant (W.L. Hawke NZI Capital; R.J. Poignand;
Holdings Pty Ltd) J.D. Courtney; P.W. Metcalfe

Sixth and Seventh defendants NZI Capital; J.D Courtney;
(Dr V.M. Pannikote and P.W. Metcalfe

Pannikote Holdings)
Eighth defendant                 NZI Capital
(H.V. Holden)
Ninth and tenth defendants       NZI Capital; R.J. Poignand;
(M.I. Fulton and                 Anthony G. Hawkins [who acted
Fulton Enterprises Pty Ltd)      as solicitor to Ripoll in   relation to the facility   agreement]
Mr Poignand's cross claim was framed as a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 and invoked the Jurisdiction of Courts (Cross Vesting) Act 1987. The group said to be represented included guarantors of Ripoll's obligations under the finance facility and unit holders in the Trust. The cross claim raised allegations, inter alia, of misleading and deceptive conduct against NZI Capital and NZI Securities.
On 17 June 1992 Mr Poignand commenced the representative proceedings in this Court. The group members to which the proceedings related were identified as:
lRipoll;

lRosewick Holdings Pty Ltd (which replaced Ripoll as trustee of the Trust shortly after the appointment of Mr Wayland as receiver of Ripoll);

lpersons described as guarantors (each having executed a deed of guarantee and indemnity in April 1987 in favour of NZI Capital, of all sums due by Ripoll under the facility agreement in respect of the Dee Why Gardens development); and

lpersons described as unit holders in the Trust.

Some guarantors and unit holders later opted out of the proceedings, as they are entitled to do pursuant to s.33J of the Federal Court of Australia Act 1976. The respondents to the representative proceedings were NZI Securities, NZI Capital and Mr Wayland. The relief sought by the applicant included orders varying the terms of the finance facility and preventing NZI Capital enforcing the guarantees against the guarantors. The applicant also sought damages and declarations that the appointment of a receiver to the assets of Ripoll was invalid.
On 7 August 1992 the guarantee proceedings were transferred to this Court by order of the Supreme Court of New South Wales. On 15 October 1992 Lockhart J. ordered that the guarantee proceedings be stood over, pending determination of the representative proceedings. On the same date his Honour ordered that the issues arising under paragraphs 26A and 42(c) of the amended statement of claim in the representative proceedings, and all issues of damages or other relief be tried separately from and subsequent to all other issues presented by the amended statement of claim. These paragraphs alleged that each of the guarantors had been induced to enter into their respective guarantees by representations relating to the term of the facility. Those representations were alleged to have been made by or on behalf of NZI Capital and NZI Securities and communicated to each of the guarantors and relied on by each of them. Such a case necessarily raises factual issues peculiar to each guarantor.
Wilcox J. gave judgment in the representative proceedings on 7 January 1994: Poignand v NZI Securities Australia Ltd (1994) 120 ALR 237. The two main issues in the proceedings were summarised by his Honour as follows (at 238):
"First, the applicant alleges that the respondents, NZI Securities Australia Ltd (NZI Securities) and NZI Capital Corporation Ltd (NZI Cap Corp), contravened s.52 of the Trade Practices Act 1974 (Cth) in connection with the granting of a finance facility to [Ripoll]. He says that NZI Securities and NZI Cap Corp misled Ripoll as to the term of the facility. Secondly, the applicant says that the third respondent, Michael Edward Wayland, who has purported to act as receiver and manager of Ripoll, was never validly appointed to that office, and is therefore guilty of trespass. Two grounds are advanced for this latter contention: there was no appointment in fact; alternatively, no event occurred entitling NZI Cap Corp to appoint a receiver and manager."

Wilcox J. decided (at 252) that Mr Poignand (and therefore Ripoll) was not misled by the NZI companies as to the duration of the facility, and that the facility had expired on 3 April 1991. However, his Honour held that the purported appointment of Mr Wayland as receiver and manager of Ripoll was invalid, because NZI Capital's seal was not affixed to the instrument of appointment in accordance with the company's articles of association. But his Honour went on to hold that the appointment had been ratified by a resolution of NZI Capital's board of directors on 10 April 1992 and was effective from that date.
These conclusions made it unnecessary for Wilcox J. to consider grounds, other than the expiry of the facility, advanced by NZI Capital as justification for the appointment of a receiver to Ripoll. His Honour nonetheless expressed the view that two of the six grounds advanced by NZI Capital had been made out. These were, first, that Ripoll had breached a clause of the facility agreement (cl.10.01(f)) requiring it to make available "such information as to the project and its business affairs and financial conditions" as NZI Capital might reasonably request, and, secondly, that false information was given to NZI Capital concerning Mr Poignand's assets and liabilities, in breach of the facility agreement (cl.8.01(h) and cl.12.01(c)).
NZI Capital brought an appeal by leave from that part of the judgment of Wilcox J. declaring that the appointment of the receiver was, in the first instance, invalid. On 22 July 1994 the Full Court (Beaumont, Gummow and Carr JJ.) allowed the appeal and set aside the relevant declarations: NZI Securities Australia Ltd v Poignand (1994) 51 FCR 584. Their Honours held that the use of a company seal was not required for the appointment of the receiver and that NZI Capital had duly authorised the appointment in March 1992. The decision of the Full Court on this issue is binding on the parties. Thus the formal validity of the receiver's appointment has not been disputed in the proceedings before me.
A second appeal from another part of the judgment given by Wilcox J. was brought by leave and determined on 21 September 1994: Jenkins v NZI Securities Australia Ltd (1994) 124 ALR 605 (Beaumont, Gummow and Carr JJ.). The appellant was not Mr Poignand, but a different unit holder in the Trust and group member who had not opted out of the proceedings. He brought the appeal as representative of the group members: Federal Court of Australia Act 1976, s.33ZC(6). The appeal concerned so much of the trial as involved the allegation that NZI Securities and NZI Capital had contravened s.52 of the Trade Practices Act 1974, by engaging in misleading and deceptive conduct as to the term of the loan facility.
The Full Court reviewed certain findings of fact made by Wilcox J. and concluded that there had to be a new trial of all issues. The Court ordered that the new trial should be held concurrently with the trial of all remaining untried issues between the parties to the proceedings, other than those dealt with in the Full Court judgment of 22 July 1994. The Court stated (at 620) that the deferral of the quantification of damages was a matter for the trial judge. The effect of the order of the Full Court was that the issues raised by paragraphs 26A and 42(c) of the amended statement of claim had to be determined at the new trial, notwithstanding that the allegations involved factual questions peculiar to each of the guarantors who had not opted out of the representative proceedings.
Subsequently, the respondents in the representative proceedings sought orders that those proceedings be heard at the same time as the guarantee proceedings. In a judgment delivered on 25 October 1994 I dismissed the respondent's application. However, I directed that the hearing of the representative proceedings should include the assessment of any damages to which the applicant, on behalf of the group members, might be entitled.
Although the directions did not specifically refer to other relief, such as orders under s.87 of the Trade Practices Act 1974, the proceedings have in fact been conducted on the basis that all of the applicant's claims to relief will be determined. I gave directions to enable the hearing to take place as scheduled in March 1995.
On 11 November 1994, orders were made pursuant to s.33T of the Federal Court of Australia Act 1976 substituting Mr Metcalfe as the applicant in the representative proceedings. The hearing took place over 25 days from 6 March 1995 to 13 April 1995.
The Issues
In substance, the applicant's claim on behalf of Ripoll was based on two facility letters, one dated 17 February 1987 and the second dated 3 April 1987. In the first letter, NZI Securities stated that the term of the facility agreement would be four years from the date of the initial drawdown. However, a review would be conducted at the end of year three "with an option to extend for two years". The second letter, which was signed on behalf of NZI Capital, repeated the statement relating to the terms of the facility agreement. The second letter was received by Mr Poignand and Mr Courtney on the same day as the facility agreement was executed by Ripoll.
The facility agreement contained a provision, cl.5.08, which stated that the financier would conduct a review on the third anniversary of the drawdown, with a view to extending the repayment date by a further 12 months. Clause 5.08 made it clear that the decision whether or not to provide an extension was to be made by NZI Capital, whereas the facility letters were ambiguous on this question.
The applicant contended that NZI engaged in misleading and deceptive conduct, in breach of s.52 of the Trade Practices Act 1974, by failing to ensure that the facility agreement was drafted to accord with the terms of the facility letters, and by neglecting to ensure the disparity between cl.5.08 and the facility letters was drawn to the attention of Ripoll's representatives. The applicant's case was that neither Mr Poignand nor Mr Courtney read cl.5.08 and that they did not become aware of the disparity between its language and their understanding of the facility letters until after the appointment of the receiver to Ripoll in March 1992. Furthermore, on the basis of conversations with NZI representatives in January 1987, the facility letters were understood by Mr Poignand and Mr Courtney as conveying that the review was to be conducted on the basis of Ripoll's performance in relation to the project and not simply at the unfettered discretion of NZI Capital. Had the Ripoll representatives realised the disparity between cl.5.08 and the terms of the facility letters, Ripoll would not have executed the facility agreement, but would have obtained finance from an alternative source for a period greater than four years. This would have enabled Ripoll to avoid the appointment of a receiver, which occurred only because the facility expired after four years, in April 1991. Had a longer term facility been in place, the occasion for the appointment of a receiver would never have arisen.
Mr Hamilton QC, who appeared with Mr Francey for the applicant, maintained an alternative case on behalf of Ripoll, based on breach of contract. This case, which was not put before Wilcox J. at the first hearing, rested on the claim that NZI Capital had never conducted the review required by cl.5.08 of the facility agreement. Accordingly, Ripoll had lost the opportunity of at least having the facility extended for 12 months beyond April 1991.
The principal relief claimed by the applicant was an award of damages pursuant to s.82 of the Trade Practices Act 1974, by reason of NZI's contravention of s.52 of that Act. The damages claim was put in various ways. However, the case primarily relied on was based on the proposition that, but for NZI's misleading and deceptive conduct, Ripoll would have obtained alternative finance for a period greater than four years and no receiver would have been appointed. Damages were to be calculated by comparing Ripoll's hypothetical position, had a receiver not been appointed, with the actual position, whereby the village was sold for $4.3 million in April 1994. According to the applicant, Ripoll had lost some 45 sales of new units within the Village between the receiver's appointment in March 1992 and the sale in April 1994. In addition the sale price was reduced by reason of the receiver's appointment. On the applicant's calculations, damages exceeded $10 million. The applicant claimed that its entitlement to damages for breach of contract produced a similar result.
In addition to damages, the applicant sought relief under s.87 of the Trade Practices Act 1974. This claim was based on the proposition that an order that certain provision of the facility agreement not be enforced was justified where an applicant suffers loss not necessarily caught up in the damages assessment. In the circumstances of this case, Mr Hamilton submitted that the facility agreement and mortgage given to secure Ripoll's obligations ought not be enforced in relation to interest incurred after March 1991 or, alternatively, April 1992.
No separate issue was raised by the applicant in these proceedings concerning the validity of the appointment of the receiver on 16 March 1992. I shall return to this matter later.
The proceedings also involve a claim for relief by the applicant on behalf of four guarantors of Ripoll's obligations to NZI Capital, who had not opted out of the representative proceedings. These are Mr Metcalfe (the representative applicant at the time of the hearing); Dr V.M. Pannikote and Pannikote Holdings; and Mr Harold Holden. Each of the guarantors alleged, in the amended statement of claim as finally amended during the hearing, that the "substance or effect" of the representation in the facility letters had been communicated to him (or it). Each guarantor claimed that the guarantee in favour of NZI Capital had been executed in reliance upon those representations. Each claimed

damages under s.82 of the Trade Practices Act 1974 and further relief under s.87 of the Act.
The claims made by the applicant on behalf of Ripoll and the guarantors raised many vigorously contested factual issues. Among other matters, the respondents disputed the contention that Ripoll or any of the guarantors had acted in reliance on any representations made by NZI. They also disputed that Ripoll, or the guarantors, had demonstrated any loss or damage compensable under s.82 of the Trade Practices Act 1974, or (in Ripoll's case) on contractual principles.
II.THE PRINCIPAL WITNESSES ON RIPOLL'S CLAIM

In accordance with the rulings of the Full Court, I have assessed the evidence before me afresh, without regard to the findings of fact made by Wilcox J. at the first trial. It should be noted that the evidence before me in relation to Ripoll's claim was different from that presented to Wilcox J. For example, additional affidavits by the principal witness were read and, of course, cross-examination was conducted afresh. Evidence was also given by Mr Garry Parker who was employed by NZI Securities in early 1987 as an Associate Director. Mr Parker, who was not called as a witness at the first trial, gave evidence which shed light on the dealings between representatives of NZI and of Ripoll shortly before execution of the facility agreement on 3 April 1987. Before recounting the course of events, it is convenient to deal with the evidence of the principal witnesses
in respect of Ripoll's claim, even though this involves anticipating some of the relevant events.
The Factual Disputes
One of the principal factual disputes in the proceedings concerned conversations that occurred between Mr Poignand and Mr Courtney on behalf of Ripoll, and Mrs J. Middleton on behalf of NZI, during the period from late January 1987 to early April 1987. Mrs Middleton was employed by NZI as Accounts Manager, Corporate and International Banking, and had principal responsibility, subject to supervision, for the Ripoll account, until she left NZI in March 1991. The documentation passing between the parties contained important inconsistencies, in particular, between the facility letters and cl.5.08 of the facility agreement. Both facility letters, dated 17 February 1987 and 3 April 1987, respectively, specified that the term of the proposed facility agreement was to be as follows:
"Four years from the original drawdown. A review will be conducted at the end of year three with an option to extend for two years."

Clause 5.08 of the facility agreement between Ripoll and NZI Capital, executed on 3 April 1987, provided for different arrangements:
"On the third [anniversary] of the first Drawdown Date, the Financier will review the Facility with a view to extending the Repayment Date by a further period of 12 months. If the Financier is prepared to so extend the Repayment Date, it will notify the Company accordingly and request the Company to advise whether it so wishes the Repayment Date to be so extended. Upon receipt of such notice from the Financier, the Company shall advise the Company [sic: Financier] within seven (7) days as to whether it wishes the Repayment Date to be extended. If the Company so advises the Financier, the Repayment date will be extended for a further period of 12 months and otherwise the Repayment Date will remain unaltered."

Mrs Middleton's account of events leading up to the execution of the facility agreement was to the effect that she had told Mr Poignand that NZI would not grant a facility for more than four years, but would be prepared to approve a facility for a term of four years with an option to extend for two years by two twelve month "tranches" at NZI's sole discretion. Mr Poignand, on the other hand, claimed that the arrangement was that the term would be for four years, but with a further term of two years, provided that Ripoll was assessed by NZI at the third annual review to have performed according to plan. Mr Poignand also said that he had not read the draft facility agreement and had not appreciated that cl.5.08 in the facility agreement as executed differed from the terms of the facility letters.
In resolving this factual dispute, as well as others, it is important to bear in mind that witnesses were required to recall events occurring as long as eight years before the time they swore affidavits or gave oral evidence. Even for truthful witnesses, endeavouring to the best of their ability to recall those events, it can be extremely difficult to do so reliably. In these circumstances, contemporaneous documentation, at least where the author had no obvious motive to mis-state the position, assumes considerable significance. Accordingly, where there was a conflict of recollection among witnesses, I have often found
the contemporaneous documentation, or other unchallenged evidence, helpful in resolving the conflict. Nonetheless, it has also been necessary for me to form a view of the reliability of the principal witnesses.
Mr Poignand
Mr Poignand was a chartered accountant who, prior to his involvement in Ripoll, had been an executive officer of Partnership Pacific Ltd, a merchant bank. He was the managing director of Ripoll at all material times, and had conduct of its day to day management and control.
Mr Poignand's evidence was, in my view, a mixture of reliable and unreliable material. Mr Poignand struck me as an intelligent witness, with a good recollection (to the extent that he chose to rely on it) of the course of events. He also struck me as a witness who, at least on some matters, was selective in his recall. On certain issues Mr Poignand gave what appeared to be quite detailed and careful evidence, the substantial accuracy of which was borne out by the contemporaneous documentation or other independent evidence. The most important example was his evidence concerning a conversation with Mrs Middleton occurring on or about 27 January 1987. That evidence is supported, at least to some extent, by contemporaneous documentation (notably the letters of offer) and, to a greater extent, by the evidence of Mr Parker. (Mr Coles criticised some of his evidence on the ground that Mr Poignand had tailored his account to the documentation; nonetheless, on certain matters his account was plausible.) In other respects, Mr Poignand's evidence was unconvincing and, on some matters, I do not accept his account. For example, I reject Mr Poignand's account that he was not involved in the preparation and dispatch to NZI of statements of his assets and liabilities. One statement, dated 31 October 1986, was forwarded to NZI in early 1987; the other, dated 31 April 1990, was forwarded in July 1990. Both documents falsely over-stated Mr Poignand's assets and, indeed, he agreed that they were entirely false and misleading.
Mr Poignand's denial was made notwithstanding that the first statement was required to support Ripoll's application for finance from NZI and the second was required because Mr Poignand was a guarantor of Ripoll's obligations to NZI in connection with another retirement village, known as the Shalimar Country Club. Mr Poignand attributed the blame for the inaccurate statements to Mr Courtney (since deceased) or to Mr Milo. Mr Milo, who was an employee of Edwards and Co., Ripoll's accountants, was not called as a witness. There was evidence from Mr Metcalfe that Mr Courtney had prepared the 1986 statement. But that does not mean that Mr Poignand was unaware of the contents of that statement. I found Mr Poignand's evidence on these issues to be singularly unconvincing.
There were other reasons to treat Mr Poignand's evidence with care. In his evidence before Wilcox J., he asserted, in substance, that NZI had been entitled to a two year extension of the finance facility and, indeed, that he had been notified that Ripoll had passed the review. In evidence before me he accepted that Ripoll had failed the review and had not been entitled to an extension under the terms of the arrangement with NZI. Mr Poignand was forced to accept that there were forensic difficulties with his earlier account, most notably the failure of Ripoll to assert, in correspondence in early 1991, that it was entitled to an extension of the facility. Mr Poignand's attempts to reconcile his acceptance of the proposition that Ripoll had failed the review with his early affidavit evidence that he asserted to Mrs Middleton that Ripoll had passed the review were not successful. I formed the view that Mr Poignand had changed his account because he appreciated the forensic difficulties confronting his earlier account. Accordingly, generally speaking, I do not regard Mr Poignand's evidence as reliable, unless independently supported or contrary to his own interests.
Mrs Middleton
Mrs Middleton was a consistent supporter of the Dee Why Gardens project. Her reports on the project were in evidence and they reveal persistent optimism about the venture, at least until her support for continued funding for Ripoll was finally overruled by the New Zealand head office of NZI late in 1990. In my opinion, Mrs Middleton attempted to give her best recollection of a complex series of events that undoubtedly gave her little pleasure to revisit. Mr Hamilton did not seriously suggest otherwise. In her cross examination Mrs Middleton conceded, readily enough, that some modification to or supplementation of her affidavit evidence was appropriate. Indeed on one matter (the timing of the third annual review of Ripoll's facility) it is clear that her evidence before Wilcox J. was mistaken. The effect of her concessions on certain issues was to narrow the differences between her account and that of Mr Poignand.
In general, I thought that Mrs Middleton, despite mistakes on some issues, was a rather more reliable witness than Mr Poignand. For example, I prefer her account of events from early 1990 to late that year to that given by Mr Poignand. I reject Mr Poignand's evidence that he repeatedly urged Mrs Middleton to undertake the review contemplated by the facility agreement after the three year period and that he received encouraging messages from Mrs Middleton concerning the fate of the review as late as November 1990.
Even so, I have concluded that, on some significant matters, Mrs Middleton's recollection was erroneous. The most important is her recollection that she told Mr Poignand that any extension would be by way of two one year tranches, involving two separate reviews after years three and four respectively. Such a conversation was not reflected in the facility letters of 17 February 1987 and 3 April 1987, each of which referred to an option for a term of two years, after a review at the end of year three. Mrs Middleton prepared the letters and was aware that Mr Poignand read them. She conceded that the terms of the letters did not accurately reflect her version of the conversation with Mr Poignand. Moreover, cl.5.08 of the facility agreement, which provided for a renewal of the facility for an additional period
of one year only, did not reflect the arrangement as recalled by Mrs Middleton in her evidence. She accepted that she had read cl.5.08 in draft no later than 1 April 1987, and must have been satisfied with its terms, despite the fact that it referred to a renewal period of only one year. She also agreed that she had given instructions to Mr Doyle of NZI's solicitors, Mallesons Stephen Jaques, to enable the clause to be drafted. Later memoranda prepared by Mrs Middleton referred to the option as permitting renewal for a period of one year. Thus cl.5.08 and the later memoranda were inconsistent with Mrs Middleton's version of her conversation with Mr Poignand although, it must be said, they were also inconsistent with the option period of two years recorded in the letters of offer. In any event, no contemporaneous document faithfully recorded the arrangement with Mr Poignand in the terms recalled by Mrs Middleton.
Mr Parker
Mr Parker gave evidence of the conversation he had with Mrs Middleton, which occurred during an interruption to Mrs Middleton's discussion with Mr Poignand and Mr Courtney. Mr Parker made no secret of his great satisfaction with the up-front fee of $350,000 charged by NZI in respect of the facility granted to Ripoll. He claimed to have a clear recollection of the substance of the conversation with Mrs Middleton and of a subsequent interchange directly between him and Mr Poignand. His confident account of these events had a ring of truth. Mr Parker was a banker who, at the time, was primarily interested in negotiating a large fee on behalf of NZI and was quite prepared
to agree to an additional term of two years provided that Ripoll, in the eyes of NZI, performed satisfactorily. Although Mr Coles QC, who appeared with Mr Robinson and Mr Ashhurst for the respondents, attacked Mr Parker's evidence on the basis that he had negotiated a substantial hourly fee with the applicant in order to give evidence, I do not think that detracts from the force of his otherwise credible evidence. NZI had paid even larger amounts to Mr Parker in return for his agreeing to give evidence in other cases in which NZI companies were involved. I accept the substantial accuracy of Mr Parker's account and, to the extent it differs from Mrs Middleton's, I accept his version. On that version, Mr Parker asked Mrs Middleton to offer Mr Poignand a two year option, not two one year "tranches". The strong likelihood is that Mrs Middleton did as she was asked.
Mr Poignand's knowledge of cl.5.08
Mr Coles contended that I should find that Mr Poignand was perfectly well aware of the terms of cl.5.08 at the time he executed the facility agreement on Ripoll's behalf and that he also appreciated the differences between the language used in cl.5.08 and the terms of the facility letter handed to him by Mrs Middleton on 3 April 1987. If this finding were to be made, Mr Coles submitted that it would destroy the applicant's case, since Ripoll could not demonstrate that it had been misled by any representation contained in the facility letter as to the term of the facility.
There are some persuasive arguments in support of the finding of fact urged by Mr Coles. I have referred to Mr Poignand's unreliability as a witness. It is clear that Mr Poignand had an opportunity to consider the successive drafts of the facility agreement had he wished to do so. Ripoll was represented by a solicitor, Mr Hawkins, who had participated in lengthy discussions with NZI's legal representatives concerning the draft agreement. (Mr Hawkins did not give evidence before me, but there was evidence to show that in late 1994 he had refused a request from the applicant's legal representatives either to be interviewed or to swear an affidavit. For that reason I do not think that an adverse inference should be drawn against the applicant by reason of Mr Hawkins' absence from the witness box.) There was clearly an opportunity for Mr Poignand to discuss the terms of the draft facility agreement with Mr Hawkins and, had he done so, it might have been expected that the relationship between cl.5.08 and the terms of the facility letters would have been considered. This hypothesis gains some support from the fact that the draft facility agreement underwent considerable revision during the week or so prior to its execution, suggesting that it was the subject of detailed negotiations. In addition, as Mr Coles pointed out, there were powerful factors motivating Mr Poignand and Mr Courtney to execute the facility agreement. These included Mr Poignand's very strong desire to "get out of the clutches of AGC" and to secure financing for the project, and the fact that the refinancing through NZI enabled Mr Poignand to obtain repayment of a sum he had advanced to Ripoll. Mr Coles also invited me to accept Mrs Middleton's evidence that Mr Poignand had said, during the final meeting on 3 April 1987 to settle the terms of the facility agreement, that he had "been up half the night reading the facility agreement".
Despite these factors, albeit with considerable hesitation, I have concluded that I should accept Mr Poignand's evidence that he did not read cl.5.08 of the facility agreement and did not appreciate the differences between that clause and the duration of the facility recorded in the letters of 3 April 1987. Mr Poignand was adamant that he had not read cl.5.08. Had he done so, I find it difficult to believe that the disparity between the clause and the terms of the facility letter would not have been raised for discussion between the legal representatives of the parties. On any view, cl.5.08 did not reflect the terms of the facility letter, since the period of extension provided for in cl.5.08 was one year. The duration of the facility was clearly a matter of some importance to Mr Poignand, who had emphasised to Mrs Middleton that the construction of the project was dependent on consumer demand and that, if sales were slow, the whole project would have to be rescheduled. Yet there was no evidence that cl.5.08 was amended, or even discussed, during the meetings that occurred between the legal representatives (and in which Mr Poignand participated) on 2 and 3 April 1987. Had it been discussed, it is likely that the contemporaneous notes would have referred to such a discussion. Mr Coles was not able to suggest any reason why Mr Poignand would have refrained from pointing out the disparity and from asking that the facility agreement be brought into conformity with the letter. The successive drafts of the facility agreement show that a number of changes were made in the interests of Ripoll and, at worst, raising the issue would have caused NZI to decline to make the requested amendment to the agreement.
I have reached this conclusion notwithstanding that I think it likely that Mr Poignand, as Mrs Middleton deposed, did say something to the effect that he had been up half the night (of 2/3 April 1987) reading the facility agreement. I think the likelihood is that the comment was not intended to be taken seriously. In any event, even if Mr Poignand had paid rather more attention to the draft facility agreement than he conceded in evidence, the probabilities are that he did not read cl.5.08 and did not appreciate the disparity to which I have referred.
Other Witnesses
In order to resolve the many issues presented in these proceedings, it has been necessary for me to form a judgment about the evidence of other witnesses. These include the guarantors, and the valuers who gave evidence relating to the damage claims. I deal with the evidence of these witnesses later in the judgment.
IIITHE COURSE OF EVENTS

The Dee Why Gardens Project
In late 1984 and the first half of 1985, Mr Courtney and Mr Poignand planned the purchase of land, with a view to erecting a retirement village. Their idea was to attract a number of investors to the project, mostly clients of the accounting firm of Courtney & Co. On 9 August 1985 Ripoll was incorporated for the purpose of acting as the trustee of what became known as the DYV Unit Trust. On 29 August 1985, a trust deed was executed, establishing the DYV Unit Trust, of which Ripoll was the trustee. In the same month, Ripoll entered into a contract to purchase some four hectares of land at Fisher Road, Dee Why, about one kilometre from the Dee Why Shopping Centre. The deposit was paid out of loans to Ripoll from investors, including a contribution of $250,000 from Proban Pty Ltd, a company controlled by Dr and Mrs Pannikote, who were at the time clients of Courtney & Co.
The AGC loan, was supported both by guarantees and a number of securities. The securities included a mortgage by Pannikote Holdings, dated 30 September 1985 and a mortgage by Ripoll of the Dee Why property, dated 4 November 1985. By a deed of incoming guarantee, dated 4 November 1985, a number of incoming guarantors guaranteed Ripoll's obligations under the deed of 30 September 1985. The incoming guarantors included Mr Metcalfe, Mr Holden and Dr Pannikote.

Although different dates were given in oral evidence, the documentation indicates that, on 25 September 1985, AGC approved a loan of $500,000 to assist with payment of the deposit and stamp duty on the purchase of the property at Fisher Road, Dee Why. That approved limit was increased on 4 November 1985 by AGC to $3,800,000, in order to assist with completion of the purchase. Some $7 million was ultimately advanced by AGC in connection with the project.
On 30 September 1985, AGC, as lender, and Ripoll, as borrower, executed a deed of loan and guarantee. The guarantors were named as Mr Poignand, Mr Courtney, Proban Pty Ltd, Pannikote Holdings and W L Hawke Holdings Pty Ltd (the last of which has opted out of the present proceedings). The agreement provided for a loan period of twenty four months, which of course, in the absence of default, would have prevented AGC from demanding repayment of the principal before September 1987. Despite this, the applicant's further amended statement of claim alleged that the finance facility was to expire at the completion of phase 1 of stage 1 of the construction of Dee Why Gardens Village, an event which (as pleaded) occurred in January 1987. The respondents did not suggest that the case, as pleaded, was inaccurate, but the apparent contradiction between the terms of the facility and the pleading was not explained. It may be that the expiry date of the facility was subsequently varied, although no amending deed of variation having this effect was in evidence.
Ripoll planned to construct three types of self-contained units, namely, one bedroom, one bedroom plus study and two bedroom units. Serviced apartments, which were less expensive than self-contained units, were to be in two sizes, a larger "motel style" and a smaller apartment. Carports and garages were to be sold separately from the units. The target population, according to a memorandum prepared by Mrs Middleton, was the "middle class retiree who is financially comfortable, minimum age...55".
Ripoll was to derive revenue from the initial sales of units and apartments and from fees and charges on resales. A "purchaser" of a new unit or apartment paid the agreed price to Ripoll. However, the purchaser did not receive a freehold title, but a registrable lease from Ripoll, as lessor, for a term of 99 years. Ripoll was entitled to terminate the lease in certain circumstances. The terms of the lease were designed to ensure that the unit or apartment was occupied only by an "eligible person" (that is, an aged or disabled person as defined in State Environment Planning Policy No.5, which sets out a planning policy for housing for aged or disabled people). In practice, it appears that the lease would continue until the resident died or wished to leave the unit or apartment.
The mechanism by which an interest was "sold" was that Ripoll offered a fresh lease to the incoming "purchaser", who paid a premium for the lease. The net premium after expenses was paid to the previous lessee, subject to two main deductions:
lIn the case of the resale of a self-contained unit, Ripoll was entitled to a deferred management fee calculated at the rate 2.5 per cent of the lease premium paid by the incoming purchaser, multiplied by the number of years since the commencement of the lease of the outgoing resident, to a maximum of 25 per cent of the lease premium. In the case of the resale of a serviced apartment, the rate was 5 per cent per annum, subject to the same maximum.

lOn the resale of an apartment or unit Ripoll received 50 per cent of the capital gain measured by the amount (if any) by which the lease premium paid by the incoming lease exceeded the lease premium paid by the lessee.

In return for the deferred management fee Ripoll was required to refurbish and renovate the premises when the lease was surrendered. Lessees were, however, also required to pay contributions to meet recurrent expenses of the Village.
Construction on the project commenced in about February 1986. In addition to finance provided by AGC, unit holders contributed $4,999 by way of subordinated loans to Ripoll for each unit subscribed. The construction work was initially carried out by a company which apparently encountered financial difficulties in mid 1986. Ripoll then entered a construction agreement with Balimo Holdings Pty Ltd, a company controlled by Mr Poignand and Mr Courtney, and it took over the project in about September 1986. From the commencement of construction, Mr Poignand was in day to day charge of the project. Other investors played little role, although Mr Courtney participated in the negotiations with NZI for refinancing of the project.
The Approach to NZI
Mrs Middleton and Mr Parker of NZI Securities, first met Mr Poignand and Mr Courtney of Ripoll in Mr Parker's office, on about 5 January 1987. The purpose of the meeting was to discuss the possibility of NZI Securities refinancing Ripoll's loan facility with AGC. At that meeting, Mr Poignand initially requested a loan of about $10-12 million, but Mr Parker suggested that the facility should be increased to $15 million to ensure that sufficient funds are available to complete the project and to cover for inflation. Mr Poignand expressed his dissatisfaction with AGC because it was imposing on Ripoll what Mr Poignand considered to be an unnecessary requirement to engage consultants. At the meeting, Mr Parker stated that NZI Securities might require some form of equity participation and a large up-front fee to agree to refinance the project.
On 7 January 1987, Mrs Middleton sent a memorandum to Mr Parker. The memorandum recorded that Mr Poignand had found the relationship with AGC unsatisfactory, because of its slow response time, delays in progress payments and "lack of commercial reality". Under the heading of "The People", Mrs Middleton noted the names of the shareholders and the net worth of each of them. Mr Poignand's net worth was noted at $854,800, the amount that corresponded with the statement of Mr Poignand's assets and liabilities prepared as at 31 October 1986. Mrs Middleton stated that Ripoll required $6.5 million to refinance AGC, with total requirements peaking at $9.7 million. She set out two alternative ways of structuring the facility. One involved a term of three years and the other a term of two years.
On 11 January 1987, a meeting of some of the unitholders of the Trust resolved that the further construction and development of the Dee Why Gardens should be refinanced. On 13 January 1987, Mr Courtney forwarded, under cover of a letter, the valuations required by Mrs Middleton, a balance sheet of Ripoll as at 31 October 1986, and personal profiles of Mr Poignand and Mr Courtney himself.
NZI's January Offer
On 20 January 1987 Mrs Middleton, on NZI Securities' letterhead, forwarded to Messrs Courtney and Poignand of Ripoll a letter that included the following terms:
"Referring to our recent discussions, I am pleased to offer you an indicative proposal to fund the re-financing and construction of Dee Why Gardens, 155 Fisher Road North, Dee Why. The facility will be structured as follows:

Type:Cash Advance with a Bill Acceptance/Discount Option.

Amount:Up to $15.0 millaon, including capitalised interest.

Term:Four years from the original drawdown.

Pricing:Establishment Fee -

An establishment fee of $350,000 (three hundred and fifty thousand dollars) will be payable as a condition of this facility.

...

Profit Share: On completion of the project, N.Z.I.S.A. will be entitled to receive 5.0% of the gross profit of the project.

...

Security:- Registered First Mortgage over 4.118 hectares located at lots 155, 157 and 171 Fisher Road North, Dee Why.

- Fixed and Floating Charge over the assets of Ripoll Holdings Pty Limited.

- Joint and Several Guarantees from:

Dr & Mrs Victor Pannikote
Dr Emmett
W.L. Hawke Holdings Pty Limited
Chee Seng Lee
Harold Victor Holden
Margaret Isobel Fulton
Roger James Poignand
John Dalton Courtney
P. Metcalfe

- Registered First Mortgage, to be limited to $250,000, over 7 Simmon Street, Balmain.

- Registered First Mortgage over property located at 17-19 Robertson Street, Kogarah.

...

General
Comments:As pointed out in the initial part of this letter, this offer is purely indicative and is subject to formal board approval by the N.Z.I. Group and satisfactory selldown agreements.

This offer and any acceptance by you is conditional upon the preparation, execution and delivery of formal legal documentation in a form and of substance satisfactory to our legal advisers incorporating substantially the terms set forth above and any other terms we may require.

Should this letter meet with your approval, please sign the attached copy of this letter and return it prior to 30th January 1987."

On 21 January 1987 Mrs Middleton prepared a credit memorandum. This specified the details of the proposed project, in accordance with the letter of offer of 20 January 1987. Among other things, the memorandum specified four "ways out". These were cash flow; the sale of the properties at Kogarah and Balmain; the sale of the Dee Why Village management lease; and the personal guarantees. The memorandum pointed out that Ripoll was a $2 company, the directors of which were Mr Poignand and Mr Courtney. The memorandum set out a list of investors/contributors of subordinated loans to Ripoll, totalling $1,121,000. The personal profiles of Mr Courtney and Mr Poignand were attached, and they were described as "the active shareholders in the operation" who operated separate private practices as accountants. The security analysis also specified the estimated net worth of each of the guarantors, as at 31 October 1988, in accordance with the following table:
-Dr & Mrs Victor Pannikote        $4,300,000
-Dr A J Emmett                  924,941
-WL Hawke Holdings Pty Ltd           912,851
-Chee Seng Lee                  704,000
-Harold Victor Holden                634,000
-Margaret Fulton                   1,362,000
-Roger Poignand                 854,800
-John Courtney                  900,852
-P W Metcalfe                   321,398

Total $10,915,000

The document noted that the:
"Guarantees are from substantial investors in the Trust, the majority have a high tangible net worth and they include several well known names."

Mrs Middleton noted that the banks' security position was strong
and she strongly recommended approval of the facility.
Conversations of 27 January 1987
On about 27 January 1987, Mrs Middleton had a telephone conversation with Mr Poignand. In that conversation, Mrs Middleton said that NZI did not, as a matter of course, provide loans, other than lease finance, for terms longer than three or four years. Mr Poignand said that, given the behaviour of AGC, he was concerned that NZI would require repayment of the facility prior to the date Ripoll was able to repay it. Mrs Middleton said that, prior to the maturity of the loan, NZI would review the facility and if all was not going well it would consider extending the facility at that time. Mr Poignand replied that that was not enough and he needed a long term commitment.
Probably on the same day, a meeting took place between Mrs Middleton, Mr Poignand and Mr Courtney. In the course of that conversation Mr Poignand said to Mrs Middleton that a term of four years was not long enough because Ripoll needed sufficient flexibility to be able to complete the project if contingencies arose causing delay. Mr Poignand said that, because this type of project took from six to seven years, four years was too short.
In the course of the conversation, Mrs Middleton left the room and proceeded to Mr Parker's office. A conversation to the following effect took place.
"Mrs Middleton: We've got a problem. Roger wants it for a longer term than 4 years. Whilst the cashflows are there to cover a 4 year term, Roger wants a safety valve in case of a slow down of sales or some other unforeseen event. It's purely a backstop.

Mr Parker:Provided we can get the parameters that make it work for us, as well as for them it shouldn't be a difficulty. I can't give a longer term than 4 years but we can give him an option for a further 2 years provided he meets our requirements. If we're happy, then he'll be happy. The main thing is that Ripoll must meet NZI's requirements.

Mrs Middleton: I'll go back and offer him a 2 year option on that basis.

Mr Parker:Make sure you set the right guidelines so that everybody knows what's got to happen.

Mrs Middleton: Roger won't give us a profit share and he thinks our margin is too high."

Mrs Middleton returned to the meeting with Mr Poignand and Mr Courtney. Mrs Middleton then told Mr Poignand and Mr Courtney that Mr Parker had suggested a term of four years with an option to extend for a further term of two years, provided that Ripoll performed and passed the third year review. She asked whether that would satisfy Ripoll. Mr Poignand then asked:
"Does that mean that, provided we perform, we have got an extra two years?"

Mrs Middleton replied that if everything went "according to plan" there should be no problem with renewal. She stated that NZI was well aware that this was a long term project. Mrs Middleton also said words to the following effect:
"We cannot sit here at this point in time and make a decision four years out, because anything can happen with construction. There is an option so that we can reconsider in three years whether or not we will stay in for the longer term. And if in three years time we are happy and are willing to continue the financing of the project we will consider it at that point."

Mr Poignand, for his part, said that he was not happy with what was proposed but that if it was the best that was on offer he had no choice but to accept it. I find that nothing was said in this conversation about an option to extend for two years by two 12 month tranches.
At some stage during the meeting, Mr Parker entered the room. He said to Mr Poignand, in Mrs Middleton's presence, words to this effect:
"We will give you the option provided you perform. You perform, we'll perform."

At this stage Mr Parker was aware that Mr Poignand and Mr Courtney had prepared sales forecasts and cash flow projections for the village, showing that the facility would be repaid from sales by September 1989. However, Mr Parker did not discuss the projections with Mr Poignand and made no reference to them, other than by the general statement that Ripoll should "perform".
Facility Letter of 17 February
On 17 February 1987, in a letter addressed to "John and Roger" of Ripoll, Mrs Middleton set out a further offer:
"Referring to our recent discussions, I am pleased to offer you the following proposal to fund the re-financing and construction of Dee Why Gardens, 155 Fisher Road North, Dee Why. The facility will be structured as follows:

Type:Cash Advance with a Bill Acceptance/Discount Option.

Amount:Up to $15.0 million, including capitalised interest.

Term:Four years from the original drawdown. A review will be conducted at the end of year three with an option to extend for two years.

...

Should this letter meet with your approval, please sign the attached copy of this letter and return it prior to 27th February, 1987."

The letter removed the reference to profit share and reduced the interest margin from 2.25% to 2.15% per annum above the bank bill or bill acceptance rate. The letter also omitted the paragraphs stating that the offer was "purely indicative". Apart from certain other minor changes, the letter was identical to that contained in the letter of 20 January 1987. I infer that a copy of the letter was signed on behalf of Ripoll shortly after its receipt.
On 11 March 1987 Ripoll entered into an agreement with A Olsen Constructions Pty Ltd to take over the construction work at Dee Why Gardens Village. Shortly after the appointment of the contractor, AGC issued and, I would infer, served a notice under s.57(2)(b) of the Real Property Act 1900 to Ripoll, requiring payment of some $451,000 said to be due under the mortgage.
Preparation of the Facility Agreement
In the meantime, on about 19 February 1987 Mrs Middleton gave Mr Peter Doyle of NZI's solicitors, Mallesons Stephen Jaques, instructions to prepare documentation for the facility. At that time she faxed a copy of the facility letter of 17 February 1987 to Mr Doyle, who asked Mr Adrian Culey, an employed solicitor, to attend to the preparation of the draft document.
Mr Culey took account of the letter of 17 February 1987 when drafting the facility agreement. He interpreted the provision relating to the term of the facility as conferring an option on the lender to extend the facility. Accordingly, he formed the view that it was unnecessary to refer to the "option" in the draft which provided simply for a term of four years. The draft facility agreement prepared by Mr Culey was forwarded to Mrs Middleton under cover of a letter dated 26 Marc` 1987, together with a draft deed of fixed and floating charge.
Shortly after this Mr Doyle gave consideration to the terms of the facility letter of 17 February 1987. Because he was uncertain as to its meaning, he telephoned Mrs Middleton. In the light of that conversation, the details of which Mr Doyle (who was not cross-examined) apparently could not recall, Mr Doyle wrote by hand a clause which ultimately became cl.5.08 of the facility agreement. The clause was in the form reproduced earlier in this judgment.
I infer that Mrs Middleton told Mr Doyle to prepare a clause providing only for one year's extension of the facility. The reason for Mrs Middleton giving this instruction, which was at odds with her own account of events, was never clarified. In any event the handwritten clause, which at this stage designated as cl.5.07, was incorporated into an engrossed draft by 2 April 1987. Mrs Middleton accepted that she had seen the draft cl.5.07 when it was first sent to NZI from Mallesons Stephen Jaques. She also accepted that she was satisfied with the draft clause when she saw it.
The Meetings of 2 and 3 April 1987
The draft facility agreement was the subject of discussion at a meeting held from about 1 pm to 5 pm on 2 April 1987, at the offices of Mallesons Stephen Jaques. The meeting was attended by Mrs Middleton, Mr Doyle, Mr Culey, Mr Poignand, Mr Courtney and Mr Hawkins, Ripoll's solicitor. It is not entirely clear when Mr Hawkins was instructed to act on behalf of Ripoll, although it seems that Mr Poignand provided Mr Hawkins with the facility letters before the meeting of 2 April 1987. Discussions took place concerning interest margins and other matters, but there was no discussion relating to what was then cl.5.07 of the draft.
A revised version of the draft agreement, incorporating changes agreed upon at the meeting of 2 April 1987, was couriered to Mr Hawkins' office that evening. Because of the amendments made to the agreement, the clause granting the option to extend the term was renumbered from cl.5.07 to cl.5.08. The clause was otherwise unchanged. A copy of the draft was not sent directly to Mr Poignand. One of the changes agreed to at the meeting was that the identity of the lender would be changed to NZI Capital. This took place because Mr Doyle advised that NZI Capital held a banking licence permitting it to enter the facility agreement, but NZI Securities held no such licence.
A further meeting took place between the same participants at the offices of Mallesons Stephen Jaques on 3 April 1987. There was disagreement about the timing of the meeting, but it probably took place in the morning. Again, while there was discussion of some of the terms of the draft facility agreement, there was no discussion of cl.5.08 of the draft, nor of the term for which the facility was to be granted.

On the evening of Thursday 2 April 1987, or the morning of the following day, Mrs Middleton prepared a fresh facility letter on the letterhead of NZI Capital. The fresh letter was prepared at the request of Mallesons Stephen Jaques in order to accommodate the fact that, for bank licensing reasons, NZI Capital, rather than NZI Securities, was to be the facility lender. Mrs Middleton brought the letter to the Friday meeting, Mr Parker having read and approved it. The first part of the letter, except for being addressed "Dear Sirs" instead of "Dear John and Roger", was identical to the facility letter of 17 February 1987. In particular the "Term" was dealt with in identical language. This was despite the fact that Mrs Middleton, by this time, had seen and approved the terms of cl.5.08 of the draft agreement.
The balance of the letter of 3 April 1987 was different in some respects from the letter of 17 February 1987. The margin was reduced from 2.15% to 2.0% per annum above the bank bill or bill acceptance rate. The letter provided for a commitment fee of 2.0% per annum to be payable on the undrawn portion of the facility and this fee, as with interest, was to be capitalised six monthly in arrears. The letter also provided for a review "of the facility in relation to the pricing and commitment level in consultation with the client at the end of the first year of the facility".
Mr Poignand read the letter of 3 April 1987 at the meeting and observed the provision relating to the term of the facility. As I have indicated earlier, I find that, although Mr Poignand and Mr Courtney each had ample opportunity to scrutinise the draft facility agreement if they wished, neither read what became cl.5.08 and neither appreciated the disparity between the letter of 3 April 1987 and the terms of cl.5.08.
Drawdown and Beyond
Later on 3 April 1987, the common seal of Ripoll was affixed to the facility agreement, a deed of fixed and floating charge and a mortgage of the Dee Why property. The facility agreement provided for a cash advance and bill acceptance and discount facility for an aggregate amount not exceeding the facility limit of $15 million. The purpose of the facility was said to be to refinance the cost of construction of phase 1, stage 1 of the development and to complete the construction of the remaining stages of the Dee Why Gardens Village. The "construction period" was defined to mean the period commencing on the date of the facility and terminating on 31 July 1990, or such other date as was agreed between the parties.
On the day on which the facility agreement was executed, Ripoll made a drawing under the agreement of $8,180,970. Of this sum $350,000 was paid to NZI Capital as its establishment fee; $230,000 was paid to Mr Poignand, as repayment of moneys he had advanced to Ripoll; $7,350,957 was used to pay out AGC; and the balance of $250,012 was paid to Ripoll.
Curiously enough, the guarantees in favour of NZI Capital were not executed by the guarantors before the drawdown on 3 April 1987. The documentation was not executed until nearly three weeks later, on or about 22 April 1987. During the hiatus, the AGC facility had been repaid in full, yet NZI Capital did not have the benefit of any guarantees or third party mortgages to provide the security for its advance to Ripoll as contemplated in the facility letters. I shall deal later with the circumstances in which each of the guarantors who are represented parties in these proceedings came to execute the documentation.
In May 1987 the first sale of a new unit was settled, although marketing had previously commenced and some deposits had been taken from prospective lessees earlier in the year. I shall deal later with the rate of sales of units and apartments prior to the appointment of the receiver to Ripoll by NZI in March 1992, in the context of considering Ripoll's claim to damages.
In March 1988 Kleinwort Benson Australia Ltd ("KBA") agreed to fund up to $10 million of NZI Capital's exposure under the facility, for a two year period. This did not alter Ripoll's obligation to NZI Capital but constituted what Mrs Middleton described as a "balance sheet selldown for NZI".
The 1989 Review
In October 1989 Mrs Middleton prepared a credit memorandum to complete Ripoll's second annual review, which had evidently been delayed. An annual review was a standard procedure for all large facilities and was an internal process carried out, regardless of whether a review was required by the terms of any particular facility agreement.
In her memorandum, Mrs Middleton reported that NZI's exposure under the facility was $7.82 million and KBA's exposure was $4.6 million. Mrs Middleton also reported that, "due to the current market", selling was not progressing as quickly as previously had been the case. However, the latest of the projections regularly prepared on behalf of Ripoll showed that the project would yield $46.6 million in sales, against construction costs of $20.8 million, leaving a gross profit of $25.8 million. A valuation prepared by Mr Marcel James of Baillieu Knight Frank estimated the value of remaining stock (including an allowance for stock under construction, less building costs), together with the land value of land to be used for later stages, at $16.6 million. Mrs Middleton assessed the Village as being in a "strong financial position", with marketing having been "extremely successful".
The then current forecasts showed that the facility would not be repaid until February 1992, some 10 months beyond the expiry date of 3 April 1991. Mrs Middleton noted that construction of the village would not be complete until after the expiry date and that refinance might be difficult to obtain.
"Therefore NZI's best option may be to extend the facility and support the borrowers until completion".

Mrs Middleton referred to NZI being legally committed to fund $15 million, although it was unlikely that the total would ever be drawn because of the expected sale of units. She concluded as follows:
"At present, no circumstances exist that would enable NZI to decline its continued funding of the project".

On 2 March 1990 Mr Poignand was advised, in a letter from the managing director of NZI Securities, that General Accident Ltd had completed a 100 per cent take-over of NZI in December 1989 and, since then, had assumed full management control over NZI Capital and NZI Securities. The letter went on to detail new administrative arrangements applying to the bank.
Mrs Middleton's April 1990 Review
On 12 April 1990, Mrs Middleton prepared a short executive summary to NZI's group head office in relation to the Ripoll facility. The summary stated that Ripoll was considering its alternatives at the maturity of the facility in April 1991 and that a review was scheduled at 31 January 1991 to ascertain NZI's position closer to maturity. The summary noted that the facility was currently within limits, but construction had ceased until such time as sales reduced the then current stock. The summary also recorded that:
"no circumstances exist that would enable NZI to decline its continued funding of this project although specific legal advice has not been sought."

In her evidence, Mrs Middleton explained that this language was not intended to deal with the question of an extension of the facility pursuant to the terms of cl.5.08 of the facility agreement, but was simply making the point that the facility was in order. Other documentation, including the credit memorandum of October 1989, uses the same language and suggests (as I find) that Mrs Middleton's explanation is correct.
Mrs Middleton also prepared a more detailed credit memorandum, dated 20 April 1990. It is not clear why this bore a date different from that of the executive summary. The purpose of the credit memorandum was stated to be to "complete the annual review of the account" and to advise of the repayment to KBA (now known as Security Pacific Gold Ltd) of moneys due to it under the 1988 arrangement.
By March 1990 construction of the village had proceeded to the fifth of the seven contemplated stages. The credit memorandum set out, in tabular form, the number of units that had been "sold" up to 31 March 1990:
Amount

($'000s)

Stage 134 units
. 32 settled
. 1 office
. 1 manager's unit 4,797

Stage II

(serviced
     apartments)       37 units
  . 25 settled       2,559
Stage III         32 units
  . 28 settled       4,686
Stage IV          28 units
  . 15 settled       2,975
Stage V
         Phase I      26 units
  . 5 settled          895
TOTAL:  15,912
The memorandum also set out the stock that was available at that time:

Stock

No. of Units Price Garages Price

Stage I 2 451 5 48

Stage II     12 1,424 Nil Nil

Stage III 4 928 6 63

Stage IV     13 2,739 12     161

Stage V

Phase I     18 2,870 Nil Nil

TOTAL     49 8,410 23      272
The disparity between the 18 units of stock in Stage V and the 26 units of Stage V recorded in the first table reflects the fact that 8 units were under construction.
The memorandum referred to the financial statements for Ripoll for the year ended 30 June 1989, stating (somewhat surprisingly) that more recent financial information was not available. Those statements indicated that non-current liabilities of Ripoll totalled $13.37 million as at 30 June 1989, while total liabilities were $13.49 million. Total assets were $17.1 million, of which the recorded value of the village was $15.03 million.
The memorandum noted that, since October 1989, the village had experienced an increase in the number of cases where deposits were not carried through to a sale, due to the inability of retirees to sell their homes. This had prompted an expanded marketing campaign. However, advertising had been suspended because the Easter period and school holidays were poor times for sales. The memorandum also recorded that no further construction would commence until the current stock (of 49 units) had been depleted. The memorandum pointed out that, as the village had grown, the mortality rate of residents had increased, thereby adding to the already large stockpile of units.
I should interpose here that Mr Poignand, in his evidence, agreed that construction work had stopped early in 1990 because there were simply too many unsold units. Mr Poignand said that one of the major reasons for the downturn in sales at the Dee Why Gardens Village was that the Salvation Army had built a retirement village at Collaroy, near to Dee Why. A number of potential purchasers shifted their deposits to the Salvation Army village. Another reason was the inability of retirees to sell their own houses in a depressed residential market. Mr Poignand also gave evidence that, at least by February 1990, he was looking for alternative ways of attracting investment in the Dee Why Gardens Village. For this purpose Ripoll engaged a firm of merchant bankers, McClintocks, to explore the possibility of making a private offering to investors, involving both the village and its associated retirement village, the Shalimar Country Club.
Despite the difficulties that had led to the suspension of construction work, Mrs Middleton's report repeated the statement that marketing of the village had been extremely successful. The then current forecasts indicated that the village would be cgmpleted by July 1992 and that all units would be sold by November 1992. The client had advised that discussiofs were being held with investment bankers to ascertain the feasibility of establishing a property trust for a number of villages, including Dee Why Gardens and Shalimar. However, the lead time for such a trust was approximately 12 months. It was therefore impossible to ascertain what the client's requirements would be on maturity. The next review was scheduled for 30 January 1991, at which time both Ripoll and NZI would be in a position to see whether or not the facility would be repaid, refinanced or floated into a trust.
The memorandum noted that, since the forecast suggested the construction of the village would not be completed prior to expiry of the facility, consideration had to be given to the options open to NZI. The memorandum stated that NZI's best option "may be to extend the facility and support the borrowers until completion". It was envisaged that the current valuation of $16.6 million would increase substantially, as the village became more complete and the property market in general picked up. Since it was anticipated that the balance at the expiry of the facility would be about $8.4 million, NZI would be very well secured.
Mrs Middleton gave evidence that the results of the annual review of an account were not ordinarily communicated to the borrower. However, by 1990, at least in the case of a facility as large as Ripoll's, the New Zealand head office had to approve the review. On 22 May 1990, the Australian Credit Committee recommended the approval of the review of which the executive summary of 12 April 1990 was part. However, the review was withdrawn by Mr Uncle, who had replaced Mr Parker as Mrs Middleton's superior, in the Australian branch of NZI. The review summary was therefore never approved by the New Zealand head office. Mrs Middleton said in evidence that she recalled a written reply from the New Zealand office explaining their attitude to the review.   If there was any reply, it was not in evidence. In any event, I infer from the documentation on the file and from Mrs Middleton's evidence that a decision was made by Mr Uncle to withdraw the review from the New Zealand office. I also infer that this step was taken because the New Zealand office had expressed its dissatisfaction with the account and because Mr Uncle thought that approval would not be forthcoming. Accordingly, the review was not approved and, as Mrs Middleton said in evidence, it was not completed.
Mrs Middleton acknowledged that there was a difference between the regular annual review of an account and a review for the purpose of determining whether a facility should be extended, in accordance with provisions such as those contained in cl.5.08 of the facility agreement. She also acknowledged that, in April 1990, she was not attempting to carry out a review for the purpose of determining whether the facility should be extended. She explained her failure to undertake that task at the time on the basis that Mr Poignand had become increasingly frustrated with NZI and had expressed a desire to move away from NZI and obtain cheaper finance elsewhere. Mrs Middleton was aware that Mr Poignand might desire the extension of the facility beyond April 1991, but had been told by Mr Poignand that he only wanted a relatively short period, of around six months.
Although Mr Poignand gave a somewhat different account, I think that Mrs Middleton's account, which is consistent with the contemporaneous documentation, is to be preferred on this point. I do not accept Mr Poignand's evidence that, from March or April 1990, he pressed Mrs Middleton, in a series of telephone conversations, for a review of the facility with a view to securing approval for an extension of the facility. Had Mr Poignand pressed for such a review, the strong probability is that his communications would have been recorded in the detailed contemporary documentation prepared by Mrs Middleton. She had no motive or reason to withhold reference to any requests made by Mr Poignand for NZI to adopt a course which, in any event, it was bound to undertake under the terms of the facility agreement, if not under any pre-existing arrangement embodied in the facility letters. Similarly, one would have expected some communication in writing from Ripoll pressing for the review to take place, or expressing Ripoll's desire for an extension of the facility. No such correspondence was in evidence. Mr Poignand's evidence on this issue was unconvincing.
June to October 1990
There was a conflict of evidence between Mr Poignand and Mrs Middleton as to what, if anything, was said by Mrs Middleton following the withdrawal of the annual review recommendation from head office in New Zealand. I prefer Mrs Middleton's account. She was firm in her recollection, which appears to me to be consistent with the close working relationship that had clearly developed between Mr Poignand and her. On her account, in about June 1990, a conversation took place to the following effect:
JM:"Roger, I think you should seek to re-finance this facility with another lender because your April 1990 review did not go very well with Head office."

RP:"I expected something like this. I will start looking round. I appreciate you letting me know."

Having regard to the contemporaneous documentation, including a memorandum of 24 July 1990 from Mrs Middleton to Mr Uncle, I think the probabilities are that this conversation took place in late June or early July 1990.
On 12 September 1990, Mr Poignand forwarded to Mrs Middleton, under cover of a letter, a number of documents, including the DYV Unit Trust Deed, Ripoll's financial statements for the year ended 30 June 1990 and a copy of the Retirement Villages Act 1989 (NSW). The letter does not make clear why the documents (some of which related to Shalimar) were being sent to NZI. The letter does not state that the documents were supplied in connection with the annual review of Ripoll's facility, nor that they were supplied for the purpose of undertaking the review contemplated by the facility agreement.
Shortly after this, probably during October 1990, Mrs Middleton had a conversation with Mr Poignand, in which she expressed concern that the account might be sent to NZI's recovery area. Mr Poignand's response was that he was not surprised and asked for suggestions as to possible financiers. From this time until late March 1991, Mrs Middleton had frequent discussions with Mr Poignand concerning the refinancing of the facility. Mr Poignand repeatedly expressed confidence about Ripoll's prospects of securing refinancing.
The November 1990 Recommendations
On 22 November 1990, Mrs Middleton prepared an executive summary for NZI's group head office. The purposes included seeking an extension of the facility from April 1991 to 31 October 1991, conducting the annual review and formally advising of the repayment of moneys due to KBA. The summary and recommendations were as follows:
"Dee Why Gardens is currently experiencing a slow down in sales due to the current downturn in the residential property market in Australia. Construction has ceased and will not recommence until such time as stock levels have been significantly reduced.

In the three years that this facility has been with the NZISA, the nature of the facility has moved from a purely construction based facility to funding a viable and expanding business operation.

NZISA are well secured with additional comfort given by the actuarial valuation of the business operation of the Village. Significant controls have been placed on Dee Why and NZISA have continued support for the management and operation of this retirement village. It is recommended that this credit be approved as submitted."

The executive summary was supported by a more detailed credit memorandum, prepared by Mrs Middleton and dated 28 November 1990. The memorandum restated much of the information included in earlier reports. It noted that the then current forecasts indicated that the village would be completed by September 1993 and that the debt (assessed by Mrs Middleton at $13.4 million) would be repaid by July 1993. However, this assumed a rate of sales of one unit per month until January 1991, increasing to 2.5 per month until October 1991, and then returning to the "historical levels" of one per week. The memorandum reported that Ripoll's discussions with McClintocks were continuing with a view to establishing a property trust. Because of the lead time it was impossible to ascertain Ripoll's requirements on maturity, but it was proposed to hold a further review on 30 August 1991 to determine whether the facility would be repaid or floated into a trust.

Mrs Pannikote was challenged in cross examination on her account of the conversation and her belief as to the duration of the facility being provided by NZI. I do not regard the fact that Mrs Pannikote omitted reference to the conversation with Mr Poignand in her first affidavit as necessarily fatal to her account. The affidavit was prepared for different proceedings, and Mrs Pannikote's attention may not have been directed at the time to the significance of any belief she held as to the term of the finance facility. However, there are other factors that lead me to reject Mrs Pannikote's account of that conversation and of her belief in the significance of the term of the facility.
Both in 1985 and in early 1987, Mrs Pannikote demonstrated very little interest in the financial details of the Dee Why Village project. For example, Mrs Pannikote did not inquire as to the "share" that determined Dr Pannikote's liability under each of the guarantees; she did not inquire as to the value of security or the extent of contributions provided by other investors in the project; she had no clear understanding of the term of the AGC facility and, to the extent she had a belief, it was wrong; and she could not recall in evidence when she expected that unit holders or investors would receive a return on their investment. Yet Proban Pty Ltd had advanced $250,000 for the project and, to Mrs Pannikote's knowledge, Dr Pannikote executed two guarantees and Pannikote Holdings executed a mortgage over a valuable property in support of the project. Although Mrs Pannikote claimed that the term of the proposed NZI facility was important to her, the only conversation of which she gave evidence is said to have occurred some time in January 1987, before the meeting between Mr Poignand and Mr Courtney and Mrs Middleton, which occurred on 27 January 1987. The conversation between Mrs Pannikote and Mr Poignand is said to have taken place some three months prior to the execution of the guarantee and the mortgage and some weeks before Ripoll received the facility letter of 17 February 1987 (which recorded the existence of an option to extend the facility for two years). But there is nothing in Mrs Pannikote's evidence to indicate that she inquired - or was told - about the outcome of negotiations with NZI concerning the term of the facility, let alone that she saw the terms of the facility letters.
I find it very difficult to accept that someone who had displayed such little interest in the financial details of the Dee Why Gardens Village project, would have discussed the term of the replacement facility with Mr Poignand in the manner suggested by Mrs Pannikote. I also find it difficult to believe that Mrs Pannikote would have regarded the term of the facility as important to a decision by her husband to provide a guarantee and by Pannikote Holdings to provide a mortgage in support of the project. Both Mrs Pannikote and Dr Pannikote had relied, with considerable success, on Mr Courtney's financial advice in the past. They trusted him as a financial adviser. It is true that Mrs Pannikote was not entirely ignorant of the nature of the Dee Why Gardens project. She had, for example, visited the site of the village and had seen a brochure relating to the development. But having regard to the nature of the commitments being made by her family, her knowledge of the financial aspects of the project was very limited. I do not think it at all likely that she directed her mind to the term of the NZI facility. My impression of Mrs Pannikote in the witness box reinforced my view that she would have been content to accept Mr Courtney's judgment and would not have been concerned about the details of the proposed transactions to be entered into by Ripoll.
There is another difficulty in the path of Mrs Pannikote's evidence. It was put to her that she had no basis for the belief, asserted in her affidavit, that "the project could not be completed in 4 years". It was pointed out that Ripoll's projections at the time, which Mrs Pannikote had seen, contemplated that work on the project would be completed by July 1990. Ultimately, Mrs Pannikote modified her position and said that she believed that the project may not have been completed within the four year period. While Mrs Pannikote was aware of some delays in the first eighteen months of the project, I did not find her account on this issue convincing. I do not mean by this that Mrs Pannikote was seeking deliberately to mislead the Court. It is quite possible that, on this and other topics, her recollection was coloured by her perception of the issues in the case and the need to reconstruct events that had occurred over five years before the swearing of her first affidavit. I do not accept, however, that she had formed the view in 1987 that the projections she had been shown were unreliable.
I find that Mrs Pannikote and Mr Poignand did not discuss specifically the term of the NZI facility, either in January 1987, or at any other time prior to execution of the guarantee and mortgage in April 1987. In supporting the involvement in the project of Dr Pannikote as guarantor and Pannikote Holdings as mortgagor, Mrs Pannikote was not motivated by any belief that the term of the facility would exceed four years. I find that she had no such belief. Mrs Pannikote acted simply on the basis that she trusted Mr Courtney's judgment and accepted his decision as to the terms upon which Ripoll should accept finance from NZI. She was never told about the facility letters and had never read them prior to the proceedings. Her decision to recommend the project to her husband in no way depended on a belief as the term of the facility.
I should add that, in reaching this conclusion, I have not overlooked Mr Poignand's evidence that he had referred to his belief that four years was not enough for the facility at the time he requested Mrs Pannikote to secure Dr Pannikote's agreement to sign the guarantee. Mr Poignand gave evidence that he had made similar comments to other guarantors at about the same time. I do not regard this evidence as reliable and I do not accept it.
Dr Pannikote
Because of the demands of his practice, Dr Pannikote relied on his wife to attend to matters relating to his investments and those of the family companies. Dr Pannikote's involvement with Mr Courtney was irregular and Mrs Pannikote provided the channel for communications from Mr Courtney and other professional advisers. Dr Pannikote had no direct dealings with Mr Courtney or with Mr Poignand in relation to the Dee Why Gardens Village project. Indeed, the first time Dr Pannikote met Mr Poignand was when Mr Poignand brought the guarantee for execution by Dr Pannikote, on or shortly before 22 April 1987.
In an affidavit sworn in December 1994, nearly eight years after the critical events, Dr Pannikote deposed to conversations between himself and his wife. Dr Pannikote's evidence was that, when he was told that Ripoll wished to refinance the project, he became concerned that any new financier would provide suitable finance to see the project through to completion. Thus he asked Mrs Pannikote how long the loan was for and was told that a term of four years had been offered, but Mrs Pannikote considered this inadequate. Dr Pannikote then gave his consent to the guarantee specifically on condition that Mr Courtney and Mr Poignand believed that the period of the facility was long enough to complete the project. Dr Pannikote said that he later agreed to Mr Courtney's suggestion, conveyed through Mrs Pannikote, that Pannikote Holdings should provide the Kogarah units as security for the project.
I regard this account as implausible. Under cross-examination, Dr Pannikote conceded that he had not asked his wife for details of the amount of the NZI facility, the interest rate, requirements for payment of interest, the time at which a return on Proban's investment could be expected or the length of time for which the Kogarah property would be subject to the mortgage. He also conceded that he had not formed any opinion as to how long the project would take to complete, as he had left all those matters to his wife. It is not credible, in my opinion, that the one issue of concern that Dr Pannikote raised with his wife was the term of the NZI facility. I have reached this conclusion on the basis of an assessment of Dr Pannikote's evidence, independently of my view of Mrs Pannikote's evidence. However, my assessment of Mrs Pannikote's evidence reinforces the conclusion that Dr Pannikote did not discuss with her the terms of the NZI facility before executing the guarantee.
I find that Dr Pannikote did not discuss the term of the NZI facility with his wife. He executed the guarantee because he accepted completely his wife's judgment that to do so was in order. Dr Pannikote's understanding was that his wife believed that Mr Courtney was satisfied with the terms of the proposed facility from NZI. Mr Pannikote needed and received no further information before executing the guarantee. He was not influenced in his decision by any belief as to the term of the facility agreement.
Mr Holden
Mr Holden was a business associate of Mr Poignand. Prior to 1986 both had interests in a company known as Medical Financial Services Pty Ltd, of which Mr Holden was managing director. The business arrangement ended in about 1986, when Mr Poignand became involved in the Dee Why Village project on a full-time basis. In November 1985, Mr Holden had signed the "Deed of Incoming Guarantee", whereby he became a guarantor of Ripoll's indebtedness to AGC. Mr Holden described himself as being "in some respects a promoter" of the village, in the sense that he introduced investors to the project. Mr Holden gave this evidence about his reasons for becoming a guarantor of the loan to Ripoll from AGC:
"Why did you do that?---I assumed I had some involvement in it as relative to, well, with say shares and things of that nature.

Were you told or did you believe you were a shareholder in Ripoll did you?---No, not per se, I wasn't aware of whether it was - I was talking about in generality. I assumed I was a shareholder and I don't think particularly in Ripoll.

Did Mr Poignand tell you that you had shares in the Dee Why Gardens project?---Yes.

Was that the reason why you signed the guarantee to AGC?---Yes.

The sole reason?---Yes.

Had it not been for Mr Poignand's assurance to you that that was the case, may I take it you would not have signed the guarantee to AGC?---No, I wouldn't have had any reason to I don't suppose."

In an affidavit sworn on 20 May 1992 and filed in the guarantee proceedings, Mr Holden said that, on about 22 April 1987, Mr Poignand arranged a meeting in his (Mr Poignand's) car outside Mr Holden's office. A conversation then took place as follows:
"Mr Poignand: Harry, we have received approval from NZI Capital to refinance the AGC loan on the Dee Why Gardens project to allow us to finish the development.

Mr Holden:What do you need me for?

Mr Poignand: Are you prepared to sign a guarantee on the project?

Mr Holden:Well I've got shares in this haven't I?

Mr Poignand: Of course you have.

Mr Holden:Well in that case I'll sign it."

Mr Holden stated in his affidavit that he signed the guarantee relying on Mr Poignand's assurance given in the course of that conversation.
In an affidavit sworn in the representative proceedings in December 1994, Mr Holden said that, having read an affidavit of Mr Poignand, he had been prompted to recall a conversation in January 1987 to the following effect:
"Mr Poignand: Harry, we have approval from NZI for a loan of $15 million for four years. John and I think four years is not enough and we want to refinance to complete the project. Would you be happy to sign a guarantee for four years only?

Mr Holden:Roger I don't mind giving a guarantee provided you have enough time to complete the project. Four years is not long enough."

The later affidavit recounted the conversation that took place in Mr Poignand's car in substantially identical terms to the account set out in the earlier affidavit, although Mr Holden added, in his later account, a reference to his understanding at the time that he was a guarantor of the AGC loan. Mr Holden did not suggest that he had seen either of the facility letters of 3 April 1987 or 17 February 1987.
In evidence, Mr Holden was vague as to what, in Mr Poignand's affidavit, had stimulated his recollection of the conversation in January 1987. I do not accept that he had any independent recollection of such a conversation at the time he swore his second affidavit. Indeed, Mr Holden's account of the April 1987 conversation in his first affidavit strongly suggests that this was the first time be became aware of the proposal to refinance the AGC facility. It also strongly suggests that his sole reason for signing the guarantee was his belief that he had "shares" in the project, although he may also have been influenced by his belief that he was a guarantor of the AGC loan (which, apparently unbeknown to him, had been discharged at the time of the drawdown under the NZI Capital facility, on 3 April 1987). Mr Holden struck me as a person who was prepared to execute documents, without any detailed consideration of their contents or import, simply upon the recommendation of Mr Poignand or Mr Courtney.
In these circumstances I do not accept that the conversation of January 1987 between Mr Poignand and Mr Holden took place. I find that Mr Holden executed the guarantee without adverting to the term of the NZI facility. This decision was not influenced by any belief as to the term of the facility. Mr Holden had no knowledge of the existence or contents of the facility letters.
Mr Metcalfe
In 1985 Mr Metcalfe was a partner in the accounting firm of Courtney & Co. Mr Metcalfe described himself as the junior partner and Mr Courtney as the senior partner, although income from the partnership was shared equally. Following Mr Courtney's death, on 15 May 1992, Mr Metcalfe continued the practice as the sole principal.
Mr Metcalfe did not invest any moneys in the Dee Why Village project initially, although from at least 1986 he was one of Ripoll's two company secretaries. At a time unspecified in the evidence, but probably after April 1987, a company controlled by Mr Metcalfe acquired four or five units in the DYV Unit Trust. Each $1 unit carried with it an obligation to contribute $4,999 by way of subordinated loan, so that Mr Metcalfe's company presumably advanced $20,000 or $25,000 to Ripoll. Notwithstanding that in November 1985 Mr Metcalfe had no financial interest in the venture, at that time he executed a guarantee of Ripoll's obligations under the AGC facility. He did this, he said, primarily because he was asked to support the project by Mr Courtney (one of whose companies had advanced money to Ripoll) and because he (Mr Metcalfe) respected the interests of the firm's clients. He also thought the project was sound, with little prospect of failure.
In January 1987, Mr Metcalfe was told by Mr Poignand and Mr Courtney that life with AGC had become uncongenial and that refinancing was desirable. He also attended the unitholders' meeting on 11 January 1987, at which Mr Poignand told the gathering that AGC had been causing problems and that the project should be refinanced. In the second half of January, Mr Metcalfe became aware that NZI had been approached and that he would be required to provide a further guarantee.
Mr Metcalfe deposed that, on about 22 January 1987 he had a conversation with Mr Poignand. In that conversation, Mr Metcalfe said that four years was not enough for the project and that he did not wish to be exposed as a guarantor when the loan fell due and the project was incomplete. Mr Poignand is said to have agreed and expressed the view that a longer term could be obtained from NZI.
Mr Metcalfe deposed that he had a further conversation in mid- February with Mr Poignand to the following effect:
"Mr Poignand: NZI has approved a suitable loan to take out AGC.

Mr Metcalfe: How much is the loan for?

Mr Poignand: Initially $10 million.

Mr Metcalfe: What about the term of the loan? Is it four years?

Mr Poignand: NZI has agreed to extend the term by giving a two year option. It is the same as giving us a six year loan.

Mr Metcalfe: Seven would be better but six years ought to see the project through, well done Roger."

On about 22 April 1987, Mr Courtney asked Mr Metcalfe to execute the guarantee in respect of the NZI facility. At this point Mr Metcalfe appreciated that AGC had been paid out and that his guarantee was no longer in force. Mr Courtney, according to Mr Metcalfe, responded to Mr Metcalfe's expression of concern about executing the documents by asserting that they were "Clayton's guarantees" and were never going to be called upon. Mr Courtney also said that the project was so good that there was very little downside and that the loan was "virtually a six year loan". In response to Mr Courtney's rhetorical question, "What can go wrong?", Mr Metcalfe replied, "If you say so, John". Mr Metcalfe deposed that he signed the guarantee believing that he was signing for a loan for a term of four years with an option by Ripoll to extend for a further two years. He would not have signed the guarantee if the loan was for four years only.
I have considerable difficulty accepting Mr Metcalfe's account of events, for a number of reasons. At one point in his cross examination, Mr Metcalfe asserted that, in about March 1987, Mr Poignand had read out the section of the facility letter referring to a review of the facility at the end of year three. This was the first reference made by Mr Metcalfe to the fact that he knew a review was contemplated at the end of the third year of the facility. No such claim had been made in either of Mr Metcalfe's affidavits addressing these issues, the later affidavit having been sworn in December 1994. Mr Metcalfe explained the omission in his affidavits on the ground that he did not think at the time it was important to refer to the letters. I find this explanation implausible. At least by December 1994, Mr Metcalfe was the applicant in the representative proceedings. Whether or not he had read the pleadings, he must have been aware that a critical issue in the case was whether he had been told that the term of the facility agreement was as stated in the facility letters. On any view, a major purpose of the later affidavit was to set out the representations made to Mr Metcalfe concerning the term of the facility agreement. Mr Metcalfe must have appreciated at the time of swearing the affidavit that a conversation in which the relevant provision of the facility letter were read out was important to his case.
Mr Metcalfe gave evidence that, as late as January 1991, he believed that Ripoll had passed the review process satisfactorily and that the facility would be extended for two years. He maintained his position notwithstanding his acknowledgment that by this stage he was aware that the New Zealand head office had "knocked [the review] back". It is difficult either to understand Mr Metcalfe's evidence on this point, or to reconcile it with the evidence given before me by Mr Poignand (which had changed significantly from his evidence at the earlier hearing).
Mr Metcalfe was also asked to explain why, in February 1991, he had conducted a search of the title to Mr Poignand's home. His explanation was less than forthcoming and suggested to me that he was choosing to withhold his true reasons.
I think the likelihood is that, in the course of a conversation occurring some time after the meeting with NZI of 27 January 1987, Mr Poignand probably said to Mr Metcalfe (among other things) that NZI had agreed to a term of four years, with an option to renew for two years. Unlike Mrs Pannikote and Mr Holden, Mr Poignand probably did have contact with Mr Metcalfe after the meeting with NZI on 27 January 1987. There was no reason for Mr Poignand to withhold what had emerged from that meeting, at least in general terms. But I do not accept that any information given by Mr Poignand as to the term of the facility was given in response to any expression of concern by Mr Metcalfe, or any specific question by him as to the term of the facility. I do not accept that he was told that the loan was virtually for a term of six years. Furthermore, in my view, Mr Metcalfe did not consider the term of the NZI facility to be in any way significant in relation to his decision to execute the guarantee in support of the facility on about 22 April 1987. Mr Metcalfe, although not entirely dependent on Mr Courtney, was heavily influenced by him. This influence was such that Mr Metcalfe was prepared to execute the original guarantee at Mr Courtney's suggestion, notwithstanding that he (Mr Metcalfe) had no beneficial interest in the project. Mr Metcalfe's explanation for signing Mr Poignand's statement of assets and liabilities, without verifying it, was that Mr Courtney had prepared the statement and had asked him to sign the document. Mr Metcalfe accepted that one way of describing what had occurred was that he had reposed "blind trust" in Mr Courtney. Mr Metcalfe, on his own evidence, was prepared to act on Mr Courtney's assurance that the project had "little downside" and that Mr Metcalfe's contribution was a "Clayton's guarantee". There is nothing in Mr Metcalfe's evidence to suggest that he undertook any independent investigation of the project to ascertain whether it was likely to succeed or whether it created commercial risks for him.

I find that, although Mr Metcalfe was probably told that the term of the NZI facility was to be four years, with an option to extend for two years, that information played no part in his decision to execute the guarantee on about 22 April 1987. Mr Metcalfe executed the guarantee because he had been asked to by Mr Courtney and Mr Poignand and because he had been assured that there was little or no risk in executing the "Clayton's guarantee". In reaching this conclusion, I have borne in mind the authorities to which I have referred elsewhere in this judgment and in particular the inferences arising from a material representation calculated to induce the representee to enter a contract: Gould v Vaggelas, at 236 per Wilson J. Nonetheless, I do not think that the information conveyed to Mr Metcalfe by Mr Courtney played any part in his decision to execute the guarantee.
I also find that, had cl.5.08 of the facility agreement been amended to accord with the terms of the facility letters, Mr Metcalfe would still have executed the guarantee on about 22 April 1987. As I have previously found, if the misleading and deceptive conduct had not taken place, cl.5.08 of the facility agreement would have been amended to accord with the terms of the facility letters. If that amendment occurred, I have no doubt that Mr Courtney and Mr Poignand would have requested the various guarantors to execute the guarantee and that Mr Metcalfe would have complied with the request.
Guarantors Not Entitled to Relief
In my opinion the first limb of Mr Hamilton's argument in relation to Mr Holden, Dr Pannikote and Pannikote Holdings fails on the facts. For the reason I have given the substance or effect of the representations in the facility letters was not communicated by Mr Poignand or Mr Courtney to any of those parties. Since none of those guarantors knew of the representations they did not rely on them in deciding to execute the guarantees and the mortgage. The second limb of the argument also fails on the facts. Had Mr Courtney and Mr Poignand not been misled by NZI's conduct, they would have requested an amendment to cl.5.08 of the facility agreement and that amendment would have been agreed to by NZI. In those circumstances, Mr Courtney and Mr Poignand would have acted precisely as they did in fact. That is, they would have requested Dr Pannikote (through Mrs Pannikote) and Mr Holden to execute the guarantee. I have no doubt that Dr Pannikote and Mr Holden would have complied with the request, on the basis of their trust in Mr Courtney and/or Mr Poignand. Similarly, Pannikote Holdings would have executed the guarantee and the mortgage.
In the case of Mr Metcalfe, Mr Hamilton's first contention fails because I find that Mr Metcalfe was not influenced by the fact that he had been told that the facility was for four years with an option to renew for two years. Mr Metcalfe was not induced to execute the guarantee by any misleading or deceptive conduct on the part of NZI. The second contention also fails, since Mr Courtney and Mr Poignand would have set out to procure Mr Metcalfe's execution of the guarantee in any event and he would have complied with their request.
It follows that, in my opinion, none of the guarantors is entitled to relief in the present proceedings.
In these circumstances, I do not need to address Mr Coles' submission that, even if some or all of the guarantors acted in reliance on NZI's misleading and deceptive conduct when executing their guarantees, they were not entitled to relief under s.87 of the Trade Practices Act 1974. Mr Coles argued that an order refusing to enforce the guarantees, and to discharge Pannikote Holdings' mortgage, could not be shown to be necessary to compensate the guarantors for their loss or damage. Having regard to my finding that each of the guarantors would have been prepared to execute the guarantee (and, in Pannikote Holdings' case, the mortgage), it is difficult to see how the guarantors have suffered any loss over and above that already provided for in the award of damages to Ripoll for its loss of commercial opportunity. However, I need not resolve this issue.
IX CONCLUSION
It follows from what I have said that the only relief to which any group member is entitled is an award of damages under s.82 of the Trade Practices Act 1974, against NZI Capital and NZI Securities, in favour of Ripoll, in the sum of $314,000. The Court is empowered to make an award of damages for an individual group member, pursuant to s.33Z(1)(e) of the Federal Court of Australia Act 1976. Any judgment must describe or otherwise identify the group members affected by it: s.33ZB(a). The judgment should record that the claims for relief made on behalf of the other represented parties are dismissed. No action was pursued by the applicant against the third respondent, Mr Wayland, at the hearing. Accordingly, I dismiss the application insofar as it makes claims against him.
I shall stand the matter over to allow for any argument as to costs and interest. I direct the applicant to bring in short minutes of order to give effect to this judgment.
I certify that this and the preceding 158 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville.

Associate:

Dated:31 May, 1995

Heard:6 March 1995 - 13 April 1995

Place: Sydney
Decision:31 May, 1995

Appearances: Mr J. Hamilton QC and Mr N. Francey, instructed by Blessington Judd, Solicitors, appeared for the applicant.

Mr B. Coles QC with Mr D. Robinson and Mr M. Ashhurst, instructed by Holmes & Bevan, Solicitors, appeared for the respondents.

Stock
No. of Units	Price	Garages	Price
Stage I	2	451	5	48
Stage II	12	1,424	Nil	Nil
Stage III	4	928	6	63
Stage IV	13	2,739	12	161
Stage V
Phase I	18	2,870	Nil	Nil
TOTAL	49	8,410	23	272

[1995] FCA 386

31 MAY 1995