Radly Corporation Ltd v Suncorp-Metway Ltd

SUPREME COURT OF VICTORIA

COMMERCIAL AND EQUITY DIVISION

Not Restricted

No. 4871 of 2001

RADLY CORPORATION PTY LTD	Plaintiff
V
SUNCORP-METWAY LIMITED	Defendant

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MASTER:	Senior Master Mahony
WHERE HELD:	Melbourne
DATE OF HEARING:	14 June 2001
DATE OF JUDGMENT:	14 August 2001
CASE MAY BE CITED AS:	Radly v Suncorp-Metway
MEDIA NEUTRAL CITATION:	[2001] VSC 272

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Corporations – winding up – statutory demand – setting aside – genuine dispute – whether debt demanded ‘payable’ when demand served

Corporations Law, ss 459E(1), 459H(1)

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J. Strahan Q.C. and Mr P. McCurdy	Harwood Andrews Lawyers
For the Defendant	Mr G. A. A. Nettle Q.C.	Allens Arthur Robinson

JUDGMENT

The plaintiff seeks an order setting aside a statutory demand for $5,353,422.72 served on it by the defendant. The sum demanded represents the sum due from the plaintiff to the defendant for principal and interest under a loan made by the latter to the former if, in the events which have occurred, the debt has become repayable to the defendant. The plaintiff’s case is that the debt was not repayable when the demand was served and, indeed, that it will not become due and payable so as to support a statutory demand until September 2001 at the earliest and, probably, not until some six months thereafter. If that case is right, the plaintiff will succeed because a statutory demand may only be served if it relates to a debt which is more than the statutory minimum ($2000.00) and ‘is due and payable’: s 459E (1)(a) of the Corporations Law.

The schedule to the demand described the debt demanded as ‘(t)he balance of moneys and interest thereon payable by the [plaintiff] to the [defendant] for financial accommodation provided by the [defendant] to the [plaintiff] pursuant to the Margin Lending Agreement between the [plaintiff] and the [defendant] dated 7 January 2000’. It might be said that what was demanded was not ‘a single debt’ a demand for which is provided for by s 459E (1)(a), but ‘2 or more debts’ – the ‘balance’ of the financial accommodation and the interest thereon – a demand for which is provided for by s 459E (1)(b). This in turn could be said to have had some impact on the accuracy of paragraph 4 of the affidavit accompanying the demand which proved that ‘the debt’ demanded was due and payable rather than that the ‘total … of the debts’ demanded was due and payable. The plaintiff did not take the point – as to which I offer no criticism whatsoever – and I shall say no more about it, save that, for ease of reference, I shall refer by the expression ‘the loan’, unless the context otherwise requires, to the total sum due (according to the defendant) at a particular time under the loan.

The defendant’s case is that the parties’ rights and obligations concerning the loan and its repayment were governed by the Margin Lending Agreement (‘MLA’) referred to in the schedule to the demand, although, as will be seen, there were other ancillary agreements entered into at the same time. The plaintiff’s case is that the MLA and those ancillary agreements – as to the due execution of which it also raised an argument – were only part of the evidence of the contract between the parties which (so the plaintiff says) was also constituted by a document it had produced, inter alia specifying the term for which it was seeking such a loan as was made. Accordingly, it is necessary to set out the events which led to the execution of the MLA. In setting forth the relevant facts and referring to relevant documents in this judgment I have derived considerable assistance from a comprehensive chronology provided to me by Mr Nettle, Q.C. who appeared for the defendant.

The defendant is a bank. The plaintiff was incorporated on 10 September 1997. A director, Nayer Elkha Radly, described it in the affidavit filed and served with the originating process as ‘a holding company with interests in real property, media and technology’. On 3 July 1998, Isis Communications Ltd (‘Isis’) was incorporated. When incorporated, Isis was a wholly owned subsidiary of the plaintiff. The plaintiff holds a parcel of 72,400,000 fully paid shares in the capital of Isis (‘the escrowed Isis shares’), but they are subject to an ‘escrow agreement’ with Australian Stock Exchange Limited (‘ASX’) by which it appears – the legibility of the copy of the agreement exhibited to Mr Nayer Radly’s affidavit is not perfect – that the plaintiff has bound itself for a period of 2 years which ends, so the evidence indicates, on 2 September 2001 not to ‘dispose of, or agree or offer to dispose of’ the escrowed Isis shares; nor to ‘create, or agree or offer to create’ any security interest in them; nor to ‘do, or omit to do, any act if the act or omission would have the effect of transferring effective ownership or control’ of the Isis shares. This was, in effect, the price paid by the plaintiff ‘on the basis that [Isis] will take the steps necessary to be admitted to the official list of ASX’: para. A of the Introduction to the escrow agreement. Isis did take those steps and was so admitted. According to Mr Nayer Radly’s affidavit, in a ‘public float’ in September 1999 Isis raised $55 million capital, its shares being purchased at $1 each. A consequence was that the plaintiff’s interest in the capital of Isis was reduced to 51% (and subsequently, as a result of further share issues, to about 45%).

After the float the share price of Isis declined to $0.55. As a result the plaintiff decided to purchase further Isis shares. In November 1999 Mr Adam Elkha Radly, a director of the plaintiff and a director and the chief executive officer of Isis, prepared what was called a ‘loan proposal’ with respect to a loan of $5 million to finance inter alia the share purchase (‘the Loan Proposal’), a copy of which is in evidence; and, as the plaintiff’s case is that it constituted the foundation of its agreement with the defendant, I shall refer to it in some detail.

It was not addressed to any person. It was intended that it be presented to a number of prospective lenders. It proposed a loan of $5 million ‘(negotiable)’, at an interest rate ‘to be negotiated’, for a term of ‘2 years, six months’. Under the heading, ‘security’, a ‘first registered mortgage’ over the plaintiff’s assets was offered, with an existing such security for $3.92 million being ‘subordinated in favour of the lender’ and two others (totalling $1.35 million) being paid out ‘from the proceeds of the loan’. Also offered was ‘direct security over 3.6 million free trading Isis shares (value $2.6 million @ 60 cents per share)’, and a ‘personal guarantee from Adam Radly’. The escrowed Isis shares were dealt with separately:

‘As you are aware, the predominant asset within [the plaintiff] is its shareholding in Isis. The shares are escrowed for a period of two years from the date of listing (2nd September 1999). Under the escrow provisions, it is not possible for [the plaintiff] to sell the escrowed Isis shares.
‘Please note that, although there are restrictions on directly encumbering the escrowed shares, there is no restriction on encumbering the entity that owns the shares (i.e. [the plaintiff]). If the lender was to take security over [the plaintiff] by way of [a registered mortgage debenture] and [the plaintiff] is unable to sell the Isis shares, the lender’s position remains secure. We are prepared to contract with the lender not to sell the escrowed Isis shares and that the shares will be directly secured by the lender immediately following their exit from escrow.’

The proposal went on to express the plaintiff’s intentions with respect to repayment of the loan. First, there was a statement of intent which, if realised, would result in a receipt of funds sufficient to enable repayment by the end of the year 2000. It may be ignored. The second is important to the plaintiff’s case before me:
‘However, in the event that the scenario described above does not transpire, the two and a half year term has been selected in order to allow [the plaintiff] a six month period after completion of the two year escrow period (applying to Isis shares) to sell sufficient shares on market to extinguish the entire debt.’

The next section of the Loan Proposal dealt with interest which was, as has been noted, to be negotiated. Interest at 10% p.a. was suggested; and it was proposed that $1 million be deducted from the advance and placed in a separate account to enable the lender to draw from it payments of interest as they fell due. This was on the basis that ‘(t)he principal reduction plan would commence at the end of year two’.
The balance of the Loan Proposal was devoted to listing the uses to which the funds, if lent, would be put (including ‘Debt servicing on the loan (e.g. $5 million at 10% p.a. for 2.5 years)’; and to background information about the plaintiff and companies associated with it to which it is unnecessary to refer in detail.

According to Mr Nayer Radly’s affidavit, Mr Adam Radly ‘approached a number of the banks with the loan proposal but encountered difficulties in obtaining the funds sought because of the restricted shares’. In the course of this, Mr Adam Radly was introduced to one Robert Kelly, who is described as ‘a principal of Mortgage Directions, finance broker’. On 5 November 1999 Mr Adam Radly faxed a copy of the Loan Proposal to Mr Kelly, with a cover-sheet on Isis’ letterhead. According to the plaintiff’s evidence, the next relevant step occurred nearly seven weeks later when Isis received a letter dated 23 December 1999 from Mr Kelly addressed to Mr Adam Radly. The letter stated ‘we have now successfully negotiated an “in principal (sic)” agreement with our lenders to provide this facility’. The writer went to explain the delay in response: ‘(B)ecause of the escrow conditions, it has taken our lender some time to accept the idea and to get his head far enough outside the square to create a means by which he may implement it.’ This, it seems, included amendment of ‘his Trust Deed’. The letter did not disclose the identity of the lender.

Although Mr Kelly’s letter suggested that the successful negotiations ‘with our lenders’ had been conducted by Mortgage Directions, the fact was that he had engaged a Mr Peter Sangster, a public accountant, to find a lender for the plaintiff. It was Mr Sangster, it seems, and not Mr Kelly, who communicated with the defendant (for despite the suggestion in Mr Kelly’s letter that the lender was a male individual – ‘our lender’ had difficulty getting ‘his head far enough outside the square’ and he had amended ‘his Trust Deed’ – there seems to be no room for doubt that the lender about which he wrote was the defendant). Mr Sangster’s involvement was first disclosed in the proceeding by the principal affidavit filed by the defendant, an affidavit made jointly by ‘attorneys’ of the defendant, Helen Louise Gluer and Robert Henry Gannon (‘the joint affidavit’). They deposed that the records of the defendant do not include any copy of the Loan Proposal and that ‘(0)n 21 December 1999 Mr Peter Sangster, on behalf of [the plaintiff], enquired whether [the defendant] would be prepared to provide funding to [the plaintiff]’. They exhibited a copy of a letter from Mr Sangster which they depose was received by the defendant on 21 December 1999. The letter produced is dated 10 December 1999. There is no addressee of the letter. It appears to be a letter prepared for distribution to a number of addressees. At the bottom of the document is the date, ‘21DEC ’99’ on the left of the page, and the record, ‘PAGE. 002’ is on the right. One assumes that the page was the second of a document forwarded by facsimile transmission. Page ‘001’ is not in evidence. On the document someone, presumably from the defendant’s organisation, has written, ‘FILE = RADLY CORPORATION LTD – C98639A’. I go into this detail because the plaintiff in answer to this affidavit inter alia filed an affidavit of Mr Sangster in which he detailed his connection with the transaction and deposed that he sent the letter to the defendant ‘on or about 10 December 1999’, the date it bore.

Because it was, according to the evidence, Mr Sangster who communicated with the defendant concerning the loan to the plaintiff, I shall set forth his evidence in some detail. This is also justified by the fact that the importance to be attached to his affidavit is, in some respects, for what he does not depose as for what he does:

(a) He states he was ‘first introduced to [the plaintiff] by Mr Rob Kelly of Mortgage Directions in late November or early December 1999’. I do not understand this to mean that Mr Sangster was introduced to any person connected with the plaintiff, for, as I have mentioned, he was not referred to in the affidavit of Mr Nayer Radly. I read this as meaning that Mr Kelly first mentioned the plaintiff and its quest for a loan to Mr Sangster at the time he mentions. He goes on to say that he had known Mr Kelly for 10 years approximately ‘through various finance referrals to and from Mr Kelly from my accounting practice’.

(b) First, Messrs Kelly and Sangster had a telephone conversation in which the former told the latter that he was seeking a lender for the plaintiff to enable the plaintiff to purchase Isis shares; and that the security for the loan would be 71 (sic) million Isis shares held by the plaintiff but subject to ‘escrow restrictions imposed by [ASX]’. Mr Kelly also told Mr Sangster that ‘he had approached a number of institutions but that he had not been able to locate a lender because of the fact that the proposed security could not be dealt with for two years’. It is clear that Mr Sangster’s report of the conversation is not exhaustive. For example, he does not refer to the quantum of the loan sought, but it is inconceivable that it was not specified.

(c) The next thing that occurred was that Mr Kelly faxed to Mr Sangster ‘a copy of the proposal that had been provided to him by Adam Radly, which I believe was circulated to a number of institutional investors with no success’. Apart from the obvious hearsay content of this evidence, I infer that what was faxed was a copy of the plaintiff’s Loan Proposal.

(d) Subsequently, on about 10 December 1999 Mr Sangster telephoned Mr Warren Acworth of the defendant ‘to discuss with him the loan sought by [the plaintiff]’. This was because previously he had arranged finance for his own clients with the defendant. Mr Sangster told Mr Acworth the plaintiff was seeking a loan of $5 million but was ‘experiencing difficulty in obtaining the finance it sought from institutional investors because the proposed security was in the form of seventy one million shares that were subject to an escrow agreement with [ASX] for two years’; and that the plaintiff could not ‘service the loan’, so that the loan ‘would have to include a component to be deposited in a separate account which would be used purely for the purposes of paying interest on the loan’. Mr Sangster’s affidavit goes on, ‘This was based on Adam Radly’s loan proposal’ (thereby, in my view, confirming the inference that the document he had been faxed by Mr Kelly was a copy of the Loan Proposal).

(e) Mr Sangster sent a letter to the defendant ‘on or about 10 December 1999’. The letter was in confirmation of Mr Sangster’s ‘first’ telephone conversation. On the evidence, I infer it was the letter a copy of which was exhibited to the joint affidavit bearing a ‘footer’ date of ‘21 DEC ’99’: supra, [8]. The body of the letter was as follows:

‘Further to our telephone conversation I advise details as follows:
Loan required   $5,000,000
Term.  30 months
Security71,000,000 shares in Isis Communications Limited   A company listed on the Melbourne Stock Exchange.
ApplicantsRadly Corporation Limited, a company owned by Mr Adam Radly who is managing director of Isis.
General.Of the $5.0m requested, $1.0m would be lodged on Term deposit from which to pay interest.
If you are able to assist, I will forward full details on hearing from you.
I wait your advices.’

(f) According to Mr Sangster’s affidavit, Mr Acworth telephoned him ‘on or about 23 or 24 December 1999 and said that the lending committee at [the defendant] had approved the loan facility for [the plaintiff] and that he would send me the loan application’. This would suggest that, referring back to the concluding paragraphs of the letter dated 10 December 1999, the defendant, presumably by Mr Acworth, had informed Mr Sangster that it would or might be ‘able to assist’. The affidavit, however, is silent as to any such communication and what Mr Sangster’s response to it had been. What (if any) further ‘details’ were provided can only be inferred from the ‘loan application’ prepared by the defendant for the plaintiff, which Mr Sangster’s affidavit proves was delivered to him ‘on or about 24 December 1999’. He did not read it but remembers that ‘it was a document entitled “Share Gear Application”’ (‘SGA’).

(g) Mr Sangster’s conversation with Mr Acworth must have been on (or before) 23 December, as that was the date of Mr Kelly’s letter to Mr Adam Radly. Mr Sangster deposes that after his conversation with Mr Acworth he ‘contacted Rob Kelly and informed him that [the defendant] had approved the loan’.

On 24 December 1999 Mr Sangster, having received the SGA from the defendant, forwarded it to Mr Kelly. The same day Mr Kelly faxed a letter to the plaintiff by Mr Alan Radly. In this letter he wrote of ‘the result of our efforts’ and to ‘propose a course of action which will lead to the provision of funding without further delay’. He stated that ‘we have followed the broad parameters agreed upon in our earlier discussions with you and as outlined in the loan proposal that you had already independently prepared’; that ‘we have located and obtained conditional approval for funding under terms and conditions which we believe are significantly better than those originally envisaged’; and that ‘you must understand that this offer has been made “indicatively”’. Still there was no indication of the identity of the lender. Information given in the letter as to the ‘indicative offer’ was:

‘BORROWERS:              Radly Corporation with Adam and Nayer Radly as individual Guarantors
LOAN AMOUNT          $ 5,000,000
PURPOSE:Non specified
RATE:8.00%
PAYMENTS:                  Monthly, in arrears.
SECURITY:Share Mortgage over a sufficient number of Radly Corporation’s shares in Isis Communications ON CONDITION THAT SUCH SHARES ARE SPONSORABLE BY A BROKER UNDER THE CHESS SPONSORSHIP AGREEMENT AND ARE OTHERWISE COMPLETELY FREE AND AVAILABLE FOR LOAN SECURITY PURPOSES.  It is understood that these shares are not currently marketable under prevailing escrow provisions.
COSTS:[Omitted as irrelevant]
AVAILABILITY:            Anticipated to be 10-14 working days after provision of all outstanding requirements.
REQUIREMENTS:         This offer will remain open for 7 days.’ [Balance omitted as irrelevant]

Attached to the document is an ‘Acknowledgement of Offer’ which appears to have been signed on behalf of the plaintiff and dated 24 December 1999. One infers that this too was faxed to the plaintiff by Mr Kelly; and that a copy of it, as signed, was faxed back to the sender.

It seems there was not a little activity on 29 December 1999. The evidence is silent as to when the plaintiff received the SGA, save that it must have been on or before 29 December, for it was on that date that it appears Mr Adam Radly and Mr Nayer Radly executed it for the plaintiff and signed it as guarantors. It was on that date too that Mr Adam Radly wrote to ‘Business Development Manager, Margin Lending’ of the defendant a letter otherwise addressed ‘To Whom It May Concern’. (There is a page of the SGA which explains this form of address. It contains a stamped image of Mr Acworth’s name and description and the name and postal address of the defendant. Mr Acworth’s name is imperfectly reproduced and would be illegible to anyone who had not previously seen it.) The letter referred to ‘LOAN APPLICATION BY [THE PLAINTIFF]’ and was written with the stated objective of assisting the addressee with ‘your assessment of the above mentioned application’. (It referred to Isis’ ‘Net Tangible Assets’ and to the plaintiff’s Dunn & Bradstreet credit rating.) The joint affidavit proves that the document, duly completed, was received by the defendant from Mr Sangster on 4 January 2000. A copy of the covering letter from Mr Sangster is exhibited to the joint affidavit and it is dated 29 December 1999. Accordingly, it seems that the completed SGA and the letter dated 29 December 1999 from Mr Adam Radly must first have passed through the hands of Mr Kelly to Mr Sangster (who was, it will be recalled, not then known to the Radlys) on that day.

It is necessary now to consider the SGA.

(a) It states that it is an ‘Information Kit’ containing ‘all the information and forms you will need when applying for Share Gear’. It begins with an exhortation to ‘you and any Guarantor’ to understand ‘all of the relevant details’ and a recommendation that ‘you and any Guarantor’ obtain ‘independent legal, financial and taxation advice with respect to your investment objectives and financial position before entering into any margin loan or gearing agreement’.

(b) Then there are instructions as to the completion of forms depending on the nature of the borrower and whether there are guarantors.

(c) The SGA suggests (infra, ( j))), and the evidence does not contradict the suggestion, that delivered with it were samples of a MLA, Share Mortgage, CHESS Sponsorship Agreement and General Nominee Authority agreement, as to which the SGA stated, ‘please do not complete them. [The defendant] will complete the originals under the Power of Attorney contained in Part 6 of Section A’ [of the SGA].

(d) Section A, Part 1A of the SGA contains a number of forms for completion. One of them is for ‘Loan Facility Size”. As to it there is provided in parenthesis: ‘minimum $20,000, maximum $3,000,000’. The space after the dollar sign has been filled in, ‘5,000,000’ (sic).

(e) Section A, Part 2 is entitled ‘Risk and Other Disclosure Statement’. It commences with detailed information about an example of a ‘margin call’ and the consequences which may flow from it. Because of what happened subsequently between the parties, it is necessary to refer to this in a little detail. A ‘margin call’ may loosely be described as a demand by a lender for partial repayment or, in extreme circumstances, full repayment of the loan or for provision of additional or alternative security for the loan or for sale of part or the whole of the security already given for the loan, in consequence of, and in proportion to, a reduction in the total value of that security considered as a percentage of the total of the loan. (In this proceeding, it is common ground that the percentage first applied was 40%.) The possibility that the defendant might resort itself and without notice to selling sufficient of the securities to meet a margin call is also expressed in the SGA in the context of ‘market volatility’ and the risk it would involve to the defendant as well as to the borrower.

(f) There follow passages about the ‘Risks of Negative Gearing’ and the desirability of advising the defendant of addresses to which notices may be given. There is a repetition of the warning that ‘You and any Guarantor’ should take ‘independent financial, legal and the tax planning advice, especially on the risks involved and the tax implications of gearing before entering into a … Margin Loan [by the defendant]’.

(g) Then under the heading, ‘Events of Default’, there is reference to the ‘documentation’ accompanying the SGA for an outline of ‘certain events of default such as a significant fall in the All Ordinaries Share Price Index’. The passage continues: ‘Upon the occurrence of an event of default, [the defendant] may declare that all moneys owing by you are immediately due and payable and then take a number of steps to protect its security including selling all or part of your and any Guarantor’s securities.’

(h) The borrower and ‘any Guarantor’ are then informed of the defendant’s requirement that they enter a ‘CHESS Sponsorship Agreement’ to enable any securities provided to be ‘held in a CHESS holding in your and any Guarantor’s name under the control of Metway Credit Corporation Limited’ (an associated company of the defendant). As is subsequently explained in Part 3 of Section A of the SGA, ‘CHESS’ is defined as ‘the Clearing House Electronic Subregister System, an automated transfer and settlement system for ASX transactions’. That the securities constituted by the escrowed Isis shares should so be held may seem inconsistent with the escrow agreement but that is something to which I return: infra, [14].

(i) The next specially relevant part of Section A of the SGA is Part 6 which is headed, ‘Power of Attorney’. By it the borrower ‘and any Guarantor’ appoint ‘any officer of [the defendant] or any related body corporate (as defined in the Corporations Law) of [the defendant] and each Authorised Officer’ – defined to be ‘any person who has been authorised by [the defendant] or a related body corporate … to exercise the powers in this power of attorney’ – ‘(each an “Attorney”) to be its attorney’. They authorise ‘each Attorney separately’ to execute the MLA, the Share Mortgage, the CHESS Sponsorship Agreement and the General Nominee Authority Agreement; to ‘fill in the blanks (if any)’ in those documents; to ‘give effect to the transactions contemplated’ by those documents; to do ‘anything the Attorney thinks ought be done to perfect any document or make it effective’; and to ‘sell any of the property [the borrower or guarantor] mortgages to [the defendant] under the Share Mortgage whether or not the Share Mortgage has become enforceable’. There are further provisions whereby the borrower and any guarantor agree ‘to ratify and confirm all acts, matters and things done by any Attorney’; and to indemnify ‘each of the Attorneys against liability, loss, costs, charges or expenses arising from the exercise of power under this power of attorney’. The power is declared to be ‘given for valuable consideration and to be irrevocable during the currency’ of the documents which ‘each Attorney’ is authorised to execute; and it is expressed to be ‘intended to take effect as a deed’.

(j) By Part 7 of Section A the borrower and guarantor acknowledge that by signing the SGA, inter alia they confirm the information given; that they have read and understood the ‘Risk and Disclosure Statements and the Explanation of CHESS Sponsorship Agreement’; that they ‘Appoint Attorneys and agree to the other matters in Part 6 of this Section; that ‘a responsible officer of [the defendant] explained the effect of the CHESS Sponsorship Agreement’ to them; that they have read and understood the documents, in effect those they authorised the attorneys to execute (supra), examples of which had been provided; and that ‘this Application will proceed on the basis of the terms and conditions set out’ in the documents.

(k) For the sake of completeness, I mention that Sections B and C of the SGA are not relevant for present purposes.

Exhibited to the joint affidavit is the copy of a letter dated 4 January 2000 from the defendant addressed to the managing director of the plaintiff care of its stockbroker, Mr Michael Van Cuylenberg. The letter advised of the conditional approval of ‘your application for the Share Gear facility’. It also stated, although the other evidence is against this, that ‘(t)he Margin Lending Documents, examples of which you have been supplied with, have been executed on behalf of yourself and any guarantor pursuant to the Power of Attorney contained in the Application Booklet’. The letter has about it the appearance of a pro-forma and, as it is not otherwise mentioned in the evidence and therefore I do not know what became of it, I say no more about it.

By a fax dated 6 January 2000 Adam and Nayer Radly received from Mr Kelly a letter which opened in terms apparently intended to amaze the addressees: ‘Eureka! Your funding facility of $5,000,000 is fully approved.’ The letter went on to request them to instruct their stockbroker in effect to ‘place your shareholding in Isis Corporation Limited … onto the CHESS system’ and ‘when on the system and under his control, to arrange for the transfer of the holding to Suncorp Metway Margin Lending’. Mr Kelly then informed the Radlys of the name of Mr Acworth and how to telephone and fax him. The shares referred to were the escrowed Isis shares. Mr Kelly observed that by transferring the shares to the ‘sponsorship’ of ‘Suncorp Metway Margin Lending’ that entity – in effect, the defendant – ‘retain(s) a veto on their future transfer until your debt is discharged. (I interpolate at this point that this seems to be the basis of and the justification for the transaction between the parties in so far as it seemed to involve the plaintiff’s apparently creating in favour of the defendant a security interest in the escrowed Isis shares when such a dealing was, at least in appearance, contrary to the escrow agreement. It seems that the transaction in that respect was designed simply to place the defendant in a position from which it could, if necessary, exercise the rights of a secured creditor with respect to those shares once the period of escrow had expired.) The evidence shows that it was on 7 January 2000 that the MLA and the other documents referred to in the SGA and of which the Radlys had been provided with copies were executed by a person purporting to act as their and the plaintiff’s attorney under the power conferred in the SGA. I shall have occasion to return to this: (infra, [50]-[53]).

The plaintiff’s other evidence as to what happened after 29 December 1999 and until 12 January 2000 is, when analysed, found to be confusing, if not contradictory.

(a) First, according to an affidavit of Mr Adam Radly, it was ‘shortly before 6 January 2000 [that] Mr Kelly supplied me with a Share Gear Application’. He then refers to the SGA exhibited to the affidavit of Mr Nayer Radly. He continues:

‘I then telephoned Mr Kelly and asked him how the [SGA] was relevant in view of the fact that the primary security for the loan was the Isis escrowed shares, which could not be realised during the period of escrow. I said that this necessarily meant that [the plaintiff] could not satisfy the terms of the [SGA]. He then said that the defendant had used this type of documentation before to effect the type of loan required by [the plaintiff]. He also said that the defendant understood that the loan could not and would not be repaid by [the plaintiff] for at least 2 years from 2 September 1999 and that the Isis escrowed shares would not be available for realization, if required, during the escrow period, namely, from 2 September 1999 to 2 September 2001. It was on this basis that I signed the [SGA] …’

This evidence provokes a number of comments. Since the SGA was executed on 29 December 1999 and forwarded – I have surmised, to Mr Kelly – on that date with the letter of that date signed by Mr Adam Radly (supra, [11]) the stated purpose of which was to assist the defendant with ‘your assessment of the above mentioned application’, the conversation to which he refers must have occurred in the period commencing 24 December 1999 (which was when Mr Sangster first received the SGA (supra, [9] (f) and [10])) and ending 29 December. If the conversation took place after 29 December and literally ‘shortly before 6 January 2000’, it was after the SGA had been executed and sent off and what was said in the conversation could not provide a ‘basis’ on which Mr Adam Radly executed the SGA or be of any other significance. Could it be that the conversation with Mr Kelly took place on 24 December 1999 before Mr Adam Radly – for the signature on the document appears to be his, rather than that of Mr Nayer Radly – executed for the plaintiff the Acknowledgement of Offer which was executed on that day (supra, [10])? Whatever may be so as to this, it seems to be a clear inference from Mr Adam Radly’s evidence about his conversation with Mr Kelly that, apart from that to be drawn from, and in consequence of, his execution of the SGA, Mr Adam Radly appreciated the effect of that document and of the other documents constituting the ‘Information Kit’; and that it was thereafter that he executed the SGA and signed the letter dated 29 December. Of course, the evidentiary impact of this evidence of the conversation is affected also by the fact that Mr Kelly was the plaintiff’s agent, not the defendant’s. Further, as the evidence shows that it was Mr Sangster, and not Mr Kelly, who had dealings with the defendant by Mr Acworth, the defendant cannot be bound by any representation made to Mr Adam Radly by Mr Kelly and purporting to state the defendant’s position or attitude. (For this reason, I have not quoted the sentence of Mr Adam Radly’s affidavit following the passage which I have quoted because it begins, ‘Mr Kelly told me that the defendant had informed him …’)

(b) Secondly, there is the balance of the affidavit evidence of Mr Sangster. He deposes that ‘shortly after forwarding the application – i.e., shortly after 24 December 2000, Mr Kelly told him that Mr Adam Radly ‘had requested that Kelly ascertain if [the defendant] would be willing to accept a lesser number of [Isis shares] than the entire seventy one million as security for the loan’. Mr Sangster then telephoned Mr Acworth and asked him to find out the answer to this question and was informed by Mr Acworth ‘a few days later’ that ‘he had put this proposal to the board, yet (sic) the lending committee had informed him that [the defendant] would require all of the shares to be secured in view of the fact that the facility was already risky enough because the security was in escrow for two years’. While this is evidence tending to prove that the defendant well knew of the restriction to which the escrowed Isis shares were subject, what Mr Sangster deposes he was told by Mr Kelly does not accord with the evidence of Mr Adam Radly to which I have referred in (a). Indeed, Mr Adam Radly does not refer to his making any such request of Mr Kelly.

(c) Thirdly, in his first affidavit, Mr Nayer Radly deposes that, between 6 January 2000 (when the plaintiff first heard from Mr Kelly of Mr Acworth’s name (supra, [14])) and 11 January, he had ‘at least’ four telephone conversations with Mr Acworth. In this context, it is to be kept in mind that the SGA, duly executed, had been received by the defendant by 4 January and the MLA and other documents were executed for the plaintiff on 7 January. The effect of these conversations is given by Mr Nayer Radly as follows:

‘I wanted to clarify how the proposed security for the loan, namely, the Isis escrowed shares, was to be treated by the defendant and why the defendant had put forward a margin lending loan proposal reflected in the [SGA] as the method of effecting [the loan] given that the security for the facility would not be available for realisation for a period of two years by reason of the escrow agreement. During my telephone conversations with Mr Acworth [he] referred specifically to [the plaintiff’s ‘Loan Proposal’] and expressly stated –

1. That the defendant had previously provided loan facilities on the same type of security and that it had used its standard loan documentation for such a facility.

2. A “pledge” to the defendant could be executed to operate immediately upon the expiration of the escrow period in order to provide the defendant with the necessary assurance that the security would be available to it if security realisation was necessary.

3. In response to my statement that I considered a margin lending facility inappropriate in the circumstances, he said that this type of documentation had been used on previous occasions to effect the same type of loan facility; he also said that he understood that the security would be unavailable for realisation during the period of escrow.

4. Mr Acworth then asked me how the loan funds were to be used by [the plaintiff]. I said that the funding would be used by [the plaintiff] to pay company creditors, to purchase Isis shares and for working capital.

5. Mr Acworth also said that the defendant would be satisfied if the escrow shares were placed on the CHESS system because this would enable the defendant to sponsor the shares and enable it to take the proceeds of the shares upon realisation, if necessary. He also said that when further shares were purchased by [the plaintiff] in ISIS, the defendant would require sponsorship of those shares be transferred to the defendant, as well.’

Perhaps the first matter to be noted about this evidence is that it makes no reference to Mr Adam Radly’s alleged conversation with Mr Kelly about the same subject matter. Nor does it confirm that there was a request by the plaintiff, as suggested by Mr Sangster, for a reduction in the number of the escrowed Isis shares to be the subject of the plaintiff’s security offered for the loan. Further, of course, it was surely a little late to be querying the terms on which the defendant was prepared to make the loan, if the plaintiff, as was the fact, had already made its offer for such terms by executing and forwarding the SGA. (As in the case of Mr Adam Radly’s conversation (supra, (a)), it does, however, provide a source of independent inference that Mr Nayer Radly understood the effect of the SGA.) An inquiry of what the effect of the agreement between the parties would be, in the eyes of a representative of the other, is perhaps understandable; but, unless the circumstances were different from what is alleged, the answers could not bind the defendant if they were contrary to the provisions of the agreement. In any event, it seems, as I have mentioned, that both the Radlys understood its effect as, of course, by signing the SGA and executing it for the plaintiff, they had acknowledged: see supra, [12] (j).

Before leaving this passage from Mr Nayer Radly’s affidavit, I note that Mr Strahan Q.C., who appeared with Mr McCurdy of Counsel for the plaintiff, relied on it to support the proposition that, although the evidence was otherwise silent as to this, the plaintiff’s Loan Proposal was received by the defendant. This was important to their argument that the Loan Proposal was part of the contractual documentation to be taken into account in determining the term of the loan and when it was repayable: see supra [3]. Simply, if Mr Acworth referred to the Loan Proposal (as Mr Nayer Radly deposed he did) the defendant must have received it and this would suffice for the plaintiff’s purposes in this proceeding. Mr Nettle contested that the evidence should be so read. He submitted that, having regard to the date of the conversations to which Mr Nayer Radly deposed and their subject matter, it was inconceivable that the document to which Mr Acworth referred for the purposes of the conversation was other than the SGA. In my view, Mr Nettle’s contention is supported by the fact that the subject matter of the conversations was the content of the SGA, and not of the Loan Proposal; and by Mr Nayer Radly’s evidence that Mr Acworth inquired of him ‘how the loan funds were to be used by [the plaintiff]’, for full detail as to that was contained in the Loan Proposal (while the SGA was silent as to it). It is further supported by the failure of Mr Sangster, the only person proved to have been in communication with the defendant about the proposed loan, to refer to his having passed to the defendant a copy of the Loan Application. This is an example of the importance of Mr Sangster’s affidavit for what he does not depose: supra, [9].

Before continuing with this recitation of relevant facts and documents, I note that, apart from documents, Mr Acworth’s version of events at this time is unknown. The defendant’s explanation for this in the joint affidavit is simply that ‘Mr Acworth is no longer employed by [the defendant]’.

On 12 January 2000 Mr Nayer Radly sent an e-mail to Mr Acworth referring to a ‘$5M MARGIN LENDING FACILITY’ which he stated he understood ‘is now approved and current’ and requested that $2.5 million of the loan moneys be paid to the plaintiff’s bank. Mr Acworth replied by an e-mail to Mr Nayer Radly on the same day. This informed him that the plaintiff’s account with the defendant ‘has been approved with a current limit of $5,000,000’ and added that the defendant had ‘transferred 72,400,000 ISIS Shares from computer share registry to your HIN with [the defendant] as per your instructions’ and that ‘as per your instructions we have transferred $2,500,000 to you (sic) nominated [bank] account’. On 17 January there was a second ‘drawdown’, this time in the sum of $1 million. The balance of the $5 million was paid by the defendant to the plaintiff on 19 January 2000.

I note at this point that the plaintiff’s original plan – set forth in its Loan Proposal – that the lender set aside $1 million in a separate account from which to draw from time to time the sums for which the plaintiff was liable in interest was not reflected in the agreement between the parties. This was made clear in the e-mail which Mr Nayer Radly sent to Mr Acworth on 17 January 2001 requesting the second payment of $1 million. In it he also requested advice ‘how you wish interest to paid (sic) in relation to timing, account details and method of calculation’. The answer was ‘The method of interest calculation is on daily balances capitalised to the loan on a monthly in arrears basis. The rate is currently 7.95% Variable.’ (It is interesting in the light of subsequent events that Mr Acworth concluded with the question, ‘Would you still consider the shares to be good value?’) According to the first affidavit of Mr Nayer Radly, he and Mr Adam Radly met with Mr Acworth on 24 January 2000 and Mr Acworth informed them that (to quote the affidavit) ‘an informal overdraft of $500,000 had been attached to the [loan account] from which interest payments on the account were to be debited’. With this must be contrasted the facts that on 14 February 2000 an e-mail from Mr Acworth to Mr Nayer Radly requested a cheque for $19,000 for interest; that $20,000 in that behalf was paid by the plaintiff on 16 February after Mr Nayer Radly, in an exchange of e-mails, had confirmed to whom the interest cheque should be made payable and to what account; and that the plaintiff made a further payment of $20,000 for interest on 2 March 2000. (And see infra, [32] (a).)

According to the joint affidavit, in July 2000 the defendant conducted a review of the escrowed Isis shares. As a result the defendant resolved ‘to reduce the LVR’ in respect of the loan to the plaintiff ‘to 0% on (sic) and from the end of July 2000’. ‘LVR’ stands for ‘Loan to Value Ratio’ and denotes the percentage which the value of the security provided for a loan under an MLA bears to the sum of the loan from time to time. Thus, the evidence is that in July 2000 the defendant reviewed the escrowed Isis shares and resolved to reduce the percentage which their value bore to the loan from 40%, as previously established (supra, [12] (e)), to 0%. This was done under cl. 5.6 of the MLA which provides that the defendant ‘in its absolute discretion may change the Percentage at any time during the currency of this Agreement. Any such change in the Percentage may require the Borrower and any Guarantor to pay a Margin Call to [the defendant] pursuant to the provisions of this clause 5.’ ‘Percentage’ is defined in cl. 1.1 of the MLA to mean ‘the maximum percentage of the Market Value which [the defendant] is prepared to lend as determined at any time and from time to time by [the defendant] in its absolute discretion’. ‘Market value’ does not have its usual objective meaning. It means ‘the market value of the Mortgaged Securities as determined by [the defendant] in its absolute discretion from time to time’.

There is evidence from the defendant – provided by an exhibit to the joint affidavit – of the actual market value of Isis shares on each trading day from 4 January 2000 to 12 February 2001. On 7 January 2000 (the date the MLA was executed) the shares were $0.94 on opening and $0.90 on closing. From mid-January to mid-April the price was generally better, or much better, than when the MLA was executed, with a ‘high’ of $2.65 on 27 March. From mid-April until the early days of July, the price was in decline, i.e., significantly less than when the MLA was executed, and with its worst days in the last days of May and the first three weeks of June. Its worst ‘low’ in this time was $0.41 on 26 May. There was a general improvement in the early days of July and by the second and third weeks of that month the recovery was to about or slightly better than the price when the MLA was executed. When the ‘review’ occurred in July 2000 is unknown because the joint affidavit does not disclose it. One may be certain, however, that it happened no later than 20 July, because it was on that date that a manager of the defendant, Susan Maree McLean, telephoned Mr Nayer Radly to inform him of the review and its result; and that the defendant required the loan to be ‘cleared’ within 14 days. On 20 July, Isis shares opened at $1 and closed at $1.03. As I have mentioned, in the preceding days of July the share price had seen an improvement, especially in comparison with the previous two and a half months, the ‘high’ being $1.28 on 13 July and the ‘low’, $0.80 on 6 July. Mr Strahan emphasised in his submissions that while at material times the escrowed Isis shares could not be realised by the defendant, since there were 72,400,000 such shares, their value, had they been marketable, would have repaid the loan many times over. To demonstrate the force of this submission, and attracted by the mathematical convenience which is offered by the opening price on 20 July, the day on which Ms McLean telephoned Mr Nayer Radly, I refer to the fact that, if valued on that date by reference to the opening price, the value of the shares would have been $72,400,000. Subject to the escrow which, naturally, Mr Strahan emphasised had been accepted by the defendant when it made the loan, there was nothing about the escrowed Isis shares in July 2000 which ought have suggested they were other than many times more than adequate to secure a loan of $5 million. I recall, however, and in order to put the submission in the context of the parties’ contractual arrangements, that it is common ground that the ‘percentage’ of the market value of the escrowed Isis shares on which the defendant had been prepared to lend the plaintiff money in the first place was not 100%, but 40% (supra, [12] (e) and [20]).

According to the joint affidavit, the apparent reason for the defendant’s determining that the escrowed Isis shares should be valued at 0% was that ‘(d)uring 2000 the price of Isis shares declined.’ I observe that this is the ‘apparent reason’ because that assertion constitutes the paragraph immediately preceding that in which there is reference to the ‘review …in July 2000 of the security’ for the loan. Plainly, if one concentrates on a comparison of the value of Isis shares when the MLA was executed solely with their value when Ms McLean made her telephone call, this appears to be perverse. That comparison, however, would not reflect the reality of the previous six months. That the prices had, by mid-July, recovered to their early January level, after a period of more than two months in sharp decline, meant perhaps no more than that they had continued to demonstrate a measure of volatility. It will be recalled that what had provoked the plaintiff to seek a loan in the first place was a decline, amounting to a virtual halving, of the price of Isis shares in the weeks after the public float in September 1999 (supra, [5]). The relevant clauses of the MLA permitted the defendant to use ‘its absolute discretion’ and, naturally, Mr Nettle inter alia relied on this to answer Mr Strahan, emphasising that more matters than actual ‘market value’ from time to time were expected to be taken into account when the defendant properly exercised that ‘absolute discretion’ as to what it was ‘prepared to lend at any time and from time to time’ as set forth in the definition of ‘percentage’ (supra, [20]).

The consequence of the resolution of the defendant to place a nil value on the escrowed Isis shares was that the loan went into ‘margin call’. Because the escrowed Isis shares could not be sold, the option usually available in such a situation of selling the security to the extent necessary to remove the margin call – in this case, that would have involved repayment of the loan – was not an option available to the plaintiff. Therefore, it had the remaining two options: provide other security to the satisfaction of the defendant or simply repay the loan. Ms McLean’s evidence is that Mr Nayer Radly’s response to her when she telephoned him on 20 July 2000 and informed him what the defendant had done was that the plaintiff had no other security to offer (and, of course, could not sell the escrowed Isis shares until 2 September 2001); that 14 days was insufficient time within which to enable the plaintiff to make the arrangements necessary to repay the debt, which would take approximately three months; and that he would forward to her a ‘proposal’. Mr Nayer Radly, in his first affidavit, deposes that it was in this conversation with Ms McLean that he learned that Mr Acworth was no longer employed by the defendant. He adds that Ms McLean asked for a copy of the escrow agreement and claims that he told her that the demands being made were in breach of the agreement between the parties. In his second affidavit, in which inter alia he responds to Ms McLean’s affidavit, he deposes that he told her ‘that it was my understanding that the [loan was] to remain in place until the ISIS shares had come out of escrow in September 2001’.

On 27 July 2000 Mr Nayer Radly e-mailed to Ms McLean providing ‘written correspondence to your office as discussed’. A letter was attached to the e-mail and a print of that letter is part of an exhibit to the joint affidavit. In my view, it is important in that it indicates the plaintiff’s considered position after the telephone conversation on 20 July 2000 between Mr Nayer Radly and Ms McLean and also provides a reference point for an agreement which the parties made subsequently and which, in the view I take, is significant to the outcome of this proceeding. The letter was written in response to an e-mail on 26 July to Mr Nayer Radly from Mr John Kirk, the National Manager, Small Business Division of the defendant, in which the latter sought information ‘as a matter of urgency’ as to ‘the manner in which you intend to clear the above accounts’; and warned that if ‘a written, detailed proposal outlining the method of clearance ...’ were not received ‘by close of business’ the next day, ‘we will consider our options to sell sufficient of our security to repay the advances’. I interpolate here, because of the confusion which would be engendered if this selling ‘sufficient of our security’ were thought to refer to the escrowed Isis shares, that the Isis shares the subject of the reference were, it would seem, those which had been referred to in the Loan Proposal as ‘free trading’ (supra, [6]), those purchased by the plaintiff with part of the proceeds of the loan, and, possibly, Isis shares purchased similarly with loans by the defendant to related companies of the plaintiff (which otherwise I do not need to notice for the purposes of this judgment). It was common ground that the defendant had security in the form of Isis shares which were not part of the escrowed Isis shares, albeit not nearly so many.

The letter, which was marked for Ms McLean’s attention, was as follows:

‘RE: SUNCORP METWAY MARGIN LENDING FACILITY

I refer to [the loan] and discussions with the writer Thursday 20^th July, and subsequent correspondence.
I confirm your instruction that Isis Communications Ltd (ISC) is no longer an ASX security that your Margin Lending Department will accept as adequate security. Particularly, I wish to confirm that the reduction of lending from 40% to 0% LVR is effective two weeks from the date of initial contact.
On this basis and that the relevant facilities’ basis has changed; [the plaintiff] hereby advises that the fourteen (14) day period referred to is not sufficient to repay the said facilities.
Furthermore, I understand that it would also be considered unusual that facilities of this size require immediate repayment. Rather, I understand that facilities of this magnitude would be frozen from further activity but also enable repayment over a period in the order of four (4) to six (6) months or as otherwise negotiated in a commercial nature.
This issue is raised as matter (sic) of concern. The nature of the impact, forced selling of this security would have on a substantial number of your other clients and the substantial number of public shareholders holding this security, would be extreme.
Consequently, we respectfully request that your office reconsider its position in relation to the proposed repayment period. Other discussions in relation to alternatives, which may prove more beneficial to both parties, are welcome. Attached to this correspondence are two options for your consideration.
I also take this opportunity to express our concern that the said facility, which is of a substantial nature, has been terminated when it was approved and initiated at a period when the company had a significantly smaller market capitalization relative to its current position. In so doing, there are some issues of responsibility that need to be considered during your assessment of this situation.
Your prompt consideration of this matter is greatly appreciated.’

Before commenting on this letter, I set forth the terms of the two ‘options’ to which it referred:
‘Option 1
ASX security (ISC) and associated LVR review:

In light of [the defendant’s] view to reduce its LVR to 0%, it is proposed that a presentation be provided to the necessary analysts in order to demonstrate the strength, fundamentals and progress of the company since listing and since the approval of the facility in January this year.
This request is made particularly on the basis that the current stock price of the company, is greater than when the facility (& LVR) was initially approved. Further to this, the stock has recovered from the market down-turn in April this year, which is testament to the fact that the fundamentals of the company are also quite sound.
An LVR of 20% on the basis of no further drawdowns, would be sufficient to enable responsible liquidation of assets and refinance to accommodate the cancellation of the said facilities.
A period of approximately six (6) months would be considered satisfactory.
Option 2
Progressive Cash Repayment:

A progressive repayment of cash to [the defendant] in accordance with the following schedule would be considered appropriate as a second option. This schedule accommodates a number of issues, including effect (sic) of selling on the market price of the security and in turn our responsibility to shareholders and both the ASIC and ASX.
Further the schedule enables payments showing good faith to [the defendant], while providing adequate time for refinance completion.
Thursday 3^rd August
1) Thursday 31^st August  : Progressive payment to maximum $600,000
2) Thursday 28th September                   : Progressive payment to maximum $600,000
3) Thursday 26th October  : Progressive payment to maximum $600,000
4) Thursday 23rd November  : Progressive payment to maximum $600,000
5) Thursday 21st December  : Progressive payment to maximum $600,000
6) Thursday 18th January  : Final payment of outstanding facility balance.’

It seems appropriate at this point again to interrupt the recitation of facts and documents relevant to the outcome of this proceeding, to make some observations about the effect of the letter and options set forth in [25]. First, they are inconsistent with a failure of the plaintiff’s directors to appreciate the nature and effect of the SGA and the MLA pursuant to which the defendant made the loan. Instead, they demonstrate a full appreciation of the effect of the MLA to the extent that it empowers the defendant ‘in its absolute discretion’ to review the ‘percentage’ obtaining with respect to the loan and to reduce it as the defendant did. There is no protest as to the defendant’s power, or use of the power, in that behalf. The protest is as to the time limited by the defendant for compliance with the resultant margin call, i.e., the time within which the plaintiff must repay the loan. That protest is made on two bases: first, that the sheer size of the ‘facility’ is such that a mere 14 days is manifestly inadequate to be reasonable; and, secondly, that any repayment effected within such a short period would involve such a disturbance of the market price of Isis shares as to be to the detriment not only of the plaintiff which had used the loan to invest more heavily in Isis but also of uninvolved members of the public who were also shareholders in the capital of Isis. There is a suggestion that the defendant has made itself the object of ‘issues of responsibility’ through these consequences of the margin call, and ‘concern’ is expressed that the facility has been terminated when it would give rise to those consequences; but there is no suggestion that the plaintiff considers the defendant was not entitled to place the loan in ‘margin call’ or was somehow acting in breach of its agreement with the plaintiff. The suggestion and the ‘concern’ rather were raised in support of the plaintiff’s claim that more time than had been given would reasonably be required and that the defendant should reconsider its position as to that. This is confirmed by the nature of the options raised by the plaintiff for the defendant’s consideration. Option 1 would have involved the plaintiff’s making a presentation to the defendant to have it increase the ‘LVR’ to 20% with no further ‘drawdowns’. (I am uncertain to what this refers because the whole of the loan had been made in a few days in January 2000: see [18]. It may be that it would have been understood by the parties as referring to moneys agreed to be lent by the defendant to an associated company of the plaintiff but not yet borrowed.) Option 2 would have involved ‘progressive’ repayments of the loan, commencing on 31 August 2001 and ending with payment of the balance then outstanding on 18 January 2001. Accordingly, the letter and options disclosed that the plaintiff, one week after the telephone conversation between Mr Nayer Radly and Ms McLean, was concerned not about the demand for repayment per se but with the time for repayment given, i.e., not about the ‘margin call’ per se but about its then perceived immediate consequences.

On 24 August 2000 Mr Adam Radly met with Mr Kirk in Brisbane. As a result of the meeting, Mr Alan Radly faxed the following letter dated 28 August to the defendant marked for the attention of Mr Kirk:

‘I refer to our meeting on Thursday 24^th March (sic) at your offices.
As indicated during our discussion, I have investigated the relevant issues and propose to refinance the outstanding facility. Given that there are no margin lenders lending against stocks such as Isis, I will need to pursue a corporate finance arrangement and/or an external investor (possibly US based). Given the size of the facility compared to the value of the security, I do not expect that this will be difficult to arrange, however, these avenues are a little more time consuming.
The other relevant issue here is the disclosure requirements related to the sale of any Isis stock. As previously mentioned in conversation with [Ms McLean], I am not prepared to sell Isis stock without explanation. If and when stock is sold, I will have to inform the market that it is the result of the [loan] being terminated. As you can appreciate, I do not want to sell my stock and cannot allow my investors to believe that I am selling out of my own company without a good reason.
As a result, I proposed (sic) that we proceed on the basis of the repayment schedule below. I acknowledge that it commences 30 days later than discussed during our meeting, however, I am essentially requesting sufficient time to enable me to complete the refinance without selling any stock and thereby avoiding the problems associated with making announcements to the ASX and the market.
Please contact me if you wish to discuss this matter further.’

Below the provision for Mr Adam’s Radly’s signature appeared the following (reminiscent of the second option attached to Mr Nayer Radly’s letter dated 27 July 2000, supra [25]):

‘Progressive Repayment:
1) 1^st November:  : progressive payment to maximum $600,000
2) 1^st December  : Progressive payment to maximum $600,000
3) 1^st January  : Final payment of outstanding facility balance.’

By letter dated 5 September 2000 to Mr Adam Radly, Mr Kirk replied. The letter (amended so as to limit its relevance to the relationship of the parties to this proceeding) is as follows:

‘I refer to your letter of 28 August, 2000 and confirm that [the defendant] consent(s) to the extension of the term of [the loan to the plaintiff] to 1 January 2001.
We would appreciate if the reduction programme including monthly interest payments, commenced on 1 October, 2000 as originally planned. At our meeting on 24 August you indicated that the reduction programme would be made without the need to sell Isis stock and we therefore request that you meet your original commitment.’

Again I interrupt the history in order to make some comment about these letters dated 28 August 2000 and 5 September 2000 respectively.

(a) First, there is some affidavit evidence both from Mr Adam Radly and Mr Kirk concerning their meeting on 24 August. Mr Radly deposed that Mr Kirk stated that the defendant had reduced the plaintiff’s ‘LVR’ to ‘zero’ and wanted the loan repaid. If Mr Kirk did this, he was stating something which had been known to the plaintiff for more than a month.

(b) Mr Radly asserts that at the meeting he said that ‘the [loan was] not then repayable however I also said that I would make inquiry as to whether the [loan] could be refinanced… During the meeting I proposed a repayment programme conditional upon [the plaintiff] obtaining appropriate refinancing of [the loan].’ This is contrary both to the content and tenor of Mr Radly’s letter dated 28 August.

(c) Mr Radly goes on to state that ‘(s)o far as I am aware the defendant has not responded to my letter of the 28 August 2000’. That clearly suggests that the plaintiff did not receive the defendant’s letter dated 5 September. In considering that proposition I take into account the facts that the joint affidavit exhibiting inter alia a copy of the defendant’s letter was made in Brisbane on 9 April 2001; Mr Adam Radly’s affidavit was made on 11 April 2001; on 18 April 2001 I ordered an adjournment to enable the completion of affidavit evidence and inter alia that any further affidavit on which the plaintiff would rely be filed and served by 18 May 2001; that this gave the plaintiff ample opportunity to explain Mr Adam Radly’s absence of recollection of the defendant’s reply to his letter and, by his and other evidence, to prove its non-delivery (if that were the reason); that the plaintiff failed to file or serve any further affidavit concerning either receipt or non-delivery of the letter dated 5 September 2000 (although there was filed and served a further affidavit of Mr Nayer Radly dealing with communications between him and Mr Adam Radly after the meeting on 24 August and before the letter dated 28 August); and that the submissions of counsel for the plaintiff, both written and oral, contained no suggestion that the letter dated 5 September was not received by the plaintiff. Accordingly, in concluding that the plaintiff did receive the defendant’s letter dated 5 September 2000, I take those matters into account and apply the principle to be divined from Jones v Dunkel (1958) 101 CLR 298, at 308, 312, 320-1. In this, I am also fortified by the content of an e-mail dated 27 September 2000 from Mr Nayer Radly to Ms McLean which begins, ‘I refer to letter dated 28^th August requesting an extension of principal repayment and subsequent response’. [My emphasis.]

(d) Mr Kirk’s affidavit states that at the meeting on 24 August 2000 Mr Adam Radly asked for time ‘until the end of the year 2000’ to pay out the loan, as it would ‘take that period of time to arrange alternative finance as [the plaintiff] did not wish to sell Isis shares … at that time’. Mr Kirk also refers to the promise made by Mr Adam Radly that the plaintiff would make progress payments commencing 1 October 2000 ‘as a sign of good faith’. Mr Kirk’s evidence accords with the version of the meeting stated in, and to be inferred from, Mr Adam Radly’s letter dated 28 August 2000.

(e) Mr Kirk denies that Mr Adam Radly alleged or stated at the meeting that the defendant ‘was acting in breach of the [contractual] documentation by requiring clearance of [the loan]’. This, too, accords with the absence of any such suggestion in the letter dated 28 August. Mr Adam Radly’s lack of recollection of the plaintiff’s receipt of the defendant’s letter dated 5 September appears to have been faulty; and it seems that when he came to make his affidavit in April this year his recollection of what was said, and not said, at the meeting on 24 August last year may also have been less than reliable. Certainly, as is to be divined from his affidavit, it seems so when compared with the letter he wrote four days after the meeting. (Further, see supra, [15] (a).)

(f) The effect of the letters, as I read them, was that the defendant gave to the plaintiff and the plaintiff accepted from the defendant nearly four months from the date of the defendant’s letter within which to pay out the loan. The parties intended that there would be some payments in reduction of the total due for principal and interest in the meantime, but, as I comprehend the second paragraph of the defendant’s letter in the light of the first, that may have been an inessential element in the bargain. Whether or not it was does not matter, not because the plaintiff made the ‘progressive payments’ – it did not – but because the statutory demand was not served until after the date by which, according to the letters, the loan was to be paid out. That the plaintiff regarded the effect of the letters to be as I have suggested appears to be confirmed by the reference to ‘extension of principal repayment’ in the sentence from the e-mail dated 27 September 2000 from Mr Nayer Radly which I have quoted (supra, para. (c)).

(g) Finally, there is the matter apparently accepted as fact by Mr Adam Radly in the letter dated 28 August 2000, ‘Given that there are no margin lenders lending against stock such as Isis…’ This supports Mr Nettle’s argument that the price of Isis shares at the time of the ‘margin call’, compared with its price at the time the MLA was executed, was not suggestive of any perverse conduct by the defendant, because of the fact – which he submitted was so notorious I should take judicial notice of it – that by July 2000 the shares of all ‘dot com’ companies (of which, the submission would suggest, Isis was one) were being regarded without the enthusiasm which they had induced but a few months earlier.

I have mentioned an affidavit of Mr Nayer Radly concerning communications between him and Mr Adam Radly after the meeting on 24 August 2000 and before the letter dated 28 August: supra, [29] (c). Although the communications of which he gives evidence thus would not ordinarily be admissible, Mr Nettle made no objection to the affidavit. In a proceeding of this kind it may perhaps be admitted as explaining why the letter did not include reference to Mr Adam Radly’s assertion that at the meeting he had protested the MLA being placed in ‘margin call’. Mr Nayer Radly deposed that Mr Adam Radly had ‘informed’ him that ‘the defendant requested repayment of the loan before the security for the facilities came out of escrow’. Again, this is surprising, having regard to the length of time Mr Nayer Radly himself had known this; and, indeed, in a context in which ‘requested’ might be regarded as a euphemism. Mr Nayer Radly deposes that in the telephone conversation he and Mr Adam Radly agreed that, even though they considered the defendant was not entitled to call up the loan, it would be commercially disadvantageous to become ‘embroiled’ in a dispute or litigation which would result in bad publicity to the detriment of the value of Isis shares. ‘(I)t would be better to find another financier.’ Subsequently, he deposes that they agreed on what was subsequently put forward in the letter dated 28 August. This provokes a number of further comments. First, whatever the silent rationale behind it, the defendant was entitled to take the letter at its face value. Secondly, Mr Nayer Radly had taken just such a non-aggressive course in his letter dated 27 July 2000: supra, [25], so this was no new approach. Thirdly, apart from Mr Adam Radly’s assertion that at the meeting on 24 August he stated that the loan was not then repayable, and Mr Nayer Radly’s assertion that in his conversation with Ms McLean on 20 July 2000 he had stated his understanding that ‘the [loan was] to remain in place until the ISIS shares had come out of escrow in September 2001’, there appears to be no other alleged communication between the parties to that effect. Fifthly, the letter dated 28 August purported to be a confirmation of what had transpired at the meeting on 24 August (subject to the month’s delay in the commencement of the proposed ‘progressive payments’), not of what the Radlys had subsequently agreed between themselves. Certainly, Mr Kirk seems to have accepted the letter as achieving its stated purpose. Mr Nayer Radly concluded his affidavit thus: ‘The proposal of 28 August 2000 was not intended to indicate any acceptance of [the defendant’s] alleged authority to call up the facilities prior to the expiry of the escrow period.’ It certainly did not raise any issue as to that authority; and a reasonable reading of the letter does not suggest any implied dispute as to that authority. Further, it, of course, was not the first formal written communication from the plaintiff to the defendant the content of which would give rise to an inference to the contrary of Mr Nayer Radly’s conclusion. There was Mr Nayer Radly’s own letter dated 27 July 2000 which I have already mentioned in this context. His last affidavit does not mention that letter at all.

Before passing to a list of the other facts which require note, I mention that there were references in both Mr Nayer Radly's first affidavit and in Mr Adam Radly’s affidavit to sales of Isis shares by the defendant under a CHESS arrangement and starting in September 2000 as if they gave to the plaintiff an ‘offsetting claim’ within s 459H of the Corporations Law, due to loss suffered by it in consequence of subsequent reduction in the price of Isis shares caused by the sales. Counsel for the plaintiff, however, did not rely on such an ‘offsetting claim’; and, indeed, the uncontradicted evidence in the joint affidavit suggests that the sales were undertaken by the defendant with respect to the partial recovery of a loan by the defendant to another company related to the plaintiff which had passed into ‘margin call’; and, thus, such sales were independent of the situation of the parties to this proceeding.

I now set out the remaining facts which appear to require note:

(a) Apart from the two payments of interest in the sum of $20,000 each, which, as I have already mentioned, were made on 16 February 2000 and 2 March 2000 (supra, [19]), the plaintiff has made no other payments in respect of the loan, save two payments, each of $50,000 and for interest, the first on 4 August 2000 and the last on 8 August 2000, i.e., a few days after Mr Nayer Radly’s letter dated 27 July 2000.

(b) In Mr Nayer Radly’s e-mail dated 27 September 2000 from which I have already quoted (supra, [29] (c) and (f)), he informed Ms McLean that the plaintiff was not in a position to make a repayment of ‘principle’ (sic) at that time due to reduction in the [Isis] share price.

(c) On 12 February 2001 the deponents of the joint affidavit signed a document entitled, ‘Election to Accelerate’. It states:

‘Following default by [the plaintiff] [the defendant] hereby elects and declares that all moneys owing by [the plaintiff] (whether actually, prospectively, contingently or otherwise) to [the defendant] are now immediately due and payable to [the defendant] in full.’

The joint affidavit to which a copy of this document is exhibited does not suggest that it was served on the plaintiff. The evidence is that the defendant’s solicitors were then instructed to serve a demand for payment and a copy of that document is also exhibited to the joint affidavit. It is also dated 12 February 2001, is addressed to the plaintiff and demands payment ‘by 4.00 p.m. Brisbane time on 20 February 2001 of $5,337,789.96 as at 9 February 2001 pursuant to a margin lending agreement dated 7 January 2000’; and notes that the debt is ‘accruing interest at the rate of $1,302.73 per day from and including 9 February 2001’. That demand was served, (a copy of it being exhibited to Mr Nayer Radly’s first affidavit).

(d) The joint affidavit purports to explain the ‘default’ referred to in the ‘Election to Accelerate’ as failure to comply with ‘the repayment programme agreed by Alan Radly’; the deponents’ opinion that the plaintiff was ‘no longer able’ adequately to carry out its obligations under the contractual documents; the deponents’ opinion that a ‘material adverse change’ had occurred in the financial position of the plaintiff due the decreased value of Isis shares; and various percentage falls in the market value of Isis shares on a trading day, two consecutive trading days and three consecutive trading days. It is appropriate immediately to comment on these propositions. What constitutes ‘Events of Default’ is defined in the MLA. The defaults alleged which are based on the opinion of the deponents of the joint affidavit are not within the definition, because the ‘opinion’ in each case has to be that of the defendant and there is nothing in the evidence which shows that the deponents’ opinion is that of the defendant; nor is there any other proof of the defendant’s opinion. Similarly, the significance of percentage falls in the market value of Isis shares on one day or two or three consecutive trading days turns on the definition of ‘Market Value’ in the MLA which is a market value as determined by the defendant ‘in its absolute discretion’ (supra, [20]). There is no evidence of any determination other than that of the deponents and it is based on a table produced not by the defendant but by the defendant’ solicitors. Their opinion so based is not a determination of the defendant. This leaves the plaintiff’s failure to comply with ‘the repayment programme agreed by Alan Radly’. It is true that the legal impact of that failure is significant to the outcome of this proceeding, but it is unnecessary to determine if that falls within the definition of ‘Events of Default’ – I observe that it may fall within para. (e) of the definition – because that failure will have its effect independently of that question. The existence of a default is important to a declaration by the defendant that ‘the Monies (sic) Owing’ under the MLA are immediately due and payable. In my view, the defendant’s defence of this proceeding must stand or fall on whether, in the events that occurred, the moneys demanded were due and payable (save as to interest which accrued afterwards and until the statutory demand was signed) before 12 February 2001. The Election to Accelerate had no independent impact on this, and in any event, and perhaps a fortiori, this is so because it was not served.

(e) On 21 February 2001 the statutory demand was served. I have already referred to the content of its schedule: see [2].

I consider further now the plaintiff’s primary contention that, when the statutory demand was served, the loan had not fallen due and payable because the term of the loan was such as not to permit the defendant to call up the loan until 2 September 2001 or later. This was based on the proposition that the plaintiff’s Loan Proposal, which specified a term for the loan of 30 months (supra, [9](e)), was part of the contractual documentation with respect to the loan (supra, [3]). I have already considered counsel’s submissions as to the adequacy of the evidence in support of this proposition: supra, [16]. My conclusion on the issue is that there is no evidence that the defendant ever had possession of the Loan Proposal. If that were to be proved, one of the witnesses, Mr Sangster, could have proved it. He did not. Jones v Dunkel (supra, [29] (c)) applies. The conversation between Mr Nayer Radly and Mr Acworth on which the plaintiff relied for this argument, having regard to the time at which the conversation occurred, would be understood as referring to the SGA unless there were evidence specifically to the contrary. Moreover, the subject matter of the conversation appears to have concerned the SGA and not the Loan Proposal. It is important to emphasise that this is not a matter as to which there is conflicting evidence. (If there were, the nature of this proceeding would require that I assume, for the purposes of this proceeding, that the plaintiff’s version is correct, unless it is not conceivable for some reason able to be articulated that it could be accepted, in the light of other evidence.) It is a matter as to which there is no direct evidence at all.

This, however, does not conclude the question as to the term of the loan. Mr Strahan and Mr McCurdy submitted that the agreement between the parties was ‘subject to an overriding fundamental term that the loan would not be called up for a period of 2 years 6 months (alternatively 2 years from 2 September 2001), that is, before 2 March 2002 (or alternatively 2 September 2001)’: written submission, para. 21. While this was based primarily on the Loan Proposal’s being part of the contractual documentation with respect to the loan – as to which I have set out my conclusions in [33] – it appears capable of other support. There is no doubt that the defendant did receive a copy of Mr Sangster’s apparently ‘pro-forma’ letter dated 10 December 1999, for it was the first exhibit to the joint affidavit. That letter inter alia specified that the term of the loan sought was 30 months: see, supra, [9] (e). In these circumstances, the conclusion that the term of the loan made by the defendant to the plaintiff was 30 months, in general accordance with Mr Strahan’s and Mr McCurdy’s submission, is open on the evidence. The point is arguable. Indeed, the defendant’s evidence is silent as to it.

The fundamental term for which the plaintiff’s counsel argue, however, is not, as I understand it, so simple. To be effective it must also mean that the defendant was barred from enforcing any provision of the contract between the parties to the extent that such enforcement would require full or partial repayment of the loan at any time before the escrowed Isis shares ceased to be subject to the escrow. The suggested fundamental term was that ‘the loan would not be called up’ for such a period, alternatively for two years, six months: supra, [34]. This is much more difficult. Perhaps its rationale is the following. The defendant made the loan on the basis of security which, by reason of the escrow agreement, would not be available for realisation before 2 September 2001. There is evidence suggesting that the CHESS arrangement was such as to enable the defendant to access the Isis shares the subject of the security from that date if necessary. While it may be that Ms McLean and others in the defendant’s organisation were imperfectly aware – or even unaware – of the escrow agreement when they first became involved with the plaintiff (supra, [23]), there is, in my view, sufficient evidence, for the purposes of this proceeding, that Mr Acworth was aware of it before and when the loan was made, e.g. Mr Sangster’s evidence of Mr Acworth’s response to his request that a lesser number of the escrowed Isis shares be the subject of security with respect to the loan: supra, [15] (b). Indeed, his response purported to convey the answer of the ‘lending committee’ of the defendant: ibid. The question is whether, if, as appears to have been the case, the defendant lent the plaintiff $5 million on share security not realisable for nearly 21 months, the defendant was barred from recovering the money for a term at least as long as the expiry of the period for which it would be unable to realise that share security.

Mr Nettle submitted that there could be no such term of the agreement, fundamental or otherwise. Apart from his submissions concerning the plaintiff’s Loan Proposal, he pointed out that the plaintiff’s contention was inconsistent with the SGA which the Radlys had executed for the plaintiff and signed as guarantors. Further, it would be at odds with the plaintiff’s subsequent conduct which involved four payments of interest in a total sum of $140,000: see [19] and [32] (a). Finally, since such a term would be inconsistent with the written terms of the contract between the parties, it could not be implied. I accept Mr Nettle’s submissions. In my view, each is well founded. Further, the alternative would mean that the elaborate ‘margin call’ provisions, first in the SGA and then in the MLA, would have no force and effect until the escrow period expired, notwithstanding the defendant’s having required the Radlys to make an offer for the loan on those terms. Thus, if the plaintiff’s contention were correct, the defendant could not resort to those terms even in the event that otherwise the circumstances were such as to permit, or (in the defendant’s interest) require, a margin call. But that protection for the defendant was the very essence of the written contractual documents. It is not conceivable that the defendant would have used such contractual documentation if it did not intend to have the protection which it provided. This is so a fortiori when one recalls that the defendant is a bank and a number of other financial institutions had rejected Mr Adam Radly’s and Mr Kelly’s applications for the loan (supra, [7] and [9] (b)), simply because the proposed ‘security’ consisted of the escrowed Isis shares, which were, for present purposes, no security at all. It has already been established that the defendant knew of the escrow: supra, [15] (b) and [35]. To contemplate a modern bank lending money on such security may tend to strain credulity; to suggest that it would lend $5 million without the protection afforded it by the margin call provisions until the stock should come out of escrow and irrespective of whether in the intervening period it retained the character of stock against which the bank would be prepared to lend money, causes positive incredulity. Further evidence of the fact that the defendant was not conducting itself as a charity (as distinct, perhaps, from a lender of ‘last resort’) in the matter is, of course, provided by its requiring the Radlys to give guarantees of the performance by the plaintiff of its obligations. While, for the purposes of this proceeding, a finding that the existence of the alleged ‘overriding fundamental term’ was arguable would represent victory for the plaintiff, that proposition must be rejected for the reasons I have expressed.

Alternatively, Mr Strahan and Mr McCurdy submitted, the defendant promised not to use any right it had to call up the loan prior to 2 September 2001, alternatively for two years six months; and the plaintiff relied on that promise: written submission, para. 22. There is no evidence at all to support this proposition which, from its context in the written submissions, I divine was based primarily on the assumption of a finding that it is arguable that the Loan Proposal was part of the contractual documentation. The Loan Proposal was, of course, the plaintiff’s document and no promise by the defendant could be found there. If the promise was to be implied, that proposition would be susceptible to Mr Nettle’s submission that it could not be implied because contrary to the written contract between the parties.

Mr Strahan and Mr McCurdy had another alternative submission and that was that the defendant was obliged to exercise its rights with respect to a margin call ‘fairly and in good faith and for the purpose for which they were conferred, and not arbitrarily or unreasonably’: written submission, para. 32; and, by inference, that the defendant in resolving that the LVR should be reduced from 40% to 0% was acting contrary to this obligation. In that behalf I was referred to a passage from the judgment of Sheller, JA in Alcatel Australia Ltd v Scarcella and Others (1998) 44 NSWLR 349, at 369: ‘…in New South Wales a duty of good faith, both in performing obligations and exercising rights, may by implication be imposed upon parties as part of a contract.’ That was a proceeding between landlord and tenant. For the purposes of such a proceeding as this, I am prepared to assume it is arguable (if not settled) that the same principle applies to the conduct of the parties to this proceeding (merely noting that it may be that the contract between the parties was made in Victoria, or Queensland where the defendant is based, or even in the Australian Capital Territory where the MLA and associated documents were executed for the plaintiff by its purported attorney).

In support of this submission counsel relied on propositions that at the time of the defendant’s review of the escrowed Isis shares in July 2000 there was ‘no basis or cause for [the defendant] to purport to make any determination leading to calling up of the whole loan’: written submission, para. 34; and at the time ‘no default by [the plaintiff] was alleged’: ibid., para. 35. They also submitted that ‘no reason was given for the sudden and unexpected removal of ISIS shares from among the shares approved for security purposes’: ibid. para. 36. Finally, counsel submitted:

‘37.The inference should be drawn that around the time of the unexplained departure of Mr Ackworth (sic), other employees of [the defendant] became concerned about the nature of the escrow shares and the loan that Mr Ackworth had negotiated on behalf of [the defendant], and decided to purport to terminate the loan.
38.The purported use of powers in the Margin Lending Agreement to enable [the defendant] to escape from an agreed loan because [the defendant] retrospectively thought that the agreement should not have been made is arbitrary and a misuse of powers granted to [the defendant] in the loan agreement, and in breach of [the defendant’s] obligation of fairness and good faith.
39.The purported removal of ISIS shares from the approved list, and the imposition of an LVR of 0% is therefore invalid.’

I shall deal with each of these submissions in turn.

The proposition that the defendant ‘had no basis or cause’ to impose a situation of margin call appears to be based on the comparative matters I have set out at some length (supra [21]), especially those comparing the price of Isis shares on 7 January 2000 when the MLA was executed and on 20 July 2000 when Mr Nayer Radly was informed by Ms McLean of the defendant’s review. I have made some observations about those matters (supra [22]). I recall here, however, the response of Mr Nettle which I then mentioned, for its effect is that under the MLA the defendant was not limited to considerations such as those particularly referred to in [21] in reviewing the percentage with respect to the escrowed Isis shares.

I cannot agree with the plaintiff’s counsel that ‘no reason was given’ by the defendant for the review and the result of the review in July 2000. While the evidence does not prove that, for example, Ms McLean gave a reason in her conversation with Mr Nayer Radly on 20 July 2000 in which she told him that a decision had been made that it was ‘no longer suitable’ for Isis shares to be included ‘on the defendant’s list of shares approved for security purposes’ – which is a statement of conclusion, not a reason – as I have mentioned (supra, [22]), it seems from the joint affidavit that the reason was that ‘(d)uring 2000 the price of Isis shares declined’. Having regard to the history of that price in the first half of 2000 (supra, [21]), this may have been literally a ‘half-truth’, i.e., true with respect to half of the period. But it was true with respect to April, May and June, the second half of that period; and that was, no doubt, that particular half of the truth which was of special importance to the defendant.

The invitation in para. 37 of the written submission for the plaintiff (supra, [39]) is, as I read it, an invitation to speculate rather than, as it is expressed, to infer. On the evidence I could not possibly go so far. There is no support for any such proposition in the evidence; and against it are the reactions of Mr Nayer Radly in his letter dated 27 July 2000 (supra, [25] and [26]) and those of Mr Adam Radly in his letter dated 28 August 2000 (supra, [27] and [29] (g)). If the Radlys are seen not to have drawn any inference such as the submission suggests I should draw, the suggestion is manifestly unsustainable. There can be absolutely no doubt that the Radlys fully appreciated that the loan, which at last the plaintiff had obtained, was granted for the ‘security’ which had proved unattractive to other financiers, i.e., the escrowed Isis shares; and that the special protection which the defendant had required to make the loan was that it would be on a ‘margin lending’ basis. This gave to the defendant the widest of discretions to revise during the term of the loan the percentage value which it would attribute to the Isis shares, and the Radlys knew it: see, for example, [15] (a) and (c).

The propositions in paras. 38 and 39 (supra, [39]) of the written submission appear to depend on my acceptance of that in para. 37.

Rather than my drawing the inferences for which the plaintiff’s counsel contended in paras. 37 and 38 of their written submissions (supra, [39]), I consider that the evidence compels me to the conclusion that the defendant was entitled to review the ‘LVR’ when it did; and that, if there were to be a comment about its doing that, it would be that it is surprising that it waited so long before it did. Whether it concentrated on the Isis shares’ volatility or simply the debacle in their price in April, May and June 2000, the defendant had to be concerned at the reality of the risk which the escrowed Isis shares presented so long before they would become available as a current security for the loan. It is to be recalled that in the SGA the defendant had warned the plaintiff that it might be without notice that the defendant would have to realise securities consequent on a margin call, due to the risk to the defendant represented by ‘market volatility’: (supra, [12] (e)). The circumstances in this case were, in fact, more extreme than this, simply because the ‘security’ could not be realised for many months, with or without notice. Mr Nettle submitted, in answer to Mr Strahan’s development before me of the argument in the plaintiff’s written submissions based on the proposition in the judgment of Sheller, JA in Alcatel (supra, [38]), that the obligation of a contracting party to demonstrate good faith in exercising its rights cannot override the use of such a right for the purpose for which the contact confers it. I consider that this submission of Mr Nettle is well founded on the evidence in this proceeding. The other, apparently decisive, consideration which would negative bad faith on the part of the defendant is that which I have already mentioned (supra, [42]), namely, the reactions of the Radlys to the margin call. Mr Adam Radly wrote: ‘Given that there are no margin lenders lending against stock such as Isis …’ (supra, [29] (g)). That being so, what would have been remarkable, had it occurred, would have been the defendant’s continuing with the status quo and not making a margin call. Accordingly, there appears to be no basis in the evidence for a genuine dispute whether the loan was due and payable based on the margin call’s being invalid through being made in bad faith; or on its being made before (somehow) the defendant acquired a contractual right to make a margin call; or on the proposition that, despite the margin call, its result was stymied by a contractual limitation preventing the defendant from acting on that result before September 2001.

Mr Strahan and Mr McCurdy appeared readily to appreciate that the plaintiff’s evidence, that by each of the Radlys (see [23] as to Mr Nayer Radly, and [29] (b) as to Mr Adam Radly) it had protested the entitlement of the defendant to engage in the review of July 2000 because the loan could not be called up until 2 September 2001 at the earliest, is susceptible to the criticism of ‘recent invention’: see supra, [30]. Mr Nayer Radly’s evidence on the point appeared in his second affidavit in the proceeding, not the first. Mr Adam Radly’s sole affidavit was made on 11 April 2000 (that is, after the first adjournment). More significantly, neither referred to his protest or its subject matter in his letter to the defendant soon after he alleges he made it (Mr Nayer Radly’s letter dated 27 July 2000 (supra, [25]) and Mr Adam Radly’s letter dated 28 August 2000 (supra, [27])). Counsel for the plaintiff therefore reminded me of the following passage from the judgment of Hayne, J in Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290, at 293:

‘Whether the defences can be described in the sense used in the bank’s submissions as “recent inventions” does not in my view bear upon the existence in this matter of a genuine dispute. That is to be judged according to whether there is now a genuine dispute about the alleged debt – not according to how recently that dispute may have arisen.’ [I have repeated the emphasis added by counsel in their written submission.]

The fact is, however, that there was no controversy recorded between the parties concerning the defendant’s entitlement to effect the review of July 2000, or as to its outcome (which meant, in effect, that the loan became repayable in full). The plaintiff’s acceptance of these was both implicit (Mr Nayer Radly’s letter dated 27 July 2000 and Mr Adam Radly’s letter dated 28 August 2000) and explicit (Mr Adam Radly’s letter dated 28 August 2000). In assessing those letters, it is not to be overlooked that the writers are both men of business. Mr Nettle referred me to, and relied on, the frequently quoted passage from the judgment in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, at 787, 12 ACLC 669, at 671-672 in which McLelland CJ in Eq of the Supreme Court of New South Wales expressed his view of the meaning of ‘genuine dispute’ in s 459H (1) (a). His Honour said:
‘In my opinion that expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the “serious question to be tried” criterion which arises on an application for an interim injunction or for the removal or extension of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit “however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be” not having “sufficient prima facie plausibility to merit further investigation as to [its] truth” (cf Eng Mee Yong v Letchumanan [1980] AC 331 at 341) or “a patently feeble legal argument or an assertion of facts unsupported by evidence”: cf South Australia v Wall (1980) 24 SASR 189 at 194.’ [My emphasis.]

In this proceeding the only pieces of evidence which would support the plaintiff’s argument that the plaintiff did maintain that the defendant was not entitled to conduct the review of July 2000 with the outcome to which it gave rise, or that in carrying out the review it was acting in bad faith, or that, notwithstanding the review and its outcome, the loan could not be called up in consequence of the review before September 2001, are isolated; are consistent with being the result of afterthought; are ‘lacking in precision’; and are ‘inconsistent with undisputed contemporary documents … by the same deponent’. In my view, they do not have ‘sufficient prima facie plausibility to merit further investigation’. (Not, I add, that a mere protest, of itself, in the context of this case would constitute evidence contrary to the matter protested. For any such evidence in this proceeding, one looks in vain.) In Eyota, McLelland CJ in Eq said (immediately after the passage I have quoted supra):
‘… (E)xcept in such an extreme case, a court required to determine whether there is a genuine dispute should not embark on an inquiry as to the credit of a witness or a deponent whose evidence is relied on as giving rise to the dispute. There is a clear difference between, on the one hand, determining whether there is a genuine dispute, and, on the other hand, determining the merits of, or resolving, such a dispute.’

This is, it follows from the considerations I have set forth above that quotation, just ‘such an extreme case’ as was described as an exception in it. Those considerations suffice to negative the genuineness of the dispute to the extent that it concerns the entitlement of the defendant to base its claim for the moneys demanded on the outcome of the review of the ‘LVR’ in July 2000.

In reaching this conclusion I have considered also whether there is any contrary indication in the steps taken by the defendant in February 2001. On one view, these might be regarded as inconsistent with an appreciation that it was entitled at that time to recover the loan. Despite the fact that the time agreed between the parties for payment out of the loan had expired without payment, the deponents of the joint affidavit then went to the extreme of executing an ‘Election to Accelerate’ which could not change the status quo (so far as the defendant had contended it to have been for more than six months) and did so on the basis of alleged defaults by the plaintiff. On reflection, however, I have concluded that, given the institutional character of the defendant, it is not surprising that various formal steps were taken by officers of the defendant in order to ensure that, whatever the facts of the particular case, the stages for which the defendant’s form of contract provided as the precursor to recovery of a loan would be duly observed; and it is not to the point that, in this, they may have fallen short of what would have been required. The ‘Election to Accelerate’ and the alleged defaults on which it was based have been considered; supra, [32] (d). As then observed, the ‘Election to Accelerate’ was not served on the plaintiff in any event, and the ‘defaults’ on which the joint affidavit suggested it was based were mostly misconceived. The possible exception was default by the plaintiff ‘in the repayment program agreed by Adam Radly’. This ‘program’ arose from the letters dated 28 August 2000 and 5 September 2000 (supra, [27] and [28]).

This ‘default’, whether accurately so characterised or not, was important quite independently of the ‘Election to Accelerate’. Indeed, even if the conclusion I have already expressed concerning the effect of the review of July 2000 is incorrect, the plaintiff was still required to show that there is a genuine dispute concerning the loan being due and payable, notwithstanding its apparently clear and unqualified undertaking, by Mr Adam Radly’s letter dated 28 August 2000, to repay it in full by 1 January 2001, the defendant’s acceptance of that undertaking by the letter dated 5 September 2000, and the defendant’s refraining from taking any step to enforce repayment in the period between 5 September 2000 and 1 January 2001.

Mr Nettle submitted that the effect of these matters was that there was a variation of the agreement between the parties so that instead of the whole sum due under the loan being due and payable immediately, it would not be so until 1 January 2001; alternatively, that it remained due and payable but the defendant was estopped from seeking payment until 1 January 2001; alternatively, that the defendant had waived the plaintiff’s obligation to repay the sum until 1 January 2001. Mr Strahan submitted that none of these was correct and that all the correspondence meant was that the defendant would wait to see what might transpire. I reject that. The terms of the letters are clearly inconsistent with such a proposition. Of Mr Nettle’s alternatives, the first appeals to me in the context of this proceeding and its necessary precursor, the service of a statutory demand. Had the defendant served a statutory demand after 5 September 2000 and before 1 January 2001, it is inconceivable that the resulting application under s 459G would not have been based on the proposition that the sum demanded was not due and payable within s 459E (1) because of the agreement between the parties evidenced by those letters. Estoppel and waiver, however, would have had the same consequence under the section.

It follows from this, however, that, whatever would have been the correct analysis of the position of the parties from 5 September 2001 to 1 January 2001, the clear and unequivocal terms of the letter dated 28 August 2000 meant that, after 1 January 2001, the whole of the loan then outstanding was due and payable unless prevented from being so by some extraordinary or intervening circumstance. Mr Strahan submitted that it was arguable that there was such a circumstance caused by the alleged bad faith of the defendant in conducting the review of July 2000 when the escrowed Isis shares ‘had increased in value’ and which review, in turn, gave rise to the agreement constituted by the letters dated 28 August 2000 and 5 September 2000. For the reasons I have already set out, however, I do not consider that the plaintiff has made out in this proceeding the case it needs with respect to bad faith for the purposes of challenging the review: see supra, [44] and [45]. Accordingly, I consider that the plaintiff is also barred from disputing that the effect of the letters was that, from 1 January 2001, the loan was due and payable.

Mr Strahan and Mr McCurdy relied on a further discrete argument, that the person who had executed the MLA and associated documents as the plaintiff’s attorney under the power conferred in the SGA was not a person duly authorised by the power: written submission, paras. 53 and 54. Their first point in this behalf was that the letter of appointment dated 31 May 1996 which was exhibited to the joint affidavit was not a letter from the defendant appointing persons as authorised officers to exercise the powers of attorney, but a letter from an entity named ‘Metway Bank Limited’. This submission must be rejected for, as Mr Nettle pointed out, the Australian Company Number of Metway Bank Limited as disclosed on the letterhead is the same as that of the defendant; in other words, the corporate entity from which the letter was sent and the defendant are one and the same.

An alternative submission was that the person who executed the contractual documentation as the attorney of the plaintiff, Mr Craig Sloan, a person appointed by the letter dated 31 May 1996 as an ‘authorised officer’ of the defendant to exercise the powers of an attorney with respect to the execution of ‘margin lending documents’, had not been shown to have been appointed as an authorised officer with respect to ‘this power of attorney’, i.e., that which had been given in the SGA: supra, [12] (i). I understand the submission to mean that the defendant was obliged specially to appoint an ‘authorised person’ to be the attorney in respect of each fresh power conferred. It is put that the letter ‘does not identify the power of attorney in question here’; and that, in particular, the letter ‘does not identify the donor of the power’. Of course, the letter dated 31 May 1996 could not identify the SGA executed by the Radlys for the plaintiff and for themselves as guarantors on 29 December 1999; and it is equally obvious that it could not identify the clause in that SGA which conferred the power in this case.

I consider that reliance on such facts involves a misreading of the definition of ‘authorised officer’. Such a person is defined to be ‘any person who has been authorised by [the defendant] or a related body corporate … to exercise the powers in this power of attorney’. [Emphasis added.] It is not necessary that he or she be a person authorised ‘in respect of “this power of attorney”’ (as the written submission puts it in para. 53). It is sufficient that the person has been appointed as authorised to exercise such powers as are conferred; and, in my view, the terms of the general appointment of Mr Sloan as an ‘authorised person’ in that behalf which are contained in the letter dated 31 May 1996 sufficed to enable him to execute for customers of the defendant and, in particular, for the plaintiff, all ‘margin lending documents’ of the description in the SGA. Until the hearing there was never any question as to this by the plaintiff. The question which is raised is unsupported by evidence and, as I have indicated, appears to stem from placing emphasis on the power of attorney, rather than on the authority to exercise such powers as are contained in the power of attorney.

Mr Nettle also relied on the presumption of regularity. Having regard to what I have already observed, it is unnecessary to consider the applicability of that presumption, although, as I have said, it is clear that the Radlys did not entertain any concern about the execution of the contractual documentation. If there were grounds in the evidence for doubting Mr Sloan’s authority, I consider the presumption would not operate to conclude the question in the defendant’s favour. I imagine that Mr Nettle’s reference to the presumption was, in the circumstances, not intended to do more than echo the observation of Lord Simonds in Morris v Kanssen and Others [1946] AC 459, at 475: ‘The wheels of business will not go smoothly round unless it may be assumed that that is in order which appears to be in order.’ In this case the evidence is to the effect that, in the matter of the execution of the contractual documentation by Mr Sloan as a person authorised by the defendant to be the plaintiff’s attorney, all was ‘in order’.

Since the plaintiff has failed to discharge its onus of proving that there is a genuine dispute whether the sum demanded was due and payable at the time of service of the statutory demand, I shall order that the proceeding is dismissed.

[2001] VSC 272

14 August 2001