National Australia Bank Ltd v Rice

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST

S CI 2012 01526

NATIONAL AUSTRALIA BANK LIMITED	Plaintiff
v
TIMOTHY CRAIG RICE AND JOHN ALBERT ROSE	Defendants

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JUDGE:	ELLIOTT J
WHERE HELD:	MELBOURNE
DATES OF HEARING:	15, 16, 17, 29 SEPTEMBER, 3, 14 OCTOBER 2014
FURTHER WRITTEN SUBMISSIONS:	16, 20 OCTOBER 2014
DATE OF JUDGMENT:	26 MARCH 2015
CASE MAY BE CITED AS:	NATIONAL AUSTRALIA BANK LTD v RICE
MEDIUM NEUTRAL CITATION:	[2015] VSC 10

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BANKING ‑ Guarantees ‑ Code of banking practice ‑ Whether complied with ‑ Enforceability of guarantees ‑ Breach of warranty ‑ Set off – Duty of bank to guarantor ‑ Co-directors of borrower ‑ Co-guarantors ‑ Knowledge of bank that co-guarantor may have insufficient assets and income to service loans – Unconscionability – Banking Code, cll 25.1, 28.4(a), 28.5(b), 28.16.

PRACTICE AND PROCEDURE – Pleadings - Issues confined by manner in which defences pleaded.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr C M Archibald	Minter Ellison
For the Second Defendant	Mr S J Minahan	Madgwicks

TABLE OF CONTENTS

A.. Introduction................................................................................................................................... 1

B.. Background to the establishment of the joint venture......................................................... 2

C.. Relationships with NAB before execution of the Guarantees............................................. 4

D.. Overview of the relevant transactions between NAB, and Rose and related parties...... 8

E... June 2007 transactions – the First, Second and Third Guarantees...................................... 9

E.1... Relevant particulars............................................................................................................ 9
E.2... Terms of the First, Second and Third Guarantees........................................................ 11
E.3... Signing of the First, Second and Third Guarantees...................................................... 14

F... August 2007 transactions – the Fourth and Fifth Guarantees............................................ 21

G.. September 2007 transactions – the Sixth Guarantee............................................................ 22

H.. December 2007 transactions – the Seventh and Eighth Guarantees and other matters 24

H.1.. Circumstances relating to the execution of the Seventh and Eighth Guarantees.... 24
H.2.. NAB agreed to advance $11 million to Rice.................................................................. 26
H.3.. Agreement to fix interest rates for existing facilities.................................................... 27

I.... February–April 2008: NAB advanced $13 million to Rice................................................. 27

J.... April 2008 transactions.............................................................................................................. 28

K.. The state of NAB’s related documentation............................................................................ 31

K.1... Documents signed in June 2007...................................................................................... 31
K.2... Document completed in July 2007.................................................................................. 36
K.3... Documents signed in September 2007........................................................................... 37
K.4... Documents executed in December 2007........................................................................ 39
K.5... Reliance to be placed on NAB’s related documents.................................................... 41

L... Findings as to Rose’s knowledge of the extent of his liabilities under the Guarantees 42

M. Contractual force of the relevant provisions of the Banking Code.................................. 43

N.. Unconscionability...................................................................................................................... 46

N.1.. The pleaded case............................................................................................................... 46
N.2.. Further matters submitted by Rose................................................................................ 50
N.3.. Relevant principles........................................................................................................... 52
N.4.. Absent establishing a breach of the Banking Code, there was no unconscionability by NAB 53
N.5.. Further matters................................................................................................................... 61

O.. Enforceability of the Guarantees............................................................................................. 62

O.1.. Essential terms (or conditions), intermediate terms and non-essential terms (or warranties) 62
O.2.. Competing contentions..................................................................................................... 64
O.3.. Non-essentiality of the relevant terms of the Banking Code...................................... 68

P... Breach of warranty allegations................................................................................................ 70

P.1... The allegations................................................................................................................... 70
P.2... The Banking Code was breached.................................................................................... 71
P.3... Consequences of the breaches of the Banking Code.................................................... 76

Q.. Loss suffered............................................................................................................................... 88

R.. Other matters............................................................................................................................... 91

R.1... Unconscionability based on breaches of the Banking Code....................................... 91
R.2... Matters pleaded in NAB’s reply..................................................................................... 92
R.3... Copies of the Guarantees................................................................................................. 92

S... Conclusion................................................................................................................................... 94

HIS HONOUR:

A. Introduction

The plaintiff, National Australia Bank Limited (“NAB”), claims $6,184,593.48, plus interest and costs pursuant to 5 guarantees (“collectively, the Guarantees”)[1] executed by the second defendant, John Albert Rose (“Rose”). There is no dispute that Rose executed each of the Guarantees and that, unless any of the defences raised by him are successful, the Guarantees are enforceable by NAB.[2]
[1]The Guarantees are defined below as the First Guarantee, the Second Guarantee, the Sixth Guarantee, the Seventh Guarantee and the Eighth Guarantee: see pars 35, 80 and 88 below.
[2]NAB is, prima facie, entitled to the relief it seeks. It has proved each essential element of each of its causes of action, principally by reason of admissions made by Rose. In these circumstances, the burden of proof lies with Rose to establish he has a good defence to NAB’s prima facie right: Stewart v Dillingham Constructions Pty Ltd [1974] VR 24, 28.9 (Winneke CJ, Little and Stephen JJ); Hart v MacDonald (1910) 10 CLR 417, 428.9-429.3 (O’Connor J).

In broad terms, the defences pleaded fall into 4 categories, namely, unilateral mistake, non-compliance with the code of banking practice (“the Banking Code”),[3] material non-disclosure by NAB and unconscionable conduct (which included reliance upon alleged breaches of the Banking Code and a cursory pleading of a defence based on estoppel founded on a representation concerning the Banking Code).[4] In closing submissions, Rose did not pursue a case based on unilateral mistake or an alleged estoppel. Further, Rose’s closing submissions treated the alleged non-disclosures (which included matters not pleaded) as circumstances relevant to the alleged non-compliance with the Banking Code and the alleged unconscionability.
[3]The Banking Code was published by the Australian Bankers’ Association in August 2003. The Banking Code was amended and republished in May 2004, which version was current at the time of the relevant events in this proceeding. (An earlier, and very different, code was published in 1993, which still has limited operation: see Banking Code, cl 39.1(f).)
[4]On 3 October 2014, leave was granted to Rose to amend his defence to include a claim for a set off based on allegations of breach of warranty by NAB. Although such matters had been raised in the closing submissions of both Rose and NAB, no application was made at the completion of closing submissions to amend Rose’s defence. NAB had taken the point during closing submissions, with which I agreed, that the absence of a pleaded set off meant the issue could not be raised properly. However, after the court had reserved its decision, an application was made by Rose at the court’s suggestion so that the pleadings could properly reflect the issues between the parties. That said, the defence did not raise all the issues Rose sought to put before the court: see pars 160-165 below.

The first defendant, Timothy Craig Rice (“Rice”) was also served with the writ in this proceeding. On 4 September 2012, default judgment was entered against Rice. Rice was privy to numerous discussions the subject of evidence in this proceeding. However, both NAB and Rose chose not to call Rice as a witness.[5]
[5]No specific submission was made by either party in reliance upon the inference which might have been drawn from any failure of a party to call Rice as a witness: see Androvitsaneas v Members First Broker Network Pty Ltd [2013] VSCA 212, [30] (Redlich and Priest JJA and Macaulay AJA); Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361, 384-385 [63]-[64] (Heydon, Crennan and Bell JJ); Jones v Dunkel (1959) 101 CLR 298, 308.5 (Kitto J), 312.6 (Menzies J), 320.8-321.2 (Windeyer J). Perhaps this is explicable by the fact that Rose has had a complete falling out with Rice and NAB has already entered judgment against Rice.

For the reasons that follow, Rose has established that NAB failed to comply with the Banking Code. Such conduct amounted to a breach of a contractual warranty,[6] which breach caused the potential for loss to Rose in the amount now claimed by NAB. Accordingly, Rose has succeeded in his defence; NAB’s claim is set off by the loss suffered by Rose by reason of the breach of warranty; and NAB’s claim will be dismissed.

B. Background to the establishment of the joint venture

[6]In fact, NAB breached a number of contractual warranties. The principal findings are based upon the failure of NAB to tell Rose that he should get independent legal and financial advice.

By 2007, Rose had been a personal friend of Rice for a number of years. Rice was experienced in managing real estate on the Gold Coast, Queensland. In early 2007, Rice suggested to Rose that the 2 of them ought to go into business together to acquire investment properties on the Gold Coast.

At the time the joint venture proposal was put by Rice to Rose, Rose had never invested in real estate for commercial gain. However, Rose had been very successful in business. For many years, Rose was a director of a company, Rosebank Plastics Pty Ltd (“Rosebank”), which conducted a plastics moulding business. Rosebank manufactured and sold bike helmets. The business was sold at a price which allowed Rose to acquire and accumulate significant assets. According to information provided by Rose to NAB, as at May 2007, Rose had net assets of approximately $23 million.

Although Rose had been successful in business, he had only limited experience in general business affairs. He said that, while conducting his previous business, he retained an outside accountant to look after Rosebank’s affairs. When acting as a director of Rosebank, Rose said he only concerned himself with 3 things: how much money was in the bank, how much Rosebank owed and how much stock was on hand. Rose said he did not believe he had ever given a “guarantee on anything” prior to 2007.[7]
[7]Under cross-examination, Rose said he had no idea whether he had previously given a guarantee. There was no evidence that Rose had ever given a guarantee prior to the events the subject of this proceeding.

Rose gave uncontradicted evidence that he was asked by Rice to go into the joint venture investment on a 50/50 basis. In substance, Rose and Rice agreed they would become directors of companies that would be used as investment vehicles for the purpose of acquiring properties. The agreed approach was to fund the companies on a 50/50 basis, and to buy and sell luxury dwellings on the Gold Coast over a short period of approximately 12 months, with the view to making a profit. Rose agreed to rely on Rice to choose which properties would be appropriate to purchase. It was a “handshake deal”.

Rose said he understood that, although investment companies were to be used to acquire the properties, he and Rice were the ultimate owners. It was agreed the investment companies would have a nominal capital. The ownership of the investment companies was to be held effectively 50/50, through the equal shareholding in a holding company, Pavement Reef Pty Ltd (“Pavement Reef”).

Based on his discussions with Rice, Rose also knew that Rice would seek to have the investment companies borrow moneys to acquire any properties. The need to borrow was because Rice said he had no funds of his own to invest. In contrast, for the initial investments, Rose was to put up his 50 percent share in cash. Rose left it to Rice to negotiate for the required funds. Rose understood that, by investing in real estate, he was taking a risk and it was possible he could lose moneys he invested.

C. Relationships with NAB before execution of the Guarantees

Rice had an existing relationship with NAB. He dealt principally with John D’Angelo, a senior business banking manager (“D’Angelo”). Rice and D’Angelo first had dealings with each other in 2002. Between 2002 and 2007, D’Angelo was involved in the approval processes for facilities sought by Rice in relation to acquiring businesses he then conducted. Those businesses concerned the management of letting rights for properties on the Gold Coast.

In late 2006 or early 2007, Rice informed D’Angelo that he was having a change in direction. Rice said that he wanted to sell off his management letting rights businesses and engage in buying, and turning over, high-value residential properties on the Gold Coast.

As part of these discussions, D’Angelo accepted (although he could not specifically remember) that it was likely that D’Angelo informed Rice that NAB would consider lending up to 80 percent of the value of any investment properties. Rice and D’Angelo discussed the possibility of Rice getting a partner involved. D’Angelo said this aspect of the discussions emerged over time. D’Angelo wanted to help Rice. In effect, D’Angelo wanted to get any deals done for Rice if he could sensibly do so.

Rice introduced Rose to D’Angelo in February or March 2007. Although the timing is unclear, Rice told D’Angelo that Rice had found a potential partner. Around that time, Rice also told D’Angelo that Rose was a person of means. Before February 2007, Rose had not had any business relationship with NAB.

The first meeting that Rose attended with D’Angelo and Rice was relatively brief. The topic of discussion was the proposed joint venture. Rice did most of the talking. There is scant detail about what precisely was discussed. Neither D’Angelo nor Rose had a good recollection of this meeting.

A further meeting was held on 14 March 2007. Again, there is an absence of specific detail about what was discussed. However, D’Angelo acknowledged that he was told about the joint venture proposal, and that the information that was provided to NAB relating to such matters principally came from Rice.

Rice told D’Angelo that the joint venture arrangement would involve the purchase of property and that “there would be 50/50 interests between [Rice] and [Rose] as the owners of the property”. Rose was referred to as Rice’s joint venture partner or Rice’s 50/50 partner. In giving his evidence, Rose said he regarded the description of “partner” as appropriate. D’Angelo was also told Rose would be contributing his 50 percent in cash. D’Angelo said it remained his understanding throughout his dealings with Rice and Rose that the ultimate ownership of properties, through investment companies, remained 50/50.

In accordance with the discussions, in March 2007, Rose made deposits with NAB for $1.8 million and $3 million. These funds were placed in a term deposit account, the name of which referred to 147 Hedges Avenue, Mermaid Beach. Rose said this fact did not mean that Rose ever intended to fund the purchase of this property. Rose stated this account name was used because he was told to do it that way by Rice.[8] Rice had also said he wanted Rose to be a director of the relevant purchasing company, without explaining why it was necessary.[9] Rose agreed, without requiring an explanation. Rose agreed to the steps he did in circumstances where he was told by Rice that Rose would share in the profit that was anticipated from a quick sale of 147 Hedges Avenue.
[8]See fn 54 below. D’Angelo suggested he was told by Rice that Rose was intending to invest in 147 Hedges Avenue. Not only was this hearsay, but nothing really turns on the issue in any event.
[9]NAB suggested Rose’s evidence of his recollection being limited to being asked to be a director with respect to 147 Hedges Avenue “sat awkwardly” with evidence that, at the time, the joint venture had already been proposed. I do not accept this. I accept Rose’s evidence that he relied on Rice as to what he was required to do and acted accordingly. It is quite possible Rose’s participation and discussions concerning 147 Hedges Avenue were relatively limited in detail.

It was either at the meeting held on 14 March 2007 or a later meeting in May 2007 that Rose told D’Angelo of his financial position. Beyond his written records, D’Angelo could not give any evidence of what was said. D’Angelo took notes, that were recorded in a bank form, which form was subsequently signed by Rose.[10] This document recorded Rose had assets totalling $26 million, and liabilities of $3 million. The latter meeting in May was probably at Rice’s home.[11] The possibility of purchasing 3 properties at Mermaid Beach was discussed by Rice, Rose and D’Angelo.
[10]There was a minor controversy as to whether or not the form was signed on the day it was dated, namely 24 May 2007. The timing of Rose’s signature is of no consequence. The evidence made it clear the information was provided to NAB on or before 24 May 2007.
[11]D’Angelo could not recall, but his log book indicated he attended Rice’s residence on 24 May 2007.

When asked who informed him of the details of the proposed transactions, D’Angelo stated that Rice was the “main person in the transaction at the time”. (In fact, as between Rice and Rose, Rice was dominant throughout the relationship with NAB.) As to what was discussed at the May 2007 meeting about the structure of finance which might be provided by NAB, D’Angelo stated it was difficult to confirm who said what at the meeting.

As to the securities discussed, D’Angelo said it was stated that NAB would be taking a mortgage over the assets of the purchasing companies “or” over the properties that were in the names of the companies, that the mortgages would be cross-linked so that they would capture the equity across all 3 entities to secure 1 another, and that directors’ guarantees would be provided as part of the security. It was not suggested by D’Angelo that the extent of any liability of the directors, by reason of any signing of a guarantee, was discussed at the May 2007 meeting.

It is unlikely Rice would have been in a position to acquire high-value investment properties in his own right. As at May 2007, Rice or entities associated with him were indebted to NAB for in excess of $3.5 million. The bank records at the time suggested that the assets held by Rice and related entities totalled $4.311 million, giving a surplus of assets over liabilities of approximately $740,000. Accordingly, the debts of Rice already exceeded more than 80 percent of the value attributed to his and his associated entities’ assets.

Further, in May 2007, Rice was seeking to borrow a further $900,000, $600,000 of which was for investment purposes and the remaining $300,000 was to repay a personal debt to Rice’s parents.[12] This application for funds by Rice was recorded as part of a proposal prepared by D’Angelo,[13] which included the proposed acquisition of 3 properties[14] pursuant to the joint venture. Rose was treated as “a subset of the Rice group” by D’Angelo in the proposal.[15]
[12]These funds had been lent by Rice’s parents 3 years earlier to fund Rice’s purchase of a business.
[13]A short form credit memorandum dated 9 May 2007, submitted by D’Angelo for approval of the finance.
[14]The proposal listed the property at 1/19 Albatross Avenue correctly, but erroneously listed both other properties as being located at 17 Albatross Avenue, rather than 17 and 1/21 Albatross Avenue: see pars 29, 33 and 35 below.
[15]In the proposal next to “Customer Type” was inserted “Existing”; and next to “Aggregation Group Name” was typed “Tim Rice”.

As part of this proposal, D’Angelo made an assessment of the ability of Rice to meet the obligations which would and might arise if the proposed transactions proceeded. In doing so, D’Angelo included the profits earned by Rice’s wife from a business she conducted. NAB had no security or other basis by reason of which it could assert a legal entitlement to any profits of this business.[16] Without the inclusion of his wife’s profits, Rice would have had, according to NAB’s information, an inability to meet his expenses from his income.[17] Accordingly, these further anticipated profits were “a crucial component” of NAB’s financial assessment of the viability of “Mr Rice’s group”.[18]
[16]The net profit of the business for the year ended 30 June 2006 was recorded as $287,000.
[17]By September 2007, even taking into account the moneys available to the business of Rice’s wife, D’Angelo recorded a deficiency of $176,047: court book 3/1836. See fnn 44 and 46 below.
[18]This fact was acknowledged by D’Angelo in the context of a subsequent proposal he prepared in July 2007: court book 1/351, esp at 354.6; T200.01.

D’Angelo spoke in very positive terms in the proposal about the applications, including referring to “the opportunity to realise substantial profits in the short term”. In making such an assessment, D’Angelo was essentially relying upon what he had been told by Rice. This was despite the fact that D’Angelo identified a “likelihood of occurrence” of a downturn in the property market as “high”. D’Angelo also referred to the proposed investments as “[s]peculative property developments”.

As already noted,[19] Rose was not required to borrow any funds at this time. The proposal prepared by D’Angelo noted that Rose had a surplus of $23 million “of which 11 m[illion] is in cash and the balance in property”. It also referred to the fact that there was an ability of “the clients” to provide further funds given the financial strength of Rose. D’Angelo said he could not recall ever discussing with Rose the prospect of Rose being required to provide further funding.
[19]See par 10 above.

The proposal specifically addressed the manner by which interest would be paid in the first 12 months if the facilities were granted. D’Angelo recorded that a term deposit of $400,000 would be held by NAB to fund the first year’s interest. Having stated this, D’Angelo continued:

[C]ommitment to sell property will be a condition of approval and/or further funds lodged to meet commitments if properties are held for longer than 12 months.

Accordingly, NAB must have fully appreciated that there was a real prospect that Rose would have to contribute further funds in 12 months’ time if the properties were not successfully sold in that time frame.

NAB did not communicate to Rose the details of its credit assessment. There is no evidence to suggest Rose knew any credit assessment of Rice was being conducted. Significantly, there was no representation by NAB that it was conducting this credit assessment, or later credit assessments of Rice,[20] for anything other than its own purposes.

D.Overview of the relevant transactions between NAB, and Rose and related parties

[20]See pars 76-79 and 84-87 below. See also pars 94-95 below.

Between June 2007 and April 2008, Rose executed 8 guarantees and related documents, which included the Guarantees. As anticipated in the initial discussions concerning the joint venture,[21] separate companies (wholly owned by Pavement Reef) purchased the investment properties. The companies were Almond Crossing Pty Ltd (“Almond Crossing”), Broken Plate Pty Ltd (“Broken Plate”), Glacial Reflections Pty Ltd (“Glacial Reflections”), Perfect Plume Pty Ltd (“Perfect Plume”), Racing Clouds Pty Ltd (“Racing Clouds”), Searing Heat Pty Ltd (“Searing Heat”) and Walnut Peak Pty Ltd (“Walnut Peak”). A table containing details of the relevant transactions is annexure “A” to this judgment.
[21]See pars 8-9 above.

As may be seen from annexure “A”, with 1 exception,[22] on each occasion a new company was incorporated to purchase the property and borrow the necessary funds. In accordance with what had previously been agreed, Rice and Rose were co-directors. Although Rose agreed to become a director of each of the companies, he said he never understood the detail beyond the fact that there was a holding company pursuant to which he held his 50 percent share. Rose said that although he initially believed he was going to be involved, he actually left the arrangements to Rice, including setting up the companies, buying the properties and negotiating with NAB.
[22]Glacial Reflections purchased 2 properties; with respect to the latter of these purchases the Third Guarantee was consolidated with the Seventh Guarantee.

In addition to the transactions set out in annexure “A”, Rose executed documents on or about 28 December 2007 by which each of the existing loan facilities was extended for 2 years and a fixed interest rate was agreed.

To have a proper understanding of the issues in the case, it is necessary to discuss the circumstances surrounding the relevant transactions further.

E. June 2007 transactions – the First, Second and Third Guarantees

E.1 Relevant particulars

Three properties were purchased in April 2007 in Albatross Avenue, Mermaid Beach. These properties were due for settlement in June 2007. These were the first acquisitions requiring funding by NAB.[23]
[23]However, 147 Hedges Avenue was purchased prior to this time, but it was on-sold before settlement. See fn 54 below.

D’Angelo met with Rice on 7 June 2007. He obtained Rice’s signature on the relevant documentation for advances to be made to the relevant investment companies, namely Searing Heat, Walnut Peak and Glacial Reflections.[24] Then, on 18 June 2007, D’Angelo met with Rose, at Rose’s residence.
[24]There was an issue raised by Rose as to whether D’Angelo could have complied with the Banking Code in obtaining Rice’s signatures on 7 June 2007, given that Rice was at the airport early on 7 June 2007 and then travelled out of the State. D’Angelo could not recall the actual circumstances of obtaining Rice’s signature. I do not intend to discuss this issue beyond stating that, in the complete absence of any evidence as to what occurred on or before 7 June 2007 between Rice and D’Angelo, I am not satisfied that any evidence concerning Rice’s whereabouts on 7 June 2007 corroborates Rose’s case that D’Angelo did not always comply with the Banking Code.

On 18 June 2007, Rose signed 3 guarantees as guarantor. The first was with respect to the purchase of 17 Albatross Avenue, Mermaid Beach, by Searing Heat for $2 million, the amount of the facility being $1.12 million (“the First Guarantee”). The second guarantee was as security for the purchase of 1/19 Albatross Avenue, Mermaid Beach, by Walnut Peak for the sum of $7.7 million, the amount of the facility being $4.32 million (“the Second Guarantee”). The third was in relation to the purchase of 1/21 Albatross Avenue, Mermaid Beach, by Glacial Reflections for $500,000, the facility being $280,000 (“the Third Guarantee”).

As will be apparent from the above figures, the amount of money lent by NAB and used for the purchase of each of the properties represented 56 percent of the total purchase prices. The reason for such a healthy loan to value ratio was because Rose contributed his 50 percent share of the purchase prices in cash. D’Angelo stated the transactions were unusual because Rose was putting in approximately $5 million in cash and the loan to value ratio was almost 50 percent; and that it was a very strong deal from that perspective.[25]
[25]According to NAB’s records, the total cash contribution was $4.929 million, comprising $970,000 (17 Albatross Avenue), $3.731 million (1/19 Albatross Avenue) and $228,000 (1/21 Albatross Avenue).

As recorded in D’Angelo’s proposal,[26] part of the arrangements included the establishment of a term deposit in the sum of $400,000 in the name of Rice.[27] Interest on the facilities was calculated on a daily basis. At the end of each month, the interest on each loan would be debited to an offset account.[28] This arrangement was put in place as it was agreed between Rice and Rose that Rice would be responsible for the interest payments. D’Angelo was aware of the arrangement between Rice and Rose in this regard. Although D’Angelo stated he was unable to recall whether he was told of this arrangement, his knowledge was reflected contemporaneously by the fact that D’Angelo arranged for the term deposit to be in the name of Rice. Further, an email sent to Rice dated 6 May 2008 summarised Rice’s loan position. This email referred to the initial funding and the fact that the interest was Rice’s responsibility. D’Angelo stated the “loans [were] to be serviced by Tim Rice solely”.

E.2 Terms of the First, Second and Third Guarantees

[26]See par 27 above.

[27]A letter dated 7 June 2007, signed by D’Angelo, entitled “Term Deposit Letter of Set-Off”, recorded Rice as the depositor of $400,000. D’Angelo also gave evidence that the term deposit was in Rice’s name “to service the debt”. It was not clear on the evidence from where Rice derived these funds.

[28]The manner in which the interest payments were met was referred to in the evidence: T76.15-78.22. It is not necessary to discuss the detail.

The First Guarantee, the Second Guarantee and the Third Guarantee were in identical terms and they contained a warning on the front page, which read as follows:

Warning

Please Read

·     You should seek independent legal and financial advice on the effect of this guarantee and indemnity (Guarantee) before you agree to sign it.

·     You can refuse to sign this Guarantee.

·     There are financial risks involved in signing this Guarantee (for example, it may become necessary for you to sell your assets so that you can pay NAB).

·     You have the right to limit your liability under this Guarantee in accordance with the Code of Banking Practice (if it applies to this Guarantee) and as allowed by law.

·     You can request information about the credit contract or other facility or financial obligation to be guaranteed (including any existing credit contract, facility or financial obligation with NAB to be refinanced by the new credit contract, facility or financial obligation).

·     This Guarantee applies to:

(a)    a future credit contract; or

(b)    any other facility granted by NAB to the customer in the future; or

(c)     any other financial obligation that the customer incurs to NAB in the future (together, the future obligations)

to the extent that the future obligations (together with all other existing credit contracts, facilities or other financial obligations secured by this Guarantee) are within the limit that you agree to in this document.

Otherwise this Guarantee applies to future obligations if NAB gives you a copy of the relevant contract document and obtains your written acceptance of the extension of the Guarantee to that contract.

This Guarantee is an important document.
By signing this Guarantee you, as the guarantor, may become personally responsible for the amounts owed by the customer to NAB, up to the Guarantee Limit. Even if you have given NAB security, the amount payable by you under this Guarantee may exceed the value of that security.
If you fail to pay NAB, in addition to any security given by you to cover this document, NAB may be able to resort to any other security, which NAB holds or which you give NAB in relation to your own affairs. This may include a mortgage over your family home.
(Original emphasis.)

It is unnecessary to refer to most of the terms of the First, Second or Third Guarantees, other than very broadly. In essence, by its terms, each made Rose liable, jointly with Rice and severally, for the debts of the relevant borrower, together with all costs, expenses and other liabilities incurred. There was no issue between the parties as to the effect of such terms. Also, it was expressly provided that the Banking Code applied to each of the First, Second and Third Guarantees.[29]
[29]Clause 5.

However, by reason of submissions made by the parties, it is necessary to set out the following clauses:

3.You[30] acknowledge that:
[30]“you” was defined to mean “the person/s named … as guarantor, and if there are more than one, means each of them separately and every two or more of them jointly. It includes the lawful successors of you. Your has a corresponding meaning”. This definition of “you” may be compared with the definition of “you” in the Banking Code, in which “you and your” are defined to mean “a person who, at the time the banking service is provided, is an individual or a small business that is our customer (or, where this [Banking] Code specifically applies to potential customers, a potential customer of ours) and includes, in clauses 28, 33 and 39, any individual from whom we have obtained, or propose to obtain, a Guarantee”. The definition in the Banking Code continues with further matters that are not presently relevant.
…
(e)you are responsible for making, and for continuing to make, your own investigation of the creditworthiness, financial position and honesty of the customer and any other person named as a co-guarantor in this Guarantee;
…

14.2Your obligations under this Guarantee are not affected by anything that might otherwise affect them under the law relating to sureties, including:
…
(c)the fact that, in relation to any amounts which the customer owes NAB or any security (whether given by the customer, you or a co-guarantor), guarantee or indemnity for them, NAB:
…
(ii)gives up, releases, varies or exchanges, or fails to obtain, perfect, register or realise, or deals in any other way with the security, guarantee or indemnity; or
(iii)grants time or any other concession to, or compounds or compromises with, or does or omits to do anything which affects the obligations of, the customer, a co-guarantor or any other person to NAB or to you;
…

(d)the fact that any security, guarantee or indemnity held or taken by NAB is void, defective or informal or ranks after any other security or obligation for any reason;
…

16.1You waive any rights which you have as surety at any time which may be inconsistent with the provisions of this Guarantee or which would restrict NAB’s rights or remedies under it.
16.2As long as you or the customer has any liability to NAB for any reason:
…

16.2.2You give up in favour of NAB any right against NAB and against any other person, estates or assets which would reduce your liability under this Guarantee, or would reduce NAB’s claims against the customer or any other person for the amounts which the customer owes NAB.
19.1You must make payments to NAB without any set-off or counterclaim and without any deduction or withholding for taxes.[31]
(Emphasis added.)

E.3 Signing of the First, Second and Third Guarantees

[31]Clause 19.1 is included for completeness. Correctly, no submission was made by NAB that clause 19.1 prevented Rose from claiming a set off. To read clause 19.1 consistently with the ability to make a claim for breach of warranty, the provision should be understood to provide that the fact that there is a set off or counterclaim does not, of itself, relieve any immediate obligation of the guarantor to make any due payments to NAB: see fn 189 below.

When D’Angelo arrived at Rose’s home on 18 June 2007, he had with him all of NAB’s documents that required execution for the purposes of the 3 facilities. D’Angelo stated he also had “all the other relevant copies for the guarantor at the time”. Only D’Angelo and Rose were in attendance.

D’Angelo recalled sitting down with Rose at a table in the kitchen area of the family room. D’Angelo said he broke up the documentation into 3 bundles, referrable to each of the 3 loans. Rose said he could only recall 1 pile of documents. However the documents were arranged, this was the first time Rose had seen any of the bank documents. For each loan, those documents included a letter of offer (consisting of 36 pages), a letter in respect of “your proposed guarantee” (which was addressed solely to Rice), a guarantee and indemnity (consisting of 17 pages, but also incorporating the Banking Code), a certificate by guarantor, a declaration by guarantor and a mortgage.[32]
[32]Further documents were presented by D’Angelo: court book 1/204-206. It is unclear whether they were presented on this occasion or on another occasion: T138.03-139.13. Nothing turns on the circumstances surrounding Rose signing these documents as they were peripheral to the issues at hand.

D’Angelo gave very general evidence about what he did by way of an explanation of the documents. He said he could not recall in which order he dealt with them. He said he “talked about” the documents and “talked through” specific terms and conditions, the pricing, the amounts involved, expiry dates, the security “and any other terms and conditions applicable to that finance and then proceeded to go through all the other documentation, being the mortgage document and the guarantee document and any other documents that pertained to the funding”.

When asked in evidence in chief if he had any direct recollection of what was discussed, D’Angelo said he did not. Although D’Angelo could recall where they both sat, when it came to what he actually said, D’Angelo stated he “just followed [his] standard procedures”.

When asked how long the meeting took, D’Angelo said it was hard to recall but that it “could” have been 45 minutes or an hour. When it was suggested to D’Angelo in cross-examination that the meeting only took between 15 and 25 minutes, D’Angelo said he could not recall with certainty. The following evidence put beyond doubt that D’Angelo was guessing as to how long the meeting went when he gave his estimate of 45 minutes to an hour:

I can’t tell you exactly how long I was there but 15 minutes sounds a very quick time to go through 3 sets of documents.

Plainly, D’Angelo’s estimate of the length of the meeting was based solely on an estimate of how long it would take to properly explain the documents and obtain the necessary signatures. As D’Angelo frankly admitted when giving this evidence, he had no particular recollection of what he said at the meeting, and was reliant on his standard practice in giving his evidence.

Rose said the meeting took somewhere between a quarter of an hour and half an hour at most. When it was put to Rose that it was difficult to estimate, he responded that the meeting did not take too long at all. Although the precise duration of the meeting is of no moment, I find Rose’s estimate of the length is the more accurate account. This is not only because Rose’s account was based on his recollection, rather than reconstruction. But also because, for reasons that will become apparent, I do not accept that D’Angelo gave any detailed explanation of the documents.

Initially, D’Angelo referred to a letter of offer dated 5 June 2007. This letter was addressed to Searing Heat, at Rice’s address, and was 1 of the documents signed by Rose on 18 June 2007. D’Angelo stated that, as part of his standard practice, he always dealt with the letter of offer first. In addition to giving details of the facility itself,[33] this practice involved, according to D’Angelo, reading “verbatim exactly what the securities” were. Relevantly, the letter of offer read:

Guarantee and Indemnity for $1,120,000.00 given by Timothy Craig Rice, John Albert Rose and Pavement Reef Pty Ltd ABN 42 124 753 788 supported by:
Term Deposit Letter of Set Off over Term Deposit Number 00-000-0000 (sic).

There was nothing in this part of the letter of offer stating Rose would be jointly and severally liable for all debts owed by Searing Heat to NAB.[34]

[33]D’Angelo said his practice included explaining the facility limit, what the expiry date was, the applicable interest rate, including penalty interest and how that was calculated, and the fees and charges that applied.

[34]There was no suggestion by NAB that D’Angelo took Rose through pages “6 of 36” to “8 of 36”, being the “SPECIFIC CONDITIONS”, or pages “9 of 36” to “35 of 36”, being the “GENERAL CONDITIONS”, before getting Rose to sign on page “36 of 36” of the letter of offer.

D’Angelo stated that having gone through the details of the letter of offer he then would “confirm if the client is happy to sign the letter of offer”. It was not clear how this confirmation was established. Rose did not ask to read the letter of offer; D’Angelo did not say that Rose should read it. Rose signed each of the 3 letters of offer presented on that day.

After the letter of offer was executed, D’Angelo said his standard practice was to discuss the mortgage; having done so, he would have the mortgage document signed; and then he would move on to the guarantee and indemnity.

Having moved on to the guarantee and indemnity, D’Angelo stated his standard operating procedure was to look at the front page. D’Angelo said he would not go through the front page line by line, but would summarise the warning page by saying that, as a guarantor, the person would become responsible for the debt if in fact the customer defaulted on the loan.

As part of this process, he also said, by reference to the relevant pages of the guarantee, he would state who the customer was, and who the guarantors were, and would “confirm” the amount being guaranteed,[35] before he would go to the end of the documentation and “confirm” that there was an acknowledgement that the guarantor was “happy to sign”. Precisely, what was said or done by way of confirmation was not stated.
[35]The relevant pages in the First Guarantee were at court book 1/253, 254. Page 254 included the words “What the Guarantor undertakes to pay” and stated the specific amount $1,120,000, as well as referring to interest, costs, etc.

D’Angelo described the acknowledgement[36] as follows:
[36]See also pars 115-119 and 133 below.

[It is] an acknowledgement to say that I’ve explained the document and that you are happy to sign the document without seeking legal advice and if you are happy to execute that document, we then sign off on it and sign the rest of the documentation and off we go.
That’s what the certificate says?---M’mm.

In addition, the following formed part of his evidence in chief concerning the acknowledgement:
What is it that you said to Mr Rose in relation to this page?---Say if you are happy to sign the guarantee and you don’t want to take the document away to be witnessed by a solicitor, then you can execute it today and you waive your rights in terms of seeking legal advice on the document.
After explaining that to him, what next was done?---The documents are executed.
(Emphasis added.)

Under cross-examination, D’Angelo also said that during this process he would ask the proposed guarantors “if they would like to seek legal advice and if they were happy with what they were signing”. D’Angelo said if guarantors did not want legal advice, he “would have them execute that certificate of guarantor acknowledging that and that they were happy to do so”.

After D’Angelo gave evidence concerning the acknowledgement relating to the First Guarantee, counsel for NAB noted that there were pages before the acknowledgement and asked D’Angelo:

… is there anything that you said to Mr Rose in relation to any of those pages as well?---The pages, are you specifically referring to the guarantee document?
Yes. … But in between [court book 1/254 and the acknowledgement: court book 1/270], there are some other pages with signatures and so forth on it and I wanted to ask you whether you discussed any of those pages with Mr Rose as well?---Not that I can recall, no.

As to the process of obtaining Rose’s signature, D’Angelo said that the documents typically contained “sign here” stickers to indicate where the signatures were required. D’Angelo stated that he could not recall discussing the individual pages of the documentation. Having given this evidence the following occurred:

So then in signing the documents, how were the signatures of Mr Rose or the initials of Mr Rose put on the paper?---So I hand the document to the client and confirm where he needs to sign. So he then executes on that page and we keep turning until I get to the pages that need to be executed by the client and that continues to happen until it’s done.

When taken to the execution page of the First Guarantee during the course of his evidence in chief, D’Angelo was asked what if anything was said in relation to the contents of that page. In response, D’Angelo said:

That’s where I advise the client, or I spoke to John [Rose] and said that as personal guarantor, that’s where he signs in his personal capacity.

D’Angelo said he could not recall whether there was any objection or whether anything was said after this. D’Angelo stated that the documents were “just executed” and that they moved through to the next lot of documents. D’Angelo said he always provided a “guarantor’s copy” to the guarantor at the time of execution.

It is apparent from D’Angelo’s evidence in chief that his account of what occurred between himself and Rose in June 2007 in relation to the execution of the relevant documentation was largely a reconstruction, rather than any actual recollection. This is not surprising given the lapse in time and that, presumably, D’Angelo not infrequently attended to the execution of bank documentation as part of his usual duties.

Generally speaking, Rose’s actual recollection of the events of 18 June 2007 was also poor. Rose said he recalled meeting with D’Angelo in his family room at a big glass table, and sitting next to D’Angelo who had “a big bunch of documents”. Rose said that D’Angelo stated there were documents Rose had to sign with respect to the relevant Albatross Avenue properties.

As to his actual recollection of what was said about the documents he had to sign, Rose said the only thing he could recall being told, and could remember seeing, was that there were “certain moneys booked against companies,[37] companies that Rice had me register as a director of[38] back in about February. There’s a list of companies”. Rose said he did not understand what it was about beyond moneys being “booked” against the companies. Under cross-examination, Rose was taken to specific pages of the letter of offer with respect to the First Guarantee.[39] It was suggested that Rose must have been taken through those pages to understand how much was “booked” against Searing Heat. Rose said he had no recollection “at all” of having those pages drawn to his attention. It was not suggested Rose was being untruthful when he gave this evidence about his recollection.[40] In any event, those specific pages did not indicate to a reader, even if read carefully (which Rose did not do), that Rose was jointly and severally liable as guarantor for the entirety of debts owed by Searing Heat.[41]
[37]Rose stated under cross-examination that he did not learn how much money was booked against each company, but he corrected this evidence as part of the same answer or series of answers.
[38]This statement is ambiguous. I did not understand it to mean Rose was responsible for registering the investment companies; Rose gave evidence to the contrary: see par 30 above.
[39]Court book 1/213-215.
[40]There were other documents that Rose was required to sign which contained the detail as to the amount of money being advanced to each borrower, such as the front page of each certificate.
[41]See par 47 above.

Rose recalled coloured tags and said that “D’Angelo just pulled over the pages and it was basically ‘sign here’”. Rose said D’Angelo flicked through the documents and showed Rose where to sign.

When Rose was taken to the First Guarantee in the witness box, he said he could not recollect signing it. Further, he said he did not recall D’Angelo bringing any specific aspect of any of the documents to his attention. Rose gave positive evidence that the warning at the commencement of the First Guarantee was not drawn to his attention or explained by D’Angelo. He also stated that D’Angelo did not explain to him what a guarantee and indemnity was or the liabilities that he might face if he signed any of the First, Second or Third Guarantees.

On the issue of independent legal advice, Rose was quite emphatic in his evidence.[42] He stated that D’Angelo never said to him that he should obtain independent legal advice in relation to the First, Second or Third Guarantees (or, for that matter, any of the subsequent guarantees).
[42]The fact that Rose was so emphatic may, in itself, be of little probative value: cf Chappel v Hart (1998) 195 CLR 232, 246 fn (64) (McHugh J, dissenting); Ellis v Wallsend District Hospital (1989) 17 NSWLR 553, 581E (Samuels JA, with whom Meagher JA agreed).

Further, Rose said D’Angelo never asked him whether he understood the documents. Rose also said he could not recall D’Angelo ever asking whether Rose was happy to sign them or whether Rose wanted additional time before signing them.

Rose was, in fact, happy to sign each of the First, Second and Third Guarantees, but he said he had no appreciation of what he was committing to. Rose stated that if he had been told at the time that not only was he contributing his funds in cash, but that, under the First, Second and Third Guarantees, he would potentially be personally liable for any moneys being borrowed, that he would not “have had a bar” of the transactions and that “there’s just no way known [he] would have done it”. Rose stated that he knew that he put his half of the money in and that the rest was Rice’s responsibility.

That said, Rose also gave evidence that Rice had previously stated that it was necessary for him to sign a guarantee “on the interest only or something”. Under cross-examination, Rose repeated that Rice said to Rose that, for the deal to go through, Rose needed to put up about half the purchase price for each property and guarantee “interest on a loan or something like that”. He was not challenged on this account of what Rice had told him.

Rose said he did not really understand what he had been told by Rice, but it was his opinion at the time that he was debt free. In giving his evidence, he asked rhetorically, “Why would I do anything else? My half was there”. The fact that Rose did not fully understand his arrangements with Rice was also not the subject of challenge. Indeed, counsel for NAB put to Rose that perhaps Rose did not fully appreciate all the implications or complexities of the structure Rice was proposing. In acceding to this proposition, Rose stated that he was “not a commercial guy in any shape or form”.

In broad summary, Rose gave evidence that he did not have any of the documents properly explained to him, but simply signed where he was told to sign. Although Rose accepted he could not recall everything that was said on 18 June 2007, he was certain as to specific matters that were not stated. Further, at the time Rose met with D’Angelo on 18 June 2007, he had, based on his understanding of what Rice had told him, a fundamentally different understanding as to the nature and extent of his potential liability to NAB than was reflected in the documents he was being asked to sign.

F. August 2007 transactions – the Fourth and Fifth Guarantees

In June 2007, pursuant to the joint venture between Rice and Rose, 2 further units were purchased at 21 Albatross Avenue, Mermaid Beach, namely units 2 and 6. D’Angelo could not recall whether or not finance was sought from NAB before or after the purchase of these 2 further units. The purchasers were Almond Crossing (unit 2) and Broken Plate (unit 6). Unit 2 was purchased for $500,000 and unit 6 was purchased for $520,000. A loan of $500,000 was sought from NAB in relation to each purchase.

NAB approved the loan applications with respect to both units. Like the previous transactions, mortgages and guarantees were provided. Rose signed 2 further “guarantee and indemnity” documents (“the Fourth Guarantee” and “the Fifth Guarantee”) personally as guarantor. There was little evidence on these matters before the court, as neither the Fourth Guarantee, nor the Fifth Guarantee, was sued upon by NAB.

D’Angelo gave very general evidence that the “same procedure applied” as had been adopted in relation to the previous transactions. Under cross-examination, D’Angelo said he had no particular recollection of the execution of the Fourth Guarantee or the Fifth Guarantee.

The terms of the Fourth and Fifth Guarantees were the same as those of the guarantees previously executed. However, there were 2 material differences in the principal transactions when compared to what had occurred before. Security for this funding was also provided by Searing Heat, Walnut Peak and Glacial Reflections, as well as the purchasing companies, Almond Crossing and Broken Plate. Further, instead of the bank funding 56 percent of the purchase price, it funded either 100 percent or 96 percent of the purchase price. In other words, Rose was not funding half of the cost of the acquisitions with cash, but rather, almost exclusively, funds borrowed from NAB were utilised.

Rose had no specific recollection of signing any documents with D’Angelo in August 2007. He stated that he did not have any questions for D’Angelo because he thought it was the “same sort of deal” that he had with Rice in relation to the previous 3 purchases.

Rose said he had discussed with Rice that the joint venture remained 50/50 and that each would guarantee his half of the loans required for the purchase. Rice also told Rose that Rose would have to pay about $25,000 every 2 months and that that was the extent of Rose’s commitment. Rose was happy to sign guarantees based on this understanding. However, he did not discuss the nature or basis of his understanding with D’Angelo. Rose said this was because Rice was doing all the negotiations with D’Angelo and Rose had asked Rice to put the arrangements in place.

G. September 2007 transactions – the Sixth Guarantee

On 20 June 2007, Perfect Plume contracted to purchase 5/21 Albatross Avenue, Mermaid Beach for the sum of $515,000. Rose said this purchase was made pursuant to his 50/50 arrangement with Rice. NAB was asked to fund the full purchase price.

Consistent with previous arrangements, NAB required a mortgage over the property, as well as guarantees from each of Rice and Rose. In addition, guarantees were sought from Walnut Peak and Pavement Reef, together with a mortgage over 1/19 Albatross Avenue.

On 10 September 2007, D’Angelo finalised a short form credit memorandum, which was described as submission number 13,[43] in relation to the loan application by Perfect Plume. D’Angelo noted in this proposal that Broken Plate, Almond Crossing, Glacial Reflections and Perfect Plume were all new entities with no trading history. In relation to how the borrowings of those companies were to be serviced, D’Angelo stated it was to come “mainly” from rental income from the respective properties. However, the expected rental did not cover the totality of the interest payments. In that regard, D’Angelo noted a shortfall of $69,375.
[43]This numbering of the submission appears to indicate that the submission was a further proposal to those that Rice had previously made: see also pars 84 and 122 below.

D’Angelo said there was some discussion that Rice and Rose would be providing surplus funds to service any gap between the interest and the rental income. He further stated the arrangement was not with NAB, but it was agreed that Rice and Rose would service any shortfall on a bi-monthly basis, and “that [Rose] would service the shortfall for the 1 month and then [Rice] would service the next month”. He stated this was said in a discussion he could recall.

The proposal concerning Perfect Plume also included the following:

From the above we can see that current income generated has indicated a shortfall of approx. $70K. Whilst a deficit position is evident, this will be covered from own cash resources of the Directors, mainly [Rose]. Latest SP [statement of position] provided has indicated a cash surplus of $11M. It should also be noted that [Rice] will also be contributing towards the shortfall from his business income with surplus cashflow of approx. $191K as detailed below.[44]

[44]The figure of $191,000 was incorrect. In fact, the amount of $176,047 (which was also incorrect: see fn 46) was referred to subsequently in the proposal.

The surplus cash flow referred to in the above passage included the anticipated profits from the business of Rice’s wife. As before,[45] NAB had no legal entitlement to these funds and without them the position of Rice would have resulted in a deficiency rather than a surplus.[46] In short, as between Rose and Rice, it was only Rose who had the ability to fund any shortfall. There was never any discussion between D’Angelo and Rose in which D’Angelo informed Rose that he might have to carry the main burden of any shortfall.
[45]See par 24 above.
[46]In the calculation to record the surplus of $176,047, the amount of income from the business of Rice’s wife was recorded incorrectly as $278,000, rather than $287,000.

On 12 September 2007, Rose executed a guarantee and indemnity with respect to the facility provided to Perfect Plume (“the Sixth Guarantee”). But he had no recollection of meeting with D’Angelo in this regard. In short, save to say that he reiterated that he did not believe any of the warnings were drawn to his attention or that the documents were explained, he could give no account of any discussion at the time the Sixth Guarantee was signed.

Similarly, D’Angelo had little, if any, recollection of the event. He initially gave evidence that the documents were signed in August 2007, but later corrected himself having been shown a copy of the Sixth Guarantee. D’Angelo also said he could not recall whether the signing occurred at Rose’s house or Rice’s house or whether it was done with Rose and Rice separately or together. Consistent with his previous evidence, D’Angelo simply stated that he would have followed his standard practice. The terms of the Sixth Guarantee were the same as the earlier guarantees.

H.December 2007 transactions – the Seventh and Eighth Guarantees and other matters
H.1Circumstances relating to the execution of the Seventh and Eighth Guarantees

The final 2 units at 21 Albatross Avenue, Mermaid Beach, being units 3 and 4, were purchased in September and October 2007. Unit 3 was acquired by Glacial Reflections for the sum of $950,000. Glacial Reflections required funding for the whole of the purchase price, and accordingly the total facility sought was $1.23 million.[47] Unit 4 was acquired by Racing Clouds for the sum of $925,000. NAB was also asked to fund the full amount of this purchase price.
[47]That is, $950,000 for the purchase of unit 3 in addition to the existing facility of $280,000 which funded the purchase of unit 1: see par 35 above.

D’Angelo said he distinctly recalled the purchase of units 3 and 4 because the purchase prices were substantially more than those paid for the previous 4 units. He thought at the time that the vendors had become aware of the fact that Rice and Rose were looking to acquire the whole of 21 Albatross Avenue. D’Angelo said he recalled meeting and discussing these units in late November or early December 2007. But he could not be certain as to whether he met with both Rice and Rose. He gave very general evidence about dealing with the request for finance “in a similar fashion” to what had been done previously. D’Angelo said NAB “obtained the relevant information required to submit the credit for approval”.

On 3 December 2007, D’Angelo finalised a short form credit memorandum, recorded as submission number 14. In the proposal, D’Angelo sought a waiver of the property risk management department of NAB being involved “due to the fact that these apartments are currently stand alone, income earning investments with settlement due by the 18^th Dec 2007”. The proposal also recorded that, of the original $400,000 term deposit,[48] $221,660 remained to service the interest for the loans of Searing Heat, Walnut Peak and Glacial Reflections.
[48]See pars 27 and 37 above.

Similar information as had been recorded in submission number 13[49] was also recorded in this proposal in relation to the annual shortfall. The figures were updated to include the additional properties and the additional debt. A shortfall of approximately $164,000 was calculated and stated to be required to be injected “from own cash resources of Directors, mainly [Rose]”, to meet interest payments after rental income had been taken into account.
[49]See par 76 above.

When it was put to D’Angelo that there was not sufficient income to service the debt, D’Angelo responded:

No, hence the reason why we took the term deposit …

This was plainly a reference to the original term deposit in Rice’s name of $400,000.

The proposal also dealt with an application by Rice alone for a facility of $11 million.[50] There was no suggestion in this proposal that Rice had any funds available to him to meet his share of any shortfall.
[50]See par 91 below.

On 20 December 2007, Rose executed a guarantee and indemnity with respect to the funding provided by NAB to Glacial Reflections for the purchase of unit 3 and the existing facility for unit 1 (“the Seventh Guarantee”).[51] On the same day, Rose executed a guarantee and indemnity as part of the security for the purchase by Racing Clouds of unit 4 (“the Eighth Guarantee”).
[51]See fn 47 above.

Yet again, neither D’Angelo nor Rose could give specifics in relation to the execution of the bank documentation for the purposes of these facilities. And again, D’Angelo could not recall where he met with Rice or Rose.

Accordingly, little needs to be added to what has been stated previously as to how the documents were provided and executed. One minor detail of form: the warning at the front of the Seventh Guarantee and the Eighth Guarantee was confined to what was contained in the box in the previous guarantees,[52] and was in slightly smaller font. Further, there were some formatting differences in the body of these documents. Otherwise, the contents of the Seventh Guarantee and the Eighth Guarantee were substantially the same as the previous guarantees given.

H.2 NAB agreed to advance $11 million to Rice

[52]See par 38 above.

Also in early December 2007, Rice approached NAB for a loan of $11 million. The amount of the loan was far in excess of any loan previously granted to Rice. Rose had no knowledge of this approach, nor was it brought to his attention at the time he executed the Seventh Guarantee and the Eighth Guarantee.[53] This loan was sought by Rice for a property at 47 Hedges Avenue, Mermaid Beach,[54] which Rice had purchased in his own right for $17 million. Of the $11 million sought by Rice, $1 million was for “interest capitalisation pending resale”. Rice had insufficient income to service the proposed debt.
[53]D’Angelo stated that he believed he was under no obligation to tell Rose of Rice’s loan application.
[54]The property was erroneously referred to in a short form credit memorandum, edited and finalised by D’Angelo in December 2007, as 147 Hedges Avenue, Mermaid Beach. In fact, 147 Hedges Avenue had been the first property acquired pursuant to the joint venture on 20 March 2007, which had already been sold. The property at 147 Hedges Avenue was on-sold before settlement of the original purchase had occurred.

The application was not put through the usual “electronic consumer lending” process. D’Angelo said this was because it would have fallen outside the parameters of such a process and would have been “declined due to insufficient income to service the proposed debt”.[55] D’Angelo recommended approval of the facility. Funding was approved. These events occurred without Rose’s knowledge. The transaction did not proceed as Rice on-sold 47 Hedges Avenue in early 2008.

H.3 Agreement to fix interest rates for existing facilities

[55]Court book 2/432.

On or about 28 December 2007, Rose executed documents entitled “NAB Business Markets Fixed Rate Facility – Authority and Undertaking”. Pursuant to these documents, the interest rate for the facilities of Searing Heat, Walnut Peak, Glacial Reflections, Perfect Plume and Racing Clouds was fixed for the period from 31 December 2007 to 31 December 2009. The documents tendered were signed by Rose alone. Rose said he could not remember signing them. Not only were the documents not witnessed by anyone, but D’Angelo only gave general and superficial evidence in relation to them.[56] No evidence was given of any explanation being provided at the time the documents were executed.[57]
[56]T80.11-.22.
[57]This point is made for completeness. Ultimately, no issue was raised by Rose concerning the execution of the documents on 28 December 2007.

February–April 2008: NAB advanced $13 million to Rice

In mid February 2008, D’Angelo prepared a short form credit memorandum recording an application by Rice for a loan of $13 million. That memorandum referred to the earlier approval of a facility of $11 million for Rice in December 2007. It was recorded that Rice had accepted an offer to sell the property at 47 Hedges Avenue, Mermaid Beach in exchange for 2 other properties in Mermaid Beach, 1 being in Wave Street and the other at 31 Hedges Avenue.

The memorandum noted that the loan to value ratio would initially be 69.7 percent, but that this would eventually “erode” to 73 percent. It also noted that the property risk management group of NAB had recommended a loan to value ratio of 70 percent against the transaction. Having made these observations, D’Angelo continued that there was “enough evidence of presales which have been effected in this area and given 12 month lead time for marketing to warrant lending to 75% LVR[58]”.
[58]“LVR” is a reference to loan to value ratio.

The application was approved by NAB. The funds were duly advanced to Rice for the purchase of the 2 properties in Mermaid Beach. Settlement occurred in April 2008.

Accordingly, as at April 2008, Rice, or interests associated with him, owed NAB just shy of $23 million. Further, in relation to those associated entities, Rice had provided guarantees exposing him to personal liability for the full amount.

Rose had no knowledge of Rice borrowing $13 million from NAB in early 2008. He said if he had known, he would have had “a heart attack”. Of course, by the time this loan application of Rice was made, and then approved, Rose had already signed each of the Guarantees.

J. April 2008 transactions

In April 2008, it was proposed by Rice and Rose that Searing Heat sell 17 Albatross Avenue and Walnut Peak sell 1/19 Albatross Avenue for the sums of $2.5 million and $11 million respectively. As part of the same transaction, it was proposed that Walnut Peak would purchase 247 Hedges Avenue, Mermaid Beach for the sum of $9.5 million.

As may be seen from annexure “A”, Searing Heat had purchased 17 Albatross Avenue for $2 million. Further, Walnut Peak had purchased 1/19 Albatross Avenue for $7.7 million. Leaving aside related expenses, this represented a profit of $3.8 million in relation to the purchase and sale of these properties. Of that, only $255,000 was applied in reduction of the facility granted to Walnut Peak. Of the remaining “profits”,[59] Rose took $1.1 million and Rice took $2.2 million. It was not entirely clear on the evidence why Rice took double the profits of Rose, though it appears Rice may have suggested the possibility of further purchase contracts.[60]
[59]See pars 282-295 below.
[60]Rose made certain assertions about the conduct of Rice which gave rise to this distribution, but the nature of the assertions was not fully articulated or explored: T368.19.

As already stated, part of the agreement to sell 17 and 1/19 Albatross Avenue was that 247 Hedges Avenue was required to be purchased for $9.5 million. Rose said by this point in time, he did not want to be involved in the further purchase because he had previously learnt of, what he believed to be, a share scam in which Rice had allegedly been involved.[61] However, he was told by Rice the only way the sales could be done was to take on the purchase of 247 Hedges Avenue.
[61]See pars 265-270 below.

On 28 April 2008, D’Angelo signed letters dated 23 April 2008 from NAB[62] concerning the release of security in relation to 17 and 1/19 Albatross Avenue, Mermaid Beach. The letters acknowledged that all existing security continued to operate, in conjunction with the additional security obtained in relation to 247 Hedges Avenue, Mermaid Beach. The letters required acknowledgements to be signed on behalf of Almond Crossing, Broken Plate, Glacial Reflections, Pavement Reef, Perfect Plume, Racing Clouds, Searing Heat and Walnut Peak. With respect to each acknowledgement, each of Rice and Rose signed on behalf of the companies on 28 April 2008.
[62]The letters in the court book included letters, substantially in the same form, addressed to the directors of Almond Crossing, Glacial Reflections, Perfect Plume, Searing Heat and Walnut Peak.

D’Angelo stated he did not go through any of his standard procedures to obtain these signatures as the documents did not contain disclosure statements about the nature of a guarantee. D’Angelo suggested he would have said the previous terms and conditions applied. Certainly, he said nothing to Rose to explain the extent of Rose’s exposure under the Guarantees. Further, D’Angelo’s evidence made it clear he had little recollection of the means by which the signatures were procured.[63]

K. The state of NAB’s related documentation

[63]T84.06–85.28. This passage of the transcript, recording D’Angelo’s evidence in chief, included the following:

When this document [a reference to the letter dated 23 April 2008 addressed to Searing Heat] was taken to be signed by Mr Rose, what did you do in that regard?---So I went through what the notice of agreed changes was for and in this case---

Where were you when you did that?---I was at one of the premises, I couldn’t tell you which one.

Who was present with you?---Both directors were present.

Can you explain in the same fashion as you did earlier this morning for his Honour, what steps you took to explain this document or to arrange for the execution of it by Mr Rose?--- So the document details what security or additional security that the bank is taking in relation to the facility that’s still in place. In this case it was the new property being 247 Hedges Avenue under additional security. It also confirmed what security we were releasing and that was Walnut Peak and Searing Heat, the 2 properties at 19 and 17 Albatross Avenue, and any fees and charges in relation to the swapping of the security and confirming that all the previous terms and conditions in the original letter of offer remain unchanged, apart from these 2 items.

By whom or in what capacity is this document signed?---So the document is signed on behalf of the borrowers, so in this case the companies, plus also guarantors acknowledging the terms and conditions of the facility.

What did Mr Rose say or do after you had addressed the document as you’ve just described?---From my recollections, nothing. I can’t recall any discussion.

But he signed the document?---The documents were signed.

(Emphasis added.)

As is clear from this passage, D’Angelo gave no evidence of what he said to Rose concerning Rose’s potential liabilities. On the same topic, D’Angelo gave the following evidence in cross-examination:

On 20 (sic) April there was another series of bank documents to effect the transfer, as it were, of security from 1 to the other?---Yes.

And they were done by way of agreed changes notices?---Yes.

That would be the norm?---If the terms and conditions of the original funding weren’t being changed apart from the security, in this case there was a change in security, that would be the normal course, yes.

…

That’s 1 such notice [referring to court book 5/1857]?---Notice of agreed changes, Almond Crossing, yes.

Does that – apart from that document, was it the case that when you were doing this transaction document at the bank, was there any further disclosures or statements about the nature of the guarantee?---No, apart from the fact that all the previous terms and conditions and documents that were signed remain in force.

And you didn’t go through therefore all those standard procedure routines that you had been through?---No, because I didn’t have the documents in front of me to have executed again.

During the course of the transactions referable to the Guarantees, numerous bank records were created contemporaneously, in addition to the primary transactional documents. Given that neither D’Angelo nor Rose could give a specific account of the discussions between them when each of the Guarantees was signed, it is relevant to consider this additional documentation to the extent that it records, or purports to record, what had occurred.

The significance of this documentation must be understood in the light of the evidence of D’Angelo. Some of the documents were signed by Rose at the same time the relevant Guarantee was signed. Further, after the financial documents were signed, D’Angelo would go back to his office and complete a customer interview record or a checklist “to confirm that I had followed and ticked off some of the procedural stuff that I needed to tick off on, and completed that as part of the due diligence process”.

K.1 Documents signed in June 2007

On 18 June 2007, D’Angelo signed a document entitled “Customer Interview Record – Business – Security”. This document related to the purchase by Searing Heat of 17 Albatross Avenue, and it recorded that Searing Heat was both the security provider and the borrower. By reference to the mortgage given by Searing Heat, the form contained 2 boxes with statements adjacent to them, the second of which read:

Prior to executing the security documents they stated that they clearly understood their liability in lodging and executing the mortgage document.

Neither box was ticked by D’Angelo. The instructions expressly recorded on the form required D’Angelo to tick 1 or both of the boxes, depending on the circumstances. D’Angelo acknowledged that it was part of his practice to tick the boxes once the required steps had been taken. No explanation was proffered by NAB as to why this form had not been properly completed.

Also on 18 June 2007, in relation to the finance for Searing Heat, a form entitled “Certificate by Guarantor to NAB Guarantee and Indemnity” was executed by both D’Angelo and Rose. That document included “Section 2”, which comprised a certificate. By signing this document, on the face of it, Rose was certifying that NAB had taken certain steps, including providing an explanation to the guarantor of the nature and effect of the guarantee. However, immediately preceding this certification the form contained the following in section 1:

Date and location of interview with bank officer: Nil at: Nil.
Persons Present:
Bank Officer: Nil.

D’Angelo stated that this document had been prepared before he met with Rose.

Accordingly, on the face of the document, Rose certified that NAB had provided to him an explanation of the nature and effect of the guarantee. But much of the form was nonsensical given the “Nil” entries in section 1 of the form. By way of illustration, the certificate included the following statements:

·I had the opportunity to ask questions at the above interview and the Bank Officer answered all my questions to my satisfaction: and
·The Bank Officer also verbally explained to me at the above interview the nature and effect of the Guarantee in words consistent with the document ‘IMPORTANT: What a Guarantee Is’ (delete if full explanation is not required).[64]
[64]Nothing was deleted.

2. The Bank Officer also:
·Drew my attention to the warnings printed on the front, and above the signature section, of the Guarantee;
·Informed me that NAB was not making any statements or promises about the creditworthiness, financial position or honesty of the Customer [ie Searing Heat] or any other person;
·Recommended that I obtain independent legal and financial advice prior to signing the Guarantee; and
·Confirmed to me that I could refuse to sign the Guarantee.

(Emphasis added in italics, bold original.)

D’Angelo signed the form as “bank officer”. The absence of capital letters at the start of “bank” and “officer” seems to suggest, on the face of the form, that it was contemplated by NAB that the person signing the form might be a different person to the person who would carry out any relevant interview.[65] In any event, D’Angelo gave evidence that he was the relevant bank officer in question on both counts, as may be seen from the following when, asked under cross-examination to what the references to “Nil” were referring, D’Angelo stated:

That would be the date where the location was, where it was signed and the interview with myself.

As a result of this answer, the following exchange took place:
So there hasn’t been one? --- It appears from this document, no.

[65]Based on the absence of the capital letters, this submission was put by counsel for NAB in closing; namely, that the form appeared to contemplate separate occasions for an interview and then the signing of the documents. Whilst this was plainly open based on the contents of the form alone, no evidence was given by D’Angelo to support the suggestion that the standard practice involved 2 separate occasions, or that what was being certified was something separate and distinct from D’Angelo’s dealings with Rose. On the contrary, D’Angelo expressly acknowledged the form was filled out incorrectly if it contained “Nil” in the relevant locations: see par 114 below. Further, the force of such a submission is largely undermined by the inconsistent use of capital letters in other NAB documents: see, for example, pars 128 and 129 below.

Notwithstanding the contents of this form, D’Angelo maintained that he did more than give a very broad description of the documents necessary to be signed and disagreed with the proposition that he never explained to Rose that he would be potentially liable for all the money being borrowed by Searing Heat.

When asked whether Rose expressly stated that he understood that the First Guarantee made him so liable, and that Rose was content to sign the First Guarantee on that basis, D’Angelo stated:

Yes, otherwise I wouldn’t have got him to sign the documentation your Honour.

In fact, D’Angelo had no specific recollection of what Rose said. I do not accept this response as probative evidence that Rose ever stated to D’Angelo that he understood the First Guarantee and the ramifications of executing it.

As to what the document recorded had happened at the purported interview,[66] there is simply no evidence to support the apparent representations in clause 2 of the document that D’Angelo did any of the matters listed. Even if the court were to accept D’Angelo complied with what he said was his standard practice, that practice did not address any of the 4 recorded steps.[67]
[66]See par 108 above.
[67]As to the first, see pars 50, 53, 55, 61 and 80 above and 224, 225, 228, 229, 231-233, 238, 260, 274-276 and 280 below; as to the second, there is simply no evidence that these issues were addressed by D’Angelo; as to the third, see pars 52 and 62 above and 121, 225-228, 241-245 and 260 below; as to the fourth, see par 232 below.

A further observation must be made in relation to the certification given by Rose concerning the First Guarantee. Although the issue was not raised with D’Angelo in cross-examination, it must have been abundantly clear to D’Angelo at the time he sought and obtained Rose’s signature on the certificate that its contents were manifestly untrue. The certification given to NAB included the following:
·I was provided with the Guarantee and the document ‘IMPORTANT: What a Guarantee Is’ prior to the interview;
·I have read and understood both documents.
(Emphasis added.)
Undoubtedly, D’Angelo was familiar with the contents of the certificate he was asking Rose to provide. In those circumstances, D’Angelo must have known that, not only were the First Guarantee and the document explaining the nature of a guarantee not provided prior to any interview, but, more significantly, Rose had taken no opportunity to read either of the documents. As the circumstances set out in paragraphs 41 to 42 above demonstrate, Rose was only provided with the relevant documents contemporaneously with those documents being made available for execution.[68]
[68]This observation does not ignore a letter for each borrower dated 5 June 2007 prepared by D’Angelo and addressed to Rice. Bank copies of such letters were in the court book. D’Angelo could not say whether the letter was posted or not, but if it was it was sent to Rice. There was no suggestion by D’Angelo that any of the relevant documentation had been provided by D’Angelo or anyone from NAB to Rose prior to the date upon which the documentation was executed, namely 18 June 2007.

A like certificate was also executed by Rose in relation to the facility offered to Walnut Peak. Again, this certificate had “Nil” entries in relation to the details concerning an interview with the bank officer explaining the guarantee. Somewhat curiously, D’Angelo stated that completing the form with “Nil” as to the date and location of the interview with a bank officer was not unusual. D’Angelo said the form had been “prepopulated” by his associate at the time or by NAB’s lending services department. He also acknowledged that the document had “quite clearly … been completed incorrectly”.

Another document Rose was required to execute on 18 June 2007 was entitled “Guarantor Acknowledgement of Documents Received”. This document related to the purchase by Glacial Reflections of 1/21 Albatross Avenue.

D’Angelo stated that the form had been completed in advance of meeting with Rose. This document is also problematic. Section 1 of the document recorded that the amount to be guaranteed was $280,000 and the customer was Glacial Reflections.

Section 2 was entitled “Copies of Documents that MUST be provided” (original emphasis). It then specifically required all documents that were not applicable to be crossed out. There were no deletions in section 2 of the document, even though it referred to documents known as “Consumer Guarantee” and “NAB Family Guarantee”. Such documents clearly were not relevant to the transaction. D’Angelo said this was an oversight.

The next part of section 2 of the document referred to documents which (according to their titles) provided an explanation of various guarantees. Again there were no deletions, although at least 1 of the documents was clearly inapplicable. When confronted with this fact, D’Angelo initially gave evidence that a tick recorded on the document looked like it related to the relevant document, which was entitled “Things you should know about Guarantees”. When pressed on this issue, he said he was only surmising, and then said he was probably speculating. When giving evidence the following day, D’Angelo confirmed that it may not be the case that the tick was aligned to the relevant document.

Section 3 of the document expressly required certain acknowledgements, by way of ticking 1 of 2 boxes. Neither box was ticked.

Other documents signed by Rose on 18 June 2007 were entitled “Declaration by Guarantor”. Rose signed 3 such documents at that time. The declaration commenced with the words:

1.I have been provided a complete copy of the (sic) (‘the Guarantee’) to be executed by me …

In addition to the obvious typographical error in each document, the relevant Guarantee was not identified in any of the 3 documents.

Also clause 3 of each declaration read as follows:

On or about the __ day of __, I attended at the offices of __ Solicitors, to obtain independent legal advice in relation to my rights and obligations pursuant to the Guarantee and have received that advice.

This clause was not deleted, but simply left with blanks where it was apparently intended to be completed. There was no suggestion in any evidence that there was any discussion between D’Angelo and Rose about deliberately leaving this clause in the declaration with blanks. Whether this course of conduct was intended by D’Angelo was not clear. When he was asked if it was standard practice not to fill in the blanks, he responded: “I think so”. This appeared to be a tentative suggestion that not filling in the blanks was a means of signifying that the clause did not apply.
K.2 Document completed in July 2007

On or about 24 July 2007, D’Angelo, with the assistance of another bank officer, completed a document entitled “Lending Increase Memorandum”. Again, Rice was identified as the customer, and it was recorded as submission number 12.

The document recorded that the aggregate business lending for that time was $8,195,000. It also recorded the amount of the increase incorrectly as $500,000. In fact, $1,000,000 was being sought. D’Angelo said he stated the incorrect amount in order to obtain a “waiver of using a more complex template” in providing a memorandum to the lending department of NAB.[69]

K.3 Documents signed in September 2007

[69]The explanation given by D’Angelo was that a lot of the information was “very current” and there was not a lot of information to be added from the previous submission. A note later in the document sought to explain why the amount was incorrectly recorded: court book 1/354.3. See also fn 18 above.

On 12 September 2007, Rose executed a certificate as guarantor to NAB in relation to the facility for Perfect Plume. Similar to previous certificates,[70] “Nil” was recorded in section 1 of the certificate as to the date and location of interview with a bank officer of NAB, and as to the identity of the bank officer. The document was executed by both D’Angelo and Rose.
[70]See pars 107-109 and 114 above.

Also as part of the documents for the advance to Perfect Plume, D’Angelo completed a document entitled “Guarantor Interview Record”.[71] The guarantors recorded in this document were Walnut Peak, Pavement Reef, Rice and Rose. The amount the subject of the guarantee was recorded as $515,000. D’Angelo ticked a number of boxes in relation to what was said to have been provided to the guarantors.
[71]D’Angelo could not recall whether a like document was completed for each of the First, Second and Third Guarantees, but also added that he was not sure such a document was in place at the time those earlier guarantees were executed.

D’Angelo correctly ticked a box indicating that the Banking Code applied to the transaction. However, he also ticked a box signifying that he provided documents which clearly did not apply to the transaction; for example, a document explaining a NAB family guarantee. I infer that D’Angelo simply ticked boxes in the section without turning his mind to what had or had not been provided. When taken to the fact that all 3 alternatives had been ticked in relation to documents provided to explain various different types of guarantees the following exchange took place:

Did you provide all 3?---I would have provided, “Things you should know about a Guarantee”.[72]
How do you know that?---I don’t know that with a certainty now.

D’Angelo also acknowledged that he was reliant on the document to remind him of what he did at the time.

[72]In fact the document was called “Things you should know about Guarantees”.

D’Angelo accepted that he had ticked all the 20 boxes in sections 2, 2a, 3 and 3a of the form. Section 4 recorded that the guarantors had not sought independent legal or financial advice. All 5 boxes in section 5 were ticked.

Then followed section 5a which read as follows:

I confirm that where the execution of the Guarantee has been arranged by NAB, each Guarantor has executed the Guarantee in the absence of the Customer.
(Original emphasis.)

D’Angelo ticked the box referable to this statement although it was plainly wrong. After this detail had been drawn to D’Angelo’s attention, the following exchange took place:
Let’s say it was Perfect Plume [that was the customer] was it not?---Well, it was, but it’s a company, it’s not an individual. How can I, given that the shareholders and owners and directors were Tim [Rice] and John [Rose] how can I separate a company out of the room?
His Honour: So why did you tick the box?---That’s a good question, your Honour.

The final section in the document was headed “Section 6 – After Execution”. That section continued:

· I confirm that I have received a signed Guarantee from the Guarantor/s.
· I confirm that immediately after execution of the guarantee by all guarantors, NAB gave each guarantor a copy of the signed guarantee.

Neither of the boxes referable to the above 2 points was ticked. D’Angelo said that the fact that the boxes had not been ticked did not mean the court could assume that the events did not happen. He suggested he may have neglected to tick the boxes. Plainly, D’Angelo had received a guarantee from the guarantors. However, when it was put to him that it was possible he neglected to hand over copies of the guarantees, D’Angelo responded, that, on the basis that he had not ticked the boxes, potentially yes.

Rose also signed a “Declaration by Guarantor” on 12 September 2007. This declaration commenced with the words:

1.I have been provided a complete copy of the Guarantee and Indemnity (‘the Guarantee’) to be executed by me …
(Original emphasis.)

The language used in this document did not have the typographical error of the previous document,[73] but still did not specifically identify the guarantee in question. Again, clause 3, concerning advice from a solicitor, was left blank.[74]

[73]See par 120 above.

[74]See par 121 above.

Rose executed a further certificate with respect to the advance to Perfect Plume in the sum of $515,000. Consistent with previous such certificates,[75] the entry “Nil” was made in relation to the date, location and bank officer fields. Again, no satisfactory explanation was given by NAB as to how such entries were made given D’Angelo maintained that the relevant documents were explained in accordance with the Banking Code and that he was the relevant bank officer.

K.4 Documents executed in December 2007

[75]See pars 107-109, 114 and 124 above.

The “Certificate by Guarantor to NAB Guarantee and Indemnity” given to NAB concerning the advance of $1.23 million to Glacial Reflections was in the same form as the previous certificates. However, in relation to this certificate, rather than inserting the word “Nil” for the date, location and bank officer of any interview with the guarantor, these fields were simply left blank. For this transaction, D’Angelo acknowledged that this was the only form of this kind presented to Rose. Accordingly, this document, on its face, indicated no interview took place at which a NAB bank officer explained the nature and effect of the Seventh Guarantee or provided Rose with the opportunity to ask questions which were duly answered. A like certificate for the advance to Racing Clouds was also signed by Rose and witnessed by D’Angelo on 20 December 2007. It had the same blanks. The same comments apply.

Also, in relation to the advance of $925,000 to Racing Clouds, D’Angelo prepared the form concerning an acknowledgement of documents received by the guarantor.[76] Although this document was signed by Rice as guarantor in his personal capacity, there was no corresponding signature from Rose, even though Rose’s name had been typed on the form. D’Angelo could not provide any explanation as to why Rose had not signed the document. In contrast to the absence of a signature by Rose as guarantor in his own capacity, the document was executed by both Rice and Rose on behalf of each of the investor companies involved, together with Pavement Reef. Further, like previous documents of this nature, and contrary to the obvious requirements of the proper completion of the form, there had been no attempt to correctly identify the relevant documents alleged to have been provided to the guarantors.
[76]Cf par 115 above.

D’Angelo also executed a document entitled “Guarantor Interview Record”,[77] which listed Rose, Rice and 7 companies as the guarantors. This document related to Glacial Reflections and the facility for $1.23 million. Consistent with previous documents of this nature, D’Angelo appears to have indiscriminately ticked a number of the boxes, regardless of whether they were applicable or not. Equally, in section 5a, D’Angelo incorrectly ticked the box that stated that the guarantor had executed the guarantee in the absence of the customer. Finally, section 6, headed “After Execution” required D’Angelo to confirm he had received a signed guarantee from the guarantors. Incorrectly, this was not ticked.
[77]Cf par 125 above.

A similar document was also executed by D’Angelo in relation to Racing Clouds and the facility for $925,000. Again, the document contained incorrectly placed ticks. However, this document was not incorrectly ticked in section 5a to signify that the customer was absent at the time the guarantor executed the guarantee. Perhaps this was fortuitous rather than by design. The absence of a tick might also be explained by the fact that D’Angelo failed to complete the form by placing a tick in section 6, thereby indicating, incorrectly, that D’Angelo had not received a signed guarantee from the guarantors.

K.5 Reliance to be placed on NAB’s related documents

The documents referred to in paragraphs 106 to 135 above are not exhaustive. As is readily apparent from other documents referred to in this judgment, there were further errors in documents prepared or finalised by D’Angelo. It is unnecessary to catalogue them all. However, I note they included documents with like deficiencies that were executed by Rice.[78]
[78]Some of the documents executed by Rice included court book 1/272, 1/332, 2/406, 2/414, 2/416 (which appears to be a duplicate of 2/406), 2/422, 2/503, 2/561.

If the contemporaneous documents related to the execution of the Guarantees had been in a satisfactory state, or even a substantially satisfactory state, then such documents may have provided probative corroborative evidence that D’Angelo gave the warnings and explanations that he said he gave.[79] However, given the lax, or perhaps even off-handed, attitude that D’Angelo (and perhaps others) had in preparing these documents, and the fundamental errors that some of them contained, little, if any, weight may sensibly be given to the fact that some of the documents are consistent with the account given by D’Angelo. Indeed, the contents of some of the documents directly contradict D’Angelo’s evidence as to what he did and what he said to Rose at the time the Guarantees were executed.[80]
[79]See, for example, Fox v Percy (2003) 214 CLR 118, 129 [31] (Gleeson CJ, Gummow and Kirby JJ).
[80]See, for example, par 112 above.

NAB was dismissive of errors in its documentation. The errors were described as tangential and ultimately immaterial.[81] Given the litany of mistakes referred to above (which is non-exhaustive), I cannot accept this submission. For the reasons stated, I find the errors were significant and raised serious doubt about the evidence of D’Angelo that he strictly followed banking procedures when dealing with security documentation and related matters.
[81]NAB’s closing submissions, par 5.

That said, it does not follow that the poor state of the paperwork leads to a conclusion that D’Angelo failed to explain the Guarantees properly. It is perfectly plausible that D’Angelo may have given proper explanations despite his want of care in filling out bank forms and other documentation. However, little support for NAB’s case in response to the defences raised by Rose may be found in the contemporaneous documents purporting to record what occurred.

Finally, I reject the submission by NAB that D’Angelo was able to explain why errors had been made. There were some matters he was simply unable to explain.[82] Further, when considering both the number and nature of the errors made, no satisfactory explanation could be given.

L.Findings as to Rose’s knowledge of the extent of his liabilities under the Guarantees

[82]See, for example, pars 128, 129, 133-135 above.

I am satisfied, on the balance of probabilities that, in relation to the First, Second and Third Guarantees, Rose did not know that, by signing these documents, he would potentially become jointly and severally liable for all of the borrowers’ liabilities. It was contrary to the understanding Rose had, based on what Rice had told him.[83] Nothing D’Angelo said to Rose suggested that Rose’s understanding was incorrect.[84]
[83]See pars 64-67 above.
[84]See par 61 above, and cf pars 50-55 above. As to why Rose’s evidence is accepted on this issue, see pars 246-280 below.

Equally, with respect to the Sixth, Seventh and Eighth Guarantees, I am satisfied that Rose did not appreciate that, at the time he signed those documents, he might be liable to NAB beyond his half of the loans, his half of the interest on the loans, and his half of the other liabilities for which each borrower would or might become liable. Again, this is based upon what Rice told him,[85] together with an absence of an explanation by D’Angelo to disabuse Rose of his misunderstanding.[86]

M. Contractual force of the relevant provisions of the Banking Code

[85]See par 73 above.

[86]See pars 246 to 280 below.

When the case was opened on behalf of NAB, counsel stated that NAB did not accept that the Banking Code was promissory or contractual. It was contended that the Banking Code imposed no contractual obligation, but merely provided “a desirable code of practice”. Not only was it stated that the Banking Code did not provide a contractual precondition required to be satisfied before a guarantee could be enforceable, but it was submitted it provided no basis, of itself, to found a claim for loss. In short, it was stated that the Banking Code was of no legal effect.

Contrastingly, in closing, and for the purposes of this proceeding only, NAB accepted that the Banking Code was contractually binding as between NAB and Rose. Therefore, the terms of the Banking Code were to be treated as “contractual terms of each of the Guarantees”.[87]
[87]NAB’s closing submissions, par 19. There may be an acceptable explanation for this change in position by NAB. However, on its face, it is difficult to see how the conduct of maintaining a dispute on such a fundamental issue that is not dependent on evidence given at trial, and then resiling from that position in closing submissions, is consistent with the overarching obligations imposed by the Civil Procedure Act 2010 (Vic), s 7.

Lest it be thought that the concession made by NAB as to the applicability of the Banking Code may have altered the outcome of this case, I would have found that the relevant provisions of the Banking Code relied upon in this proceeding applied with contractual force in any event.[88]
[88]See Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152, [84]-[85] (Campbell JA, with whom Giles and Hodgson JJA agreed), referred to with approval in Commonwealth Bank of Australia v Doggett [2014] VSC 423, [114] (Hargrave J); and see [101], [115]-[116]. See also Sam Management Services (Aust) Pty Ltd v Bank of Western Australia Ltd [2009] NSWCA 320, [72]-[75] (Young JA). For completeness, see further the Banking Code, cl 39.1(a), which provides for NAB to be bound by the Banking Code, subject to certain irrelevant exclusions.

The Banking Code sets standards of good banking practice that NAB, amongst others, agreed to follow in dealing with certain types of customers and their guarantors.[89] The Banking Code is divided into 6 parts.[90]
[89]Clause 1.1.
[90]Part A is entitled: Introduction (cl 1). Part B is entitled: Our key commitments and general obligations (cll 2-9). Part C is entitled: Disclosures (cll 10-14). Part D is entitled: Principles of conduct (cll 15-33). Part E is entitled: Resolution of disputes, monitoring and sanctions (cll 34-38). Part F is entitled: Application and definitions (cll 39-40).

The terms of the Banking Code relied upon by Rose were as follows:

2        Our[91] key commitments to you[92]
[91]“we, us and our” is defined to mean “the bank that you deal with that has adopted this [Banking] Code”.
[92]“you and your” is defined to mean “a person who, at the time the banking service is provided, is an individual or a small business that is our customer (or, where this [Banking] Code specifically applies to potential customers, a potential customer of ours) and includes, in clauses 28, 33 and 39, any individual from whom we have obtained, or propose to obtain, a Guarantee”.
2.1      We will:
…
(b)       promote better informed decisions about our banking services:
(i)        by providing effective disclosure of information;

…
2.2We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us.
…
3.2If this [Banking] Code imposes an obligation on us, in addition to obligations applying under a relevant law, we will also comply with this [Banking] Code except where doing so would lead to a breach of a law (for example, a privacy law).
…
25Provision of credit
25.1Before we offer or give you[93] a credit facility (or increase an existing credit facility), we will exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your[94] ability to repay it.
[93]In Commonwealth Bank of Australia v Doggett [2014] VSC 423, [119]-[124], Hargrave J held that the meaning of the word “you” in this clause was a reference to the customer of the bank and not a reference to the guarantor. No contrary submission was put to me. For the reasons stated by Hargrave J, I accept this construction of cl 25.1.
[94]The word “your” has a corresponding meaning to the word “you” referred to in the previous footnote.
28Guarantees
28.1This clause 28 applies to every guarantee and indemnity obtained From you[95] (where you are an individual at the time the guarantee and indemnity is taken) for the purpose of securing any financial accommodation or facility provided by us to another individual or a small business (called a “Guarantee”), except as provided in clauses 28.15 and 28.16.
[95]See fn 30 above.
28.2We may only accept a Guarantee if your liability:
(a)is limited to, or is in respect of, a specific amount plus other liabilities (such as interest and recovery costs) that are described in the Guarantee; or
(b)is limited to the value of a specific security at the time of recovery.

28.3A Guarantee must include a statement to the effect that the relevant provisions of this [Banking] Code apply to the Guarantee but need not set out those provisions.
28.4We will do the following things before we take a Guarantee from you:
(a)we will give you a prominent notice that:
(i)you should seek independent legal advice and financial advice on the effect of the Guarantee;
(ii)you can refuse to enter into the Guarantee;
(iii)there are financial risks involved;
(iv)you have a right to limit your liability in accordance with this [Banking] Code and as allowed by law; and
(v)you can request information about the transaction or facility to be guaranteed (“Facility”) (including any facility with us to be refinanced by the Facility);

…

28.5 We will not ask you to sign a Guarantee, or accept it, unless we have:
(a)provided you with the information described in clause 28.4 to the extent that that information is required by this [Banking] Code to be given to you; and
(b)allowed you until the next day to consider that information.

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

…
28.16If you are a director guarantor[96] clauses 28.4(d) and 28.5 apply as follows:
[96]“director guarantor” is defined to mean “a guarantor of a Facility who is a director of a company which is to be the debtor for the Facility other than a sole director guarantor or a commercial asset financing guarantor”.
(a)we will tell you that:
(i)you have the right to receive the documents described in clause 28.4(d); and
(ii)those documents contain important information that may affect your decision to give a Guarantee;

(b)you may choose not to receive some or all of the documents described in clause 28.4(d);
(c)we will tell you how you can make these choices;
(d)we will provide you with a copy of any document described in clause 28.4(d) that you have requested;
(e)you can tell us that you do not wish to have the benefit of the period referred to in clause 28.5(b); and
(f)apart from telling you the things set out in clauses 28.16(a)(i) and (ii), 28.16(b) and 28.16(c) and as required under other provisions of this Code, we will not attempt to influence your choices under clauses 28.16(b) and 28.16(e).

The Banking Code does not contain a provision which, of itself, provides a remedy for any breach. NAB accepted, correctly, that this does not proscribe a remedy being granted.[97]

N. Unconscionability

N.1 The pleaded case

[97]See, for example, par 202 below.

The third further amended defence (“the Defence”) contained a series of allegations under the heading “$11 Million Rice Loan – Failure of Disclosure – Unconscionability”. In the Defence, the term “the Rice Loan” was used as a definition for the application for loan which was approved by NAB, but which was actually never advanced.[98]
[98]See pars 91-92 above.

It was alleged that D’Angelo processed the Rice Loan and recommended its approval, despite the fact that D’Angelo’s “cursory investigation” had disclosed Rice had insufficient income to meet the interest payments under the Rice Loan from his own means. The Defence also alleged D’Angelo recommended the Rice Loan be increased from $10 million to $11 million to enable the interest to be paid from the additional advance of $1 million. It was further alleged that D’Angelo’s investigation disclosed that Rice did not have sufficient assets to secure a loan as proposed by the Rice Loan.

Allegations were made about lack of diligence on the part of NAB. It was alleged that no-one from NAB ever sighted a contract of sale or a certificate of title regarding the proposed purchase of property by Rice. It was further alleged that D’Angelo accepted Rice’s assertion that the property to be acquired had a value of $17 million and an anticipated increase in value to $20 million. This acceptance was alleged to have occurred without any professional or independent valuations being seen or obtained by NAB. In addition, it was alleged that the Rice Loan was recommended for approval by D’Angelo despite the fact that, in May 2007, D’Angelo and NAB had categorised as “high” the risk of a collapse or decline in property values in the Surfers Paradise property market.

Further, it was alleged that D’Angelo recommended approval of the Rice Loan despite the fact that Rice was already contingently liable to NAB in the amount of $8 million, alternatively $5 million.

The Defence then alleged that, in late 2007 or early 2008, NAB approved and advanced $11 million to Rice. As may be seen from the facts set out above,[99] the Rice Loan was approved, but moneys were not advanced.[100]
[99]Ibid.
[100]There are no allegations in the Defence concerning the loan of $13 million which was subsequently advanced: see pars 94-96 above.

Furthermore, allegations were made concerning the sale of 17 and 1/19 Albatross Avenue, together with the purchase of 247 Hedges Avenue.[101] It was alleged that NAB agreed to release $3.3 million from the proceeds of the sales.
[101]See pars 99-103 above.

The Defence then proceeded with the following:

67.In the period between June 2007 and April 2008, throughout the course of these transactions the plaintiff failed, omitted and/or neglected to inform Rose at any stage:
(i)That Rice had applied for or been granted the Rice Loan;
(ii)That Rice was using the Rice Loan to speculate on residential property in Mermaid Beach in competition with the venture he and Rose were conducting;
(iii)That Rice’s indebtedness to the plaintiff had risen to in excess of $13 million;
(iv)That Rice lacked sufficient income to pay the interest on his debt to the plaintiff;
(v)That Rice did not have the ability to pay his debts as and when they fell due from his own money;
(vi)That the plaintiff rated the likelihood of a decline or failure in the Mermaid Beach and related property market as “High”.

68.Had the plaintiff informed Rose of:
(a)the radical increase in and the extent of Rice’s indebtedness to the plaintiff in late 2007;
(b)Rice’s lack of means to pay his debts from his own money as they fell due;
(c)Rice’s competing speculation in the property market as set forth in paragraph 76 (sic) hereof,
Rose would have:
(d)applied the proceeds of the sale of 17 and 1/19 Albatross Avenue Mermaid Beach to reduction of the First and Second BFA’s;[102]
(e)not have proceeded with the purchase of the further units at 21 Albatross Avenue with Rice;
(f)moved to sell any other assets jointly held with Rice and applied the proceeds to debt reduction;
(g)ceased all dealing with Rice;
(h)not have extended the Guarantees in December 2007 as aforesaid.

[102]“BFA” was an acronym used in the pleadings to refer to the agreements contained in the letters of offer.

Although paragraph 67 refers to the period from June 2007 to April 2008, it is apparent, when paragraphs 67 and 68 are read together, that the allegations in substance are confined to the period during and after which “the Rice Loan” was considered and recommended by D’Angelo. In particular, the pleading as to what Rose would have done with knowledge of the matters referred to in paragraph 68(a)-(c) is clearly confined to the events of December 2007.[103]
[103]For completeness, I note that, to the extent that paragraphs 67(iv) and (v) on their face appear to cover the period from June 2007 to April 2008, there were no allegations in the Defence preceding these paragraphs which made any allegations about insufficient income or an inability of Rice to pay debts, other than by reference to the Rice Loan.

Then, by way of a very rolled up plea, the Defence alleged a breach of the Banking Code by reference to numerous earlier paragraphs. Having referred to the alleged failure to apply the Banking Code, the allegation continued “so that it would be unconscionable for the plaintiff to enforce the Guarantees or any of them as against Rose and accordingly it is estopped from so doing”. Thus, on the case as pleaded in this paragraph of the Defence, the consideration of unconscionability based on these allegations would only arise if a breach of the Banking Code were established.

The next relevant allegations concerning unconscionability made reference to the High Court decision of Commercial Bank of Australia Ltd v Amadio,[104] and alleged a duty of disclosure owed by NAB. It was alleged NAB was required to disclose to Rose any “pertinent and unusual feature” of the transactions into which he was entering (which transactions were not specifically identified in the pleading). No reliance was placed upon the Banking Code in making these allegations.
[104](1983) 151 CLR 447.

Finally, it was alleged that NAB’s failure to disclose “the matters set forth at paragraph 67 hereof concerning the Rice Loan and Rice’s lack of creditworthiness and conflict of interest is a breach of the said duty and the Guarantees and each of them is discharged thereby”.[105] Similarly to paragraph 67 of the Defence, this allegation, on its face, makes reference to all the Guarantees, notwithstanding there were no specific allegations made in the Defence beyond those relating to the circumstances surrounding the execution of the Seventh Guarantee and Eighth Guarantee. Further, the suggestion of a “conflict of interest” was not particularised in any manner.

N.2 Further matters submitted by Rose

[105]Defence, par 81.

The submissions made by Rose concerning alleged unconscionability travelled well beyond the Defence. The failure to plead matters may be a proper basis to disallow relief in respect of those matters.[106]
[106]See Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279, 288.2 (Brennan J) where his Honour stated that: “When the pleadings bring the parties to the issue, the court’s function is to determine that issue and to grant relief founded on the pleadings unless the parties are allowed to alter the issues at the trial without amendment of the pleadings”. See also, 286.9-287.2 (Mason CJ and Gaudron J) and 302.9 (Toohey J). See also, Dare v Pulham (1982) 148 CLR 658, 664.6 (Murphy, Wilson, Brennan, Deane and Dawson JJ) where their Honours stated: “Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings”.

During the course of this trial, the parties were warned, on numerous occasions, of the need for the pleadings to accurately reflect their respective cases and to clearly identify the issues in dispute.[107] This was accepted by both parties at the time the warnings were given.
[107]See, for example, T283.29-285.16, 341.24-343.06, 421.04-421.07 and 429.07-429.26.

To that end, Rose sought, and was afforded, 2 further opportunities to amend his defence. In the first instance, Rose made an application for an adjournment at the commencement of the first scheduled day of trial, being 5 August 2014, for the purposes of amending his defence. The application was put on the basis that counsel for Rose had only been retained in the matter approximately 1 month earlier and that there were substantive matters concerning unconscionability and the Banking Code that needed to be pleaded on behalf of Rose. Both the adjournment and leave to amend were granted. An amended defence, including substantive amendments, was then filed and served. In the second instance, on 1 October 2014, after the court had reserved its decision, Rose made a further application to amend his defence, at the court’s suggestion. Leave was ultimately granted to Rose to include a new claim for a set off based on allegations of breach of warranty by NAB.[108]
[108]See fn 4 above.

In those circumstances, and having regard to Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd[109] and Dare v Pulham,[110] the court ought not consider Rose’s further submissions in respect of unconscionability as a proper basis for relief in the proceeding.
[109](1990) 169 CLR 279. See fn 106 above.
[110](1982) 148 CLR 658. See fn 106 above.

That said, I will summarise the further submissions made, and briefly address them below. As will be seen, the failure to plead the further matters did not have any effect on the outcome of the case.

Under the heading “unconscionability/breach of duty of disclosure” Rose’s submission was that, in all the circumstances, it would be unconscionable for NAB to be allowed to enforce the Guarantees where NAB failed to abide by the Banking Code and proceeded to take the Guarantees in circumstances where:

(1)NAB knew or ought to have known that Rose and Rice had agreed that Rice would be solely responsible for the loans obtained to purchase 17, 1/19 and 1/21 Albatross Avenue in June 2007.
(2)NAB had provided the loans despite the questionable prudence of doing so when Rice could not fund “his” obligations.
(3)NAB failed to disclose to Rose the increasing and large extent of Rice’s liability to NAB as it approved and advanced $13 million to Rice “in late 2007 and early 2008”, that adversely affected Rice’s creditworthiness as a co-surety.
(4)NAB did not follow “the provision of clause 28.4 or 28.5” of the Banking Code in obtaining the Guarantees or did not make the disclosures required under the Banking Code despite representing that it would do so.[111]

N.3 Relevant principles

[111]As already noted at par 2 above, during oral closing submissions, and without affecting his contractual warranty defence, Rose desisted with any defence based upon any representation made by NAB.

No reliance was placed by Rose upon any statutory provision in relation to unconscionability.

With respect to the equitable jurisdiction to set aside a transaction on the grounds of unconscionability, there are 2 “threshold requirements”[112] that must be met. First, there must be a special disability or disadvantage affecting the ability of the relevant person to make a judgment as to her or his best interests. Secondly, the special disability or disadvantage must have been known or sufficiently evident to the other person.[113] Unless these 2 requirements are met, there is no basis for the court to go on to consider whether or not the other person acted unconscionably so that that person ought to be deprived in equity of the benefit of the transaction.[114]
[112]Mackintosh v Johnson (2013) 37 VR 301, 304 [11] (Buchanan and Whelan JJA and Hargrave AJA).
[113]Ibid. See also Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 474.3 (Deane J) and Louth v Diprose (1992) 175 CLR 621, 632.5 (Brennan J), both referred to with approval in Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392, 424 [117] and 427 [124] respectively; and see further at 425 [118], 439-440 [161] (French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ).
[114]Mackintosh v Johnson (2013) 37 VR 301, 304 [12].

A good illustration of the manner in which D’Angelo was willing to give his evidence may be seen by reference to D’Angelo’s evidence that Rose was “happy to sign”. When first giving evidence on this issue, as part of evidence of his standard practice, D’Angelo made the conclusory statement that D’Angelo would confirm the client was happy to sign the letter of offer,[215] and was happy with signing the Guarantee.[216] How this confirmation occurred was not stated by D’Angelo.
[215]See par 48 above.
[216]See par 51 above.

Under cross-examination, D’Angelo rejected the proposition that he only gave a very broad description of the documents. In this context, D’Angelo appeared to positively state that Rose said to D’Angelo that he understood the guarantee in question and was content to sign it. When pressed as to what Rose said, D’Angelo answered that Rose understood and was content to sign “otherwise I wouldn’t have got him to sign the documentation”.[217] This evidence gave the distinct impression that D’Angelo was told that Rose understood the documentation.
[217]See par 111 above.

Later in the cross-examination, it was put to D’Angelo that he never asked Rose whether Rose understood the documentation. In response, D’Angelo stated that he asked Rose whether he was happy to sign a guarantee. Upon it being further put that Rose never said he understood the documents, D’Angelo responded, “If in fact [Rose] did say that, I would not have continued with the execution”. After it was suggested that D’Angelo had not answered the question, D’Angelo stated he could not recall Rose saying “I don’t understand the documentation”. When he was asked again whether Rose ever said that he did understand the documentation, D’Angelo responded:

I can’t recall that either but by virtue of him executing the guarantee, he advised – confirmed that he did understand what he was signing.

Finally on this topic, under cross-examination it was put to D’Angelo that he never asked Rose whether he understood the nature of the Guarantee and Rose‘s liabilities, to which the following response was given:

It was part of my – I use the terminology, if you’re happy with what you’re signing, then we will go ahead and execute.
And that [Rose] never actually said that he understood and was happy with those documents?---The fact that he had signed the guarantee was his acceptance.

In short, on the critical issue of whether or not Rose properly understood the nature and extent of the Guarantees, D’Angelo was content to give conclusory evidence and convey the distinct impression that Rose had expressly acknowledged his understanding as part of their oral exchange, when the contrary was the fact.

Further, in light of the evidence ultimately given by D’Angelo on this issue, little or no weight could be placed upon internal bank documents signed by D’Angelo which purported to record that Rose had stated to D’Angelo that he clearly understood his liability under the security documents.[218] As already demonstrated, the contemporaneous documents[219] strongly suggest that, at least with respect to the documentary record of the transactions the subject of this proceeding, D’Angelo paid little regard to attending properly to NAB’s procedures and ensuring that the standard procedures of which he was undoubtedly aware were in fact being complied with.
[218]See, for example, customer interview record – business – security: court book 1/384, 2/472. Cf par 106 above.
[219]See pars 104-139 above.

In summary, D’Angelo’s explanation made it clear to Rose how much was to be borrowed by each investment company. At the time of signing each Guarantee, Rose knew he was assuming some personal liability. However, nothing D’Angelo said in addressing the documents informed Rose that his understanding, based on what Rice had said, was incorrect.

Even if I am incorrect in my finding that Rose would have acted on advice from D’Angelo that Rose should get legal advice, that does not alter the outcome of the case. The findings that D’Angelo did not tell Rose that there were financial risks involved for Rose or that Rose could limit his liability, together with the fact that Rose was not properly informed of his liabilities under the Guarantees, and that if he had been so informed he would not have signed them, are sufficient to establish a breach of the Banking Code and a direct causal link to the loss the subject of the claim for set off.[220]
[220]Cf Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, 353 [146]-[147] (Gummow, Hayne, Heydon and Kiefel JJ).

NAB made a series of submissions as to why the court ought to find that D’Angelo gave the warnings in accordance with the Banking Code or that Rose would have signed the Guarantees in any event.

First, NAB submitted that Rose did not pay attention to issues concerning the Guarantees and did not ask questions when presented with documents showing the amount of moneys “booked” against each borrower. It is correct that Rose paid little attention to the documents he signed, including the Guarantees. Generally speaking, Rose paid no real attention to the banking details or requirements. Rose took no steps to attempt to read any of the documentation or to ask questions so that he properly understood the documentation. But that position was adopted based on his understanding of what Rice had told him concerning the significance of the Guarantees. In substance, Rose said his level of attention would have changed acutely if it had been explained to him properly what his potential liability was or if he was told he should get legal advice. For reasons already stated,[221] I accept this evidence.
[221]See pars 223-234 above.

Secondly, NAB submitted Rose had made a commitment to Rice in relation to the joint venture and the deal would not have gone ahead unless Rose signed the Guarantees. Whilst this submission fairly reflects the facts, the commitment made to Rice was made on a fundamentally different basis to the actual premise upon which NAB was willing to provide funds. There could be no suggestion that Rose had made an unconditional commitment to Rice with respect to the joint venture no matter how seriously Rose’s misunderstanding was, based on what Rice had told him, as to the true circumstances.

Thirdly, NAB submitted that Rose was motivated to participate in the joint venture by profit. Again, so much is true. However, he had a completely different understanding as to the risks involved than those that were reflected in the terms of each Guarantee.

Fourthly, NAB relied upon the fact that Rose did not bother to obtain professional advice. But Rose did not consider such advice was necessary given his trust in Rice, who was his friend. Rose also gave evidence, which I accept, that he trusted D’Angelo. The absence of obtaining professional advice is reflective of this trust. Although Rose’s conduct might reasonably be considered to demonstrate a cavalier attitude towards signing documents, this does not equate to Rose simply not caring about whether he would be exposed to substantial liabilities beyond those which Rice purported to explain to Rose.

Fifthly, NAB pointed to the belief of Rose, in or about September 2007, that Rice had been involved in a share scam. A note made by Rose recorded Rose’s belief that he (and 2 others) had been conned by Rice into making an investment of $1 million with respect to a share purchase.

Rose’s evidence as to when he fully appreciated there was a problem with his share investment was not entirely clear. Two extracts from his diary made in September 2007 suggested he appreciated at that time that there might have been a problem. A note made by Rose much later in 2008 referred back to these earlier diary entries. Rose gave evidence that it was not until around February 2008 that he was able to find out the truth, and that it was at this time that he confronted Rice about the share purchase and Rice promised to pay Rose’s money back. However, the later note made by Rose expressly recorded that September 2007 was “when [Rose] first realised there was a massive problem”.

It appears that Rose did appreciate in September 2007 that he had a real problem with Rice in relation to a share investment Rice had recommended. Although Rose may not have fully appreciated the extent of the problem until February 2008, his note shows that he did appreciate there was a significant problem as early as September 2007.

Be that as it may, Rose’s knowledge of this issue in September 2007 is of marginal relevance to the issues in this case. By September 2007, Rose had already agreed with Rice to the purchase of 5 properties, and signed bank documents, along with Rice, to allow the transactions to be financed. Further, the purchase of the sixth property had been entered into on 20 June 2007. Rose had made each of these commitments without any knowledge of the alleged share scam.

As to the subsequent purchases, the 2 purchases giving rise to the Seventh Guarantee and the Eighth Guarantee were the completion of a strategy to acquire the whole of 21 Albatross Avenue. No doubt Rose had been convinced that there was real value in making these purchases,[222] regardless of any concerns he had about Rice at the time. As to the final purchase of 247 Hedges Avenue, this purchase was necessary in order to be able to proceed with the sale of 17 and 1/19 Albatross Avenue.[223]
[222]See par 83 above.
[223]See par 101 above.

In summary, Rose had already substantially committed to the joint venture with Rice at the time he believed there were issues with a share purchase recommended by Rice. Further, Rose’s belief concerning the share transaction did not alter his understanding of what his risks were in relation to acquisitions of property pursuant to the joint venture.

Sixthly, NAB referred to the desire of Rice and Rose to obtain control of the last 2 units at 21 Albatross Avenue as part of agreeing to execute the Seventh and Eighth Guarantees. For reasons already stated in response to the previous submission,[224] it is difficult to see how this factor alters the fundamental issue of Rose’s misunderstanding as to the extent of his exposure.
[224]See par 269 above.

Seventhly, NAB emphasised that, when demands were issued by NAB to Rose, neither Rose nor his lawyers raised a complaint or disputed Rose’s liability until a defence was filed in this proceeding. When this was raised during cross-examination, Rose could not explain why the issue had not been raised earlier. He said the matter was in the hands of his lawyers from 2010. Rose said he personally did not know what to do. Although the absence of a denial of liability until the defence was filed in this proceeding is of some significance, this factor alone does not alter the views I have formed concerning the non-compliance with the Banking Code. Indeed, it would appear that lawyers retained by Rose did not fully appreciate the significance of the Banking Code until counsel was briefed for trial.[225]
[225]The further amended defence filed 7 August 2014 raised for the first time contractual issues in relation to the application of the Banking Code.

Eighthly, NAB relied upon the evidence of Rose that he agreed to go into the joint venture with Rice after Rice said it would be “a bit of fun”. NAB submitted that this was reflective of Rose’s attitude towards the joint venture in general and, it is only now, with the benefit of hindsight and regret, that Rose has suggested he would have acted differently if he had known the facts. It is fully understandable that someone in Rose’s financial position may have considered it to be a bit of fun to invest in properties on the Gold Coast with a friend in circumstances where Rose understood that, beyond the cash he committed, his potential liabilities were confined initially to interest payments and, after the first 3 purchases, to his 50 percent share in the joint venture. However, it would be far less likely that Rose would have considered the venture “a bit of fun” if he knew he was assuming millions of dollars in potential liabilities on behalf of Rice and the borrowers.

Ninthly, NAB submitted that Rose signed a large number of documents in support of many transactions over the course of more than 12 months. Whilst it may be accepted that, in some cases, the repeated engagement in transactions would make it less likely that the signatory did not appreciate what she or he was signing, the facts of this case demonstrate that Rose had no better understanding when he signed the Seventh and Eighth Guarantees than the poor understanding he had when he signed the First, Second and Third Guarantees.

Tenthly, NAB submitted that the essence of the documents is readily understood if attention were paid to them; in particular it was submitted the warnings were obvious on the face of the document. The problem with this submission is that it suggests Rose must have looked at the documents closely enough to have some meaningful appreciation of their contents. Leaving aside the fact that I do not accept a lay person like Rose would readily understand the full import of the documents without some advice as to what they meant, acceptance of this submission would depend on there being some evidence upon which the court could find that Rose read the warning page, or at least the significant parts of the page.

NAB’s submission made reference to no such evidence.[226] D’Angelo’s evidence would not permit any proper inference to be drawn that Rose took any opportunity he may have had to actually read any of the warnings, and D’Angelo must have known this. The same comment may be made in relation to the remainder of the documents, save for the pages that required a signature and the pages where Rose observed the amount “booked” to the borrower.[227] Although the signature page for each Guarantee also contained warnings, these were not immediately adjacent to the place for the required signature and D’Angelo did not state it was part of his standard practice to refer to the warnings on this page. Indeed, his evidence was that he did not discuss this page in any detail.[228]
[226]Cf pars 50, 61 and 80 above.
[227]See pars 59 and 261 above. See also par 112 above.
[228]See pars 53 and 55 above. The relevant page for the First Guarantee was court book 1/267.

Eleventhly, NAB relied upon the fact that, in April 2008, Rose proceeded with the change in securities held by NAB, which involved no change to the existing liability under the Guarantees. Particular focus was placed upon the fact that this was done at a time when Rose said that he did not want to have anything more to do with Rice. The fact that this security swap occurred in April 2008 does not assist NAB’s case.

The circumstances in which the relevant documentation was signed meant Rose’s liability under the Guarantees was not discussed. D’Angelo himself acknowledged he did not adhere to his standard procedures in obtaining Rose’s signatures on any of the letters dated 23 April 2008.[229] Further, the documents themselves stated no more than Rose’s existing obligations as guarantor would continue; that is, there was no statement as to what those obligations were. Accordingly, this process provided Rose with no better understanding of the nature of his liability than existed prior to this time.
[229]See pars 99-103 above.

As to Rose’s relationship with Rice, as already explained, Rose’s evidence was that he was informed that the only way to allow the sales of 17 and 1/19 Albatross Avenue to proceed was for the joint venture to take on the purchase of 247 Hedges Avenue.[230]
[230]See par 101 above.

In summary, I do not find any of the contentions of NAB persuasive. They do not provide a proper basis to reject the evidence of Rose. Accordingly, I find that if the Banking Code had been complied with, the warnings required to be given pursuant to clause 28.4(a) had been duly given by D’Angelo or D’Angelo clearly explained the nature and extent of Rose’s obligations under the Guarantees, Rose would not have signed any of the Guarantees.

As to the breach of clause 28.5(b), that breach alone did not cause any loss. It is highly probable that if Rose had been given “until the next day” to consider the relevant documents on each occasion, he would not have bothered to read them. Further, absent some suggestion that he should get legal or financial advice, I also expect he would not have used the additional time to do so. As Rose frankly admitted under cross-examination, if D’Angelo had offered Rose the opportunity to take the documents away to look at them for a day or so, it is most likely he would not have acted upon the offer.

Q. Loss suffered

Prima facie, the loss suffered by Rose in executing each of the Guarantees is the amounts claimed by NAB pursuant to each of the Guarantees. This would place Rose in the same position as he would have been in if NAB had complied with the Banking Code.[231]
[231]See Commonwealth Bank of Australia v Doggett [2014] VSC 423, [166] (Hargrave J), referring to Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).

NAB contended that, even if NAB breached clause 28.4 of the Banking Code and Rose would not have entered into the Guarantees but for the breach, Rose was not entitled to recover damages in the amount payable to NAB under the Guarantees.

NAB submitted that any loss suffered by Rose was reduced by the fact that he received profits from the sale of each of 17 and 1/19 Albatross Avenue, Mermaid Beach. NAB submitted, correctly, that Rose’s agreed share of any profits of the joint venture was 50 percent, which equated to approximately $1.65 million in relation to these sales. Notwithstanding this entitlement, Rose actually received $1.1 million.

NAB contended this payment to Rose was a profit rather than a return of capital. It was submitted that the relevant borrowers the subject of the joint venture[232] maintained the loans from NAB and invested in 247 Hedges Avenue at a price almost the same as the original total cost for 17 and 1/19 Albatross Avenue. Thus, it was submitted, the contribution of Rose’s own funds remained the same.
[232]That is Searing Heat and Walnut Peak.

Based on these facts, NAB submitted that if Rose suffered loss by reason of entering into the Guarantees, his claim for damages must be reduced by any profit he received from these transactions. It was submitted that the profits were “not a collateral consequence”.

This submission was made by reference to the cases of British Westinghouse Electric and Manufacturing Company Ltd v Underground Electric Railways Company of London Ltd[233] and Tyco Australia Pty Ltd v Optus Networks Pty Ltd.[234] It is difficult to see how these 2 cases assist NAB.
[233][1912] AC 673.
[234][2004] NSWCA 333, [253] (Giles JA).

In the earlier case, the steps taken by the non-defaulting party were in direct response to a known breach of the contract, and those steps diminished the loss suffered by reason of the breach. In short, the case was concerned with the requirement of a non-defaulting party to take all reasonable steps to mitigate loss caused by a breach, the failure of which may prevent a claim for all of the loss otherwise suffered.[235] As to the later case, in addition to suggesting that the adjective “collateral” was uninformative,[236] that case was also concerned with action taken in response to the known existence of a breach of contract.
[235]British Westinghouse Electric and Manufacturing Company Ltd v Underground Electric Railways Company of London Ltd [1912] AC 673, 689.3, 690.3, 691.6 (Viscount Haldane LC, with whom the other law lords agreed).
[236][2004] NSWCA 333, [253].

In contrast, in this case there was no suggestion that Rose was aware of any breach by NAB at the time he agreed to accept $1.1 million (and to allow Rice to take $2.2 million which might have otherwise been applied to reduce the debts of Searing Heat and Walnut Peak).

Further, the return of $1.1 million was only a small fraction of the amount Rose lost of his own moneys, in addition to the liabilities now claimed by NAB under the Guarantees. Put simply, if NAB had not breached the Banking Code, not only would Rose have not exposed himself to liability under the Guarantees, but, in the absence of any guarantee from Rose, NAB would not have provided the finance that it did.[237] In the absence of funding for Rice, Rose would not have invested approximately $5 million of his own funds in the joint venture with Rice. In these circumstances, the receipt of $1.1 million did not result in any real profit to Rose; it can only be characterised as reducing the substantial losses Rose has incurred.
[237]It seems the most aggressive loan to value ratio NAB would contemplate was 80 percent: see par 13 above. Without Rose agreeing to be part of the funding arrangements, NAB’s lending policies would not have allowed the proposed transactions to proceed with funds from NAB. There is no basis for suggesting Rice could have proceeded with the joint venture without funding or that he had available other sources of funding.

Finally, NAB sought to rely upon the decision of the High Court in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd.[238] In particular, NAB referred to the “overriding compensatory rule” that permits account to be taken of the value passing to a party after the impugned transaction has occurred.[239]
[238](2004) 217 CLR 640 (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ).
[239]At 667 [63].

Before responding directly to this submission, it must be kept in mind that there is no formulaic rule that a court must adopt in determining the appropriate compensation to be awarded to a contractually wronged party.[240] The essential question is whether the breach caused or contributed to the loss. That question is to be determined by applying common sense criteria rather than philosophical or scientific theories of causation.[241]
[240]See, for example, Wenham v Ella (1972) 127 CLR 454, 460.7-461.1 (Barwick CJ), 466.4 (Walsh J).
[241]Chappel v Hart (1998) 195 CLR 232, 242-243 [23] (McHugh J), 255 [62] (Gummow J), 268-269 [93] (Kirby J); Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603, 612 [22] (McHugh J).

Further, there was no suggestion by NAB that Rose had any prospect of realising any return from the sales of any of the properties listed in annexure “A” after NAB exercised its rights as first mortgagee. This is to be contrasted with the position in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd, where the wronged party still had in its possession an asset of value which had been acquired as a consequence of the wrongful conduct.

In taking a common sense approach to the question of loss, the facts demonstrate that Rose has suffered loss far beyond his exposure under the Guarantees by reason of his joint venture with Rice. This remains the position even after taking into account the $1.1 million he received from the sales in 2008.

Whether such losses were too remote to have been properly claimed against NAB is a question unnecessary to consider; no claim for consequential loss was made by Rose. If Rose had made a claim for damages in relation to consequential loss, the amount of $1.1 million would have been taken into account. However, in circumstances where Rose simply seeks to set off the amounts payable under the Guarantees, it would be entirely wrong to reduce that amount by the moneys he received in 2008.

R. Other matters

R.1 Unconscionability based on breaches of the Banking Code

In light of the findings concerning the loss suffered by reason of the breach of the Banking Code,[242] it is not strictly necessary for me to consider further whether the applicability of the Banking Code to each of the Guarantees (being a further circumstance surrounding the execution of the Guarantees) coupled with the breaches as found, resulted in the conduct of NAB, which was otherwise not unconscionable, being unconscionable. Rose’s success in his claim for breach of the Banking Code will result in NAB’s claim being dismissed. In other words, even if Rose established unconscionability on this further basis, the orders in this case would be the same.[243]
[242]See pars 282-295 above.
[243]As already noted, par 79 of the Defence purported to raise this issue concerning a failure to comply with the Banking Code giving rise to unconscionability. It was a rolled up plea, rather than properly identifying the issues for determination: see par 157 above.

Therefore, I will refrain from expressing any view on whether further breach of a term or obligation under the Banking Code may give rise to issues concerning unconscionability.

Further, because of the manner in which the Defence was pleaded, it is unnecessary to consider whether the promise of NAB to “provide effective disclosure” and to “act fairly and reasonably” towards its customers or potential customers “in a consistent and ethical manner” alters the duties and obligations towards its customers and any sureties from the position in equity.[244]

R.2 Matters pleaded in NAB’s reply

[244]See par 147 above; cll 2.1(b)(i) and 2.2 of the Banking Code: see also cl 3(e) of the Guarantees: par 40.

Much of NAB’s reply was directed towards the defences of Rose based on allegations of unconscionable conduct. In light of the finding that NAB did not engage in unconscionable conduct, there is no need to consider the issues raised. However, to the extent that the reply sought to rely on the certificates signed by Rose[245] to found an estoppel, those documents and the circumstances in which they were procured could not provide a proper basis for denying Rose any defence he may have had. Most of the certificates have serious issues with them.[246] They also contained statements which D’Angelo knew to be untrue.[247]
[245]NAB’s reply dated 19 August 2014, pars 4, 9, 14, 18 and 24.
[246]See pars 107-114, 124, 131 and 132 above.
[247]See pars 108, 112 and 113 above.

In circumstances where NAB led no evidence of any reliance on the contents of any of the certificates, given their contents and the manner in which they were procured, I would not have found that the signing of any of the certificates estopped Rose if he had otherwise established the defences pleaded based on unconscionability.

R.3 Copies of the Guarantees

A not insignificant amount of time was spent at trial on the issue of whether or not D’Angelo left copies of each of the Guarantees and other transactional documents on each occasion that they were executed. Whether or not copies were left did not go directly to any of Rose’s pleaded defences.

If D’Angelo had acted in accordance with proper banking procedures, copies of the relevant documents would have been left. Accordingly, the issue has some relevance to the findings of the court as to whether or not D’Angelo adhered to proper banking procedures.

I am not satisfied that copies of the relevant documents were left with Rose at the time Rose executed each of the Guarantees, essentially for 2 reasons. First, D’Angelo himself expressed some doubt about whether the relevant documents had been left at the time of the execution of the Sixth Guarantee.[248] This was a direct acknowledgement by D’Angelo that perhaps he did not strictly adhere to his standard procedures.
[248]See par 129 above.

Secondly, Rose swore 2 affidavits of documents, which listed in schedule 1 the documents he had in his possession relevant to the proceeding. Rose also referred in schedule 2 to documents he previously, but no longer, had in his possession. Rose listed unsigned copies of the Seventh and Eighth Guarantees in schedule 1 only. He did not list the earlier Guarantees in either of the schedules. Accordingly, the affidavits of documents, which were never the subject of an interlocutory challenge by NAB,[249] provided probative corroborative evidence of the failure of D’Angelo to leave copies of any of the First to Sixth Guarantees with Rose at the time of execution.
[249]Although the position is not as strict as it once was, generally speaking the court proceeds on the basis that an affidavit of documents is conclusive of the documents that a party has, or has had, in her, his or its possession: Bell v Kingsbay Pty Ltd [2001] VSC 388, [27] (Gillard J). See also Conor Medsystems Inc v University of British Columbia (No 3) (2006) 228 ALR 515, 515-516 [1]-[3] (Finkelstein J); Auspine Ltd v HS Lawrence & Sons Pty Ltd [1999] FCA 1749, [97]-[103], [108] (O’Loughlin J).

One explanation for having copies of the Seventh and Eighth Guarantees in his possession was that they might have been provided to him by Rice after the joint venture had fallen into difficulty. According to Rose, at a meeting in 2011 Rice told Rose he would be resigning as a director and he left a “heap of documents”. Rose also said Rice left all the files with Rose’s accountant when Rice “walked away”.

Accordingly, as to the Seventh and Eighth Guarantees, there are 2 possible explanations on the evidence: either they were left by D’Angelo at the time of signing or they were given to Rose by Rice when Rice left documents with Rose in 2011. Both explanations are real possibilities. The “bank copy” executed copies of the Seventh and Eighth Guarantees (which were the only versions in evidence) make it clear that the same document was used for both Rice and Rose.[250]
[250]Both Rose and Rice are listed as guarantors in the same document, along with the company guarantors.

I need not determine the issue. The existence of a plausible explanation for Rose being in possession of the Seventh and Eighth Guarantees, at the time he swore his first affidavit of documents, by a means other than through D’Angelo also corroborates the suggestion that D’Angelo did not leave copies of each of the Guarantees.[251]

S. Conclusion

[251]The fact that Rice had copies of the Seventh and Eighth Guarantees might suggest that D’Angelo did have a practice that he adhered to with respect to leaving copies. However, in this case, Rice was the contact with NAB and D’Angelo was in the practice of sending documents to Rice that he did not also copy to Rose.

For the reasons stated, in particular in paragraphs 223 to 295 above, the plaintiff’s claim will be dismissed.

I intend to make the following orders:

1. The plaintiff’s claim is dismissed.
2.The plaintiff pay the second defendant’s costs, including any reserved costs.

3. Order 2 above be stayed for 14 days.
4. Liberty to apply within 14 days in relation to order 2.

If either party wants to be heard on the issue of costs, and, in particular, why standard costs should not be awarded to follow the outcome of the trial, any application must be made within 14 days from today.

FOOTNOTE: In footnote 87 above reference was made to the Civil Procedure Act 2010 (Vic). After judgment was delivered, NAB filed detailed written submissions addressing the issues raised. As a result of those submissions, the court indicated to the parties that it intended to take the matter no further.

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Annexure “A”

Date	Property	Borrower	Guarantee	Contract of sale	Purchase price	Loan amount	% purchase price funded by plaintiff
June 2007	17 Albatross Ave	Searing Heat	1	4 April 2007	$2,000,000	$1,120,000	56%
	1/19 Albatross Ave	Walnut Peak	2	4 April 2007	$7,700,000	$4,320,000	56%
	1/21 Albatross Ave	Glacial Reflections	3	4 April 2007	$500,000	$280,000	56%
August 2007	2/21 Albatross Ave	Almond Crossing	4 (not sued upon)	4 June 2007	$500,000	$500,000	100%
August 2007	6/21 Albatross Ave	Broken Plate	5 (not sued upon)	29 June 2007	$520,000	$500,000	96%
September 2007	5/21 Albatross Ave	Perfect Plume	6	20 June 2007	$515,000	$515,000	100%
December 2007	3/21 Albatross Ave	Glacial Reflections	7	19 September 2007	$950,000	$1,230,000	100%[252]
December 2007	4/21 Albatross Ave	Racing Clouds	8	1 October 2007	$925,000	$925,000	100%
28 April 2008	247 Hedges Ave (17 and 1/19 Albatross Ave sold[253])	Searing Heat maintained Walnut Peak maintained	28 February 2008	$9,500,000	$9,500,000	Searing Heat maintained Walnut Peak reduced by $255,000

[252]Increase of existing limit of initial Glacial Reflections Facility from $280,000 to $1,230,000 (i.e. by reason of the purchase price of $950,000).

[253]Contracts of sale dated 28 February 2008, with sale prices of $2,500,000 and $11,000,000 respectively, representing a profit of $3,800,000 (less expenses).

[2015] VSC 10

26 MARCH 2015