Saltmarsh v Westpac Banking Corporation

[2022] TASFC 8

[2022] TASFC 8

COURT:	SUPREME COURT OF TASMANIA (FULL COURT)
CITATION:	Saltmarsh v Westpac Banking Corporation[2022] TASFC 8
PARTIES:	SALTMARSH, Michael Richard
SALTMARSH, Jillian Anne
v
WESTPAC BANKING CORPORATION
FILE NO/S:	2111/2021
2294/2020
DELIVERED ON:	16 September 2022
DELIVERED AT:	Hobart
HEARING DATE/S:	7 March 2022
JUDGMENT OF:	Brett J, Jago J and Martin AJ
CATCHWORDS:

Procedure – Civil proceedings in State and Territory Courts – Pleadings – Particulars – Other cases and

matters – Failure to provide adequate particulars of facts necessary to establish a causal link between

defendant’s conduct and the alleged loss.

Supreme Court Rules 2000 rule 374.
Bond Corporation Pty Limited v Thiess Contractors Pty Ltd (1987) 14 FCR 215, Pumptech Tasmania Pty Ltd
v CB & M Design Solutions Pty Ltd [2009] TASSC 78 – applied.
Salvatore Coco v Westpac Banking Corporation [2012] NSWSC 565 – not followed.

Aust Dig Procedure [1190].

Procedure – Civil proceedings in State and Territory Courts – Motions, interlocutory applications and other

pre-trial matters – Self-executing orders – Order made by consent that judgment be entered against
plaintiff if particulars not provided within a fixed period – Judgment entered by registrar on basis of self-
executing order – Consent by legally represented parties sufficient for valid order – Not necessary or

appropriate to go behind consent - Appeal dismissed.

Supreme Court Rules 2000 rule 374.
Bond Corporation Pty Limited v Thiess Contractors Pty Ltd (1987) 14 FCR 215, Pumptech Tasmania Pty Ltd
v CB & M Design Solutions Pty Ltd [2009] TASSC 78 – applied.
Salvatore Coco v Westpac Banking Corporation [2012] NSWSC 565 – not followed.
Aust Dig Procedure [1328].

REPRESENTATION:

Counsel:

Appellant:	P King
Respondent:	L Sealy SC and R Hudson

Solicitors:

Appellant:	Bramham Lawyers
Respondent:	Butler McIntyre & Butler

Judgment Number:	[2022] TASFC 8
Number of paragraphs:	128

Serial No 8/2022

File No 2111/2021

2294/2020

MICHAEL RICHARD SALTMARSH and JILLIAN ANNE SALTMARSH

v WESTPAC BANKING CORPORATION

REASONS FOR JUDGMENT	FULL COURT BRETT J JAGO J MARTIN AJ September 2022
Orders of the Court:

1            Appeals dismissed.

Serial No 8/2022

File No 2111/2021

2294/2020

MICHAEL RICHARD SALTMARSH and JILLIAN ANNE SALTMARSH

v WESTPAC BANKING CORPORATION

REASONS FOR JUDGMENT FULL COURT
BRETT J
September 2022

1   I agree with Martin AJ that both appeals should be dismissed and with his Honour's reasons for

that determination.

2             I wish to add some brief comments. Speaking for myself only, the outcome of this appeal and my agreement with his Honour's reasons should not be viewed as an endorsement of the technical adequacy or appropriateness of a self-executing order of the type made in this case. That order, in the circumstances of this case, derives its validity and effect from the fact that it was made by consent. I agree with both the learned primary judge and Martin AJ that Holt AsJ did not err by making the order and that his Honour was not required to go behind the consent apparent from the memorandum submitted to him by the legal representatives for each party. However, I am far from convinced that such an order would have been appropriate or even valid, without the consent of the parties. Some of the potential difficulties that arise, in my view, are as follows.

3             A self-executing order may only grant relief, albeit conditionally, which is authorised, in the circumstances, by the rules or under the inherent jurisdiction of the court. In this case, it is not clear to me that the rules authorise the entry of judgment in default of compliance with an order for delivery of particulars. The entry of judgment for want of prosecution under the court's inherent jurisdiction involves an exercise of discretion which requires consideration of "the overall justice of the matter, which depends upon all its facts and circumstances". Per Neasey J in Closer Settlement Board v Thomas [1982] Tas R 179, quoted with approval by Underwood J in Khavounitis v NRMA Insurance Ltd [1999] TASSC 2. It is not difficult to envision that this consideration may well extend beyond the issues arising in respect of the claimed particulars.

4             Further, even if such an order is justified and lawful, there is a need for precision in its formulation, in particular with respect to the specification of the event that will trigger the entry of judgment by the Registrar as an administrative act. In a case such as this, a question may arise as to whether the delivery of a document purporting to comply with the conditions of the order is adequate compliance so as to avoid the consequence of entry of judgment, or whether compliance requires a qualitative assessment of the purported particulars against the description set out in the order. The latter may lack sufficient certainty and precision to support an order with purported automatic effect, and hence result in invalidity. See for example Broers and Anor v Forster (1981) 36 ALR 605.

5             In this case, these questions did not directly arise on the appeal and were not fully argued by the parties. The question of whether the Registrar had correctly entered judgment had been determined by another judge and was not before the learned primary judge. Further, insofar as these questions may have affected the exercise of discretion by the primary judge in relation to the application to set aside the judgment, his Honour, sensibly in my view, circumvented the need to consider these questions by offering the appellant yet another opportunity to provide the required particulars. Because of the decision which his Honour made in respect of those particulars, it was not necessary for him to re-visit questions relating to the construction or validity of the order.

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6             It follows that it would be inappropriate, unnecessary and unhelpful for me to express any concluded view about the matters to which I have briefly referred. I reiterate that my comments are not intended to express such a view, but simply to point out that these issues remain undetermined in this case.

3   No 8/2022

MICHAEL RICHARD SALTMARSH and JILLIAN ANNE SALTMARSH

v WESTPAC BANKING CORPORATION

REASONS FOR JUDGMENT FULL COURT
JAGO J
September 2022

7            I have had the benefit of reading the reasons for decision of Martin AJ. I agree with those reasons. I join in the order dismissing the appeal.

4   No 8/2022

MICHAEL RICHARD SALTMARSH and JILLIAN ANNE SALTMARSH

v WESTPAC BANKING CORPORATION

REASONS FOR JUDGMENT	FULL COURT MARTIN AJ 2022
Introduction

8             In the early 2000s, the appellants operated a signwriting business in Burnie. They borrowed $42,000 from the respondent in 2004 and, in 2008, they exercised an option to purchase premises in which the business operated. For the purpose of the purchase, they borrowed a further $296,000 from the respondent. At about the time of the purchase, the business structure changed from a partnership to a company. Financial difficulties followed and the business ceased to operate at the end of the 2016 financial year.

9             In May 2017, the appellants instituted proceedings against the respondent seeking declarations that the applications for the loans were null and void, and claiming damages by reason of the respondent's unconscionable conduct. The respondent filed a defence to the claim, and a counterclaim seeking judgment for the amount owing under the loans. The respondent also sought orders that unless the debt owing under the mortgages securing the loans was paid, possession of the relevant premises be given to the respondent.

10          Following a failure by the appellants to provide particulars of the claim, on 12 December 2018, pursuant to a consent memorandum executed by solicitors for the parties, an order was made requiring the appellants to provide particulars of loss and damage by 21 January 2019. Significantly, the order provided that in the event of failure by the appellants to comply with the order, judgment be entered in favour of the respondent dismissing the appellants' claim, allowing the respondent's counterclaim and ordering that possession of the premises be given to the respondent (self-executing order).

11           Following the filing of an affidavit deposing that the appellants had failed to comply with the self-executing order, on 12 April 2019 judgment was entered by orders in terms of that order. The appellants appeal against the self-executing order was dismissed by Geason J.

12 In addition to appealing against the self-executing order, the appellants filed an interlocutory application pursuant to r 374 of the Supreme Court Rules 2000 seeking that the judgment of 12 April 2019 be set aside. Geason J provided the appellants with an opportunity to particularise their claim and further "particulars" were filed. Subsequently Geason J dismissed the application to set aside the judgment.

13          The appellants appeal against the decisions of Geason J. For the reasons that follow, in my opinion those appeals should be dismissed.

Background

14           In 2004 the appellants owned a property in Bird Street, Burnie (the first property). They leased a second property in Wellington Street, Burnie, from which they operated a family signwriting business. The lease of the second property included an option to purchase that property.

15           The appellants borrowed $42,000 from the respondent in 2004 and used the funds to refinance an existing loan with a credit union. As security for the new loan, the respondent held a mortgage in respect of the first property.

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16          The respondent's written outline of submissions filed 28 January 2022 contains a helpful summary of relevant history:

"The appellants had for a number of years conducted a graphics and signage business at Burnie. They had a three year lease over a workshop property at 30 Wellington Street Burnie at $18,000 pa plus rates, land tax etc., with an option to, at the end of the three- year period, purchase the property. By a time shortly before the end of the lease, they had decided they wished to exercise the option to purchase. The purchase price under the option was $285,000, and by this point the value of the property was $300,000. Being existing customers, they approached the respondent bank in December 2007 seeking a loan of $296,000 to cover the purchase price and incidental expenses. The bank agreed to lend them the $296,000. The purchase of the property was completed in April 2008, and at the same time, they had their accountant move the business from a partnership structure to a company structure, with their new company (Image Signs & Graphics (Tas) Pty Ltd) leasing the newly acquired Wellington Street property from them.

…

The amount of the lending to them was $296,000.00, made up of:

a	a loan of $36,000 to be repaid by principal and interest payments over five years, and
b	a loan of $260,000, interest only for the first three years, and thereafter repayable by principal and interest payments, with a total loan term of 15 years.

As at the time that they purchased:

a	the purchase price of the property was $285,000,
b	the market value of the property was $300,000,
c	interest and fees on the loans totaled $28,284 pa (and then reducing as loan principal reduced),
d	the market rent of the property was $29,000 pa.

The appellants repaid the $36,000 loan within the 5 year term (ie by mid 2013). rent had increased to $35,510 pa." [Footnotes omitted.]

17           Although the loan of $36,000 was repaid by mid-2013, and the overall loan commitments were kept up to date until March 2014, subsequently the appellants fell into arrears and the business ceased operating at the end of the 2016 financial year. On 9 September 2016 the respondent filed an amended summons to show cause why the Supreme Court should not order that possession of the properties be given to the respondent unless $266,943.66, plus interest continuing to accrue, was paid by the appellants to the respondent. Shortly after those proceedings were instituted, the appellants issued a writ seeking declarations that the applications for the loans were null and void, together with damages and an injunction.

18           In an amended writ filed on 10 May 2017, the appellants claimed that, without their knowledge, the respondent altered the first loan application "by altering the annual income and assets of the [appellants], to make the [appellants] eligible for loan applications". The appellants claimed that the alterations were made despite the respondent knowing that there was "a real likelihood" that the appellants would not be able to furnish the loan repayments.

19           As to the second loan, the appellants asserted that the respondent "penned in false information" on the application "by adjusting the asset worth of the Business, and by adjusting the asset worth of the First Property contents, to make it appear that the [appellants] were eligible for a loan amount". The appellants asserted that the false information was inserted without their knowledge, and despite the respondent knowing that there was a real likelihood that the appellants would not be able to meet the loan repayments.

6   No 8/2022

20           The amended writ contained a number of assertions about the conduct of the respondent. In essence, the appellants claimed that the respondent was in breach of its position of trust, and that its conduct was unconscionable. The appellants sought declarations that the loan applications be "deemed null and void", and damages to compensate the appellants for "stress suffered" and for "financial loss suffered".

21           Not surprisingly, the respondent sought particulars of the claim. The first written request was made in February 2017. Over the ensuing three years, the appellants failed to provide those particulars. Before Geason J, counsel for the appellants acknowledged that there had been a failure to comply with the obligation to give particulars, a concession which Geason J described as "properly made but unavoidable".

22           An additional difficulty for the appellants was identified by Geason J. The appellants rely upon the financial deterioration of the business which occurred after the loans had been advanced. At the time of the advances the business was operated by the appellants as a partnership. However, as mentioned, after the purchase of the second property in April 2008, the business was operated by a company. Geason J noted that the comparison involved differently structured businesses and, "more fundamentally, the claim references losses suffered by a different legal entity; the company as opposed to the [appellants]".

23           In 2017, the two sets of proceedings were consolidated. Full particulars of loss, and discovery of documents, were sought on 6 February 2018 and, on 14 February 2018, the appellants' solicitor advised that an accountant had been retained to provide particulars of loss. The appellants requested an extension of two weeks beyond 16 February 2018 to allow the report to be completed.

24           The particulars of loss were not forthcoming. By email of 21 May 2018, the respondent's solicitor again requested provision of the appellants' "properly particularised Particulars of Loss", together with witness statements of additional evidence intended to be relied upon by the appellants as to loss. Although they had not provided particulars, in August 2018 the appellants served an application for further discovery of documents.

25           In response to the appellants' application with respect to discovery, the respondent's solicitor wrote on 28 August 2018 with respect to a number of issues, including the ongoing failure of the appellants to provide particulars of loss. Through that correspondence the appellants were put on notice that unless particulars of loss were provided within seven days, or a firm timetable for delivery of particulars was provided, the respondent would prepare for trial on the assumption that no particulars of loss or supporting witness statements were able to be delivered by the appellants.

26           On 30 August 2018, in a hearing before Geason J attended by Mr King representing the appellant, and Mr Hudson representing the respondent, by consent an order was made in the following terms:

"1 That within 14 days, the plaintiffs are to complete production to the defendant's solicitors of all of the documents specified in part 1 of schedule 1 to the plaintiffs list of documents.

2 Within 21 days the plaintiffs are to file and provide to the defendants solicitors, particulars of the loss and damage with they say they have sustained by virtue of the conduct of or on behalf of the defendant and such particulars must address and particularise as to each of the following matters:

i)     Specify the different course/s they assert they would have taken had the loans not been advanced (and the Wellington Street property not being purchased).

ii) Detail the loss/es which they allege they have suffered, and do so in a manner
which identifies:

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a) By date and amount each loss or expenditure, or if this is not possible, provide the calculation which has been used,

b) A causative link between the items claimed and the making of the loans;

iii) Where an expenditure is incurred, deal with the benefits received as a result of

that expenditure.
3 Costs are reserved."

27           The appellants failed to comply with the order. On 26 October 2018 the respondent filed an interlocutory application seeking that the time for the appellants to provide the particulars of loss be extended for an additional 14 days and that, in the event of further failure to comply with the order, the appellants' claim be dismissed and orders made on the respondent's counterclaim. Communications occurred between the parties and court appearances followed. Ultimately, by consent, on 12 December 2018 the self-executing order was made in the following terms:

"1

That the time fixed under order of this Court of 30 August 2018 for the Plaintiffs to file and provide to the Defendant's solicitors the particulars specified in that order, be extended to 21 January 2019.

2

That in the event of failure by the Plaintiffs to, on or before 21 January 2019, file and provide to the Defendant's solicitors particulars of the loss and damage which in this consolidated proceeding they say they have sustained by virtue of the conduct of or on behalf of the Defendant with such particulars addressing and particularising as to each of the following matters:

(a)	specifying the different course/s they assert they would have taken had the loans not been advanced (and the Wellington Street property not been purchased);
(b)	detailing the losses which they allege that they have suffered, and doing so in a manner which identifies:

i by date and amount each loss or expenditure, or if this Is not possible,
providing the calculation which has been used, and

ii a causative link between the items claimed and the making of the loans; iii where an expenditure has been incurred, dealing with the benefits

received as a result of that expenditure

then, and upon the filing of an affidavit of non-compliance by the Defendant's solicitors, judgment be entered in favour of the Defendant against the Plaintiffs as follows:

1       On the Plaintiffs' claim: - dismissing the Plaintiffs' claim;

2       On the Defendant's counterclaim: -

(a)	judgment for $358,341.01 together with interest at the rate of $98.78 per day from 11 October 2017 to the date of judgment, and
(b)	ordering that

i

unless in the meantime all money due under memorandum of mortgage no C822878 is paid, possession of the premises described in folio of the register volume 121730 folio 1 is to be given by the Plaintiffs to the Defendant on or before 60th day following service of this order on them by postage or otherwise and if service Is affected by posting, service shall be deemed to have been affected on the 6th business day following the posting, and

ii

unless in the meantime all money due under memorandum of mortgage no C540779 is paid, possession of the premises described In folio of the register volume 60213 folio 43 is to be given by the Plaintiffs to the Defendant on or before 60th day following service of this order on them by postage or otherwise and if service Is affected by posting, service shall be deemed to have been affected on the 6th business day following the posting.

8   No 8/2022

3       That Plaintiffs pay the Defendant's costs to be taxed on a solicitor-client indemnity

basis:

(a)	of and incidental to the Plaintiffs' claim from 1 August 2017, including any reserved costs,
(b)	of and incidental to the Defendant's counter-claim from 1 August 2017, including any reserved costs, and
(c)	of and incidental to this application."

28           On 21 January 2019 the appellants provided to the respondent a "loss report", prepared by an accountant, Mr Steven Smith (the Smith report)[1]. That report was advanced in satisfaction of the order for particulars. The respondent replied that the document "patently" did not comply with the order. However, the respondent advised it was prepared to provide a final opportunity for provision of particulars in compliance with the order. Further exchanges occurred, but additional particulars were not forthcoming. On 12 April 2019, the respondent having filed an affidavit of non-compliance, the Registrar entered judgment in accordance with the self-executing order.

[1]     An earlier loss report by Mr Smith dated 15 November 2018 was provided to the respondent on 20 November 2018, and was

29           After an ill-advised appeal against the entry of the judgment by the Registrar, which was dismissed, and communications between the parties and directions hearings before the Court, on 17 September 2019 the appellants filed a notice of appeal against the self-executing order made on 12 December 2018. On the same day they filed an interlocutory application seeking that the order of 12 December 2018, and the judgment of 12 April 2019, be set aside or varied.

The appeal/interlocutory application

30   The grounds of the appeal against the self-executing order were as follows:

"1)	The Associate Judge erred in law and fact.
2)	The Orders were made without adequate notice and in breach of rules of procedural fairness.
3)	The Associate Judge's exercise of discretion miscarried.
4)	The Associate Judge erred as to the Appellants' alleged consent.
5)	The Associate Judge erred in making the Order where:

a)	It was not proper to make an Order that judgement was by consent, having regard to the terms of the Order, including the discretions provided for as to indemnity costs and assessment of quantum under the counterclaim;
b)	The written consent was not signed by the Solicitor acting for the Appellants, but a part- time locum Solicitor;
c)	No sufficient consideration was given to the Supreme Court Rules 2000, Rule 340(3)(b) and (4), and Rule 341(3)(b), (4) and (5);
d)	No reasons were given, which in the circumstances was appropriate."

31   The interlocutory application filed at the same time as the notice of appeal sought the following

orders:

"1	An Order that the Court or a Judge set aside or vary the Order made 12th December 2018;
2	An Order that the Court or a Judge set aside or vary the Judgement made 12th April 2019;
3	To the extent necessary, an Order extending the time to make this application to the date of filing hereof;

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4       Such further or other Orders as the Court deems fit;

5       Costs"

32           The appeal and interlocutory application were heard by Geason J in August 2021. A significant quantity of documentation was placed before his Honour, together with a number of affidavits and evidence given before Holt AsJ by the first appellant. The material provided to Geason J included the Smith report, a proposed amended statement of claim and proposed particulars of loss. In view of the ground of appeal which asserts that Geason J "erred in holding that the particulars of quantum are inadequate and do not provide sufficient notice to the respondent of [the appellant's] claim", it is appropriate to set out in full those particulars. As the respondent contends that the proposed particulars are, effectively, a repetition of much of the Smith report, I first set out the relevant sections of that report:

"Data

Information provided by M Saltmarsh related to financial statements, loan application documents and tax returns relating to M Saltmarsh, J Saltmarsh, M&J Saltmarsh Partnership and Image Signs & Graphics (Tas) Pty Ltd for the years 2003 to 2015. These documents are listed in Annexure 1. Not all documentation was able to be provided for each year, so either that year's tax return or financial statement was used to collate the financial performance data in that year. Where neither was available for an entity, assumptions were made and listed below.

Additional information was requested to verify the validity and thoroughness of the loan application approval processes and the data, assumptions, risk analysis, serviceability and security used by Westpac Banking Corporation, however this was not provided.

The information used to provide this analysis has been based on data and documentation provided by Michael Saltmarsh including information provided in his affidavit. It is unaudited documentation and has not been verified by audit or sighted receipts/invoices/bank or loan statements unless stated. Conclusion and assumptions made in this report are limited to these factors.

Assumptions

Financial Statements or Tax returns were not available for M&J Saltmarsh partnership for 2009, 2011 & 2012. Based on tax returns or financial statements available on supplied information for years either side of these years, the following assumptions/estimations are used:

• The rental expense incurred by Image Signs & Graphics (Tas) Pty Ltd is generated by the rental income gained by M&J Saltmarsh partnership, so the income for M&J Saltmarsh partnership is assumed to be the same as the provided figure for rent expense for Image Signs & Graphics (Tas) Pty Ltd where no financial data was supplied for M&J Saltmarsh partnership for that year (2009, 2011 & 2012).

• The average interest expense for M&J Saltmarsh partnership in the years that this information was provided and adjacent to the years that were not provided was $24563.50. This average interest expense figure was used in 2009, 2011 & 2012 years for the purpose of the comparison calculation.

• Capital improvement deductions (depreciation) of $339 have been stated in all years where financial information were provided, post purchase of the property. It is assumed that in the years (2009, 2011 & 2012) that no information was available for M&J Saltmarsh partnership, a capital improvement deduction of $339 exists.

The 2008 and 2016 financial years have been excluded from any calculations as:

• 2008 represented a partial year of pre loan and post loan operations, being a transitional year. Inclusion of 2008 in either the pre or post loan average calculation would distort the resultant figure.

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• 2016 represented a partial year of operation and so inclusion of the financial performance in the post loan combined average profit calculation would distort the figure for comparison purposes.

Pre loan trading indicators and trends (2003-2006)

Profit

Average profit for the years 2003-2006 is $58352. Range was $72415 (2005) to $48796
(2006).
Average Profit as a percentage of sales for the years 2003-2006 is 15%. Range was
23% (2003) to 10% (2006). Trend has been that the Profit% has decreased over the

review period.

Gross Margin

Average Gross Margin for the years 2003-2006 is $276959.75. Range was $35118 (2006) to $184119 (2003). Trend has been the Gross Margin is increasing over the review period.

Average Gross Margin as a percentage for the years 2003-2006 is 68%. Range was 71% (2003) to 65% (2004). Trend has been the Gross Margin% is relatively stable over the review period.

Net Profit excluding fixed costs

Average profit excluding fixed costs for the years 2003-2006 is $124355. Range was $102319 (2003) to $139083 (2005). Trend has been the profit excluding fixed costs has slowly been increasing over the review period.

Average profit excluding fixed costs as a percentage of Income for the years 2003-2006 is 32%. Range was 39% (2003) to 28% (2006). Trend has been the profit excluding fixed costs% has been relatively stable over the review period.

Fixed costs

Average Fixed Costs for the years 2003-2006 are $66003. Range was $89345 (2006) to $42277 (2003). Trend has been the Fixed Costs is increasing over the review period. Average Fixed Costs of Income as a percentage for the years 2003-2006 are 16%. Range was 18% (2004, 2006) to 13% (2005). Trend has been the Gross Margin% is relatively stable over the review period.

SUMMARY

Net profit levels have been relatively stable in dollar terms despite a slow deterioration of KPIs for profitability after fixed costs. This has been due to increased turnover compensating for the lower margins.

Situation at loan approval (2007)

2007 was the year that was the closest completed year prior to the year the loan was applied for and approved. The affidavit supplied by M Saltmarsh indicated that the financial report for this year was requested by WBC with the application.

Profit

Net profit for the 2007 financial year is $38069. This was a reduction of $20k over the of 8% over the previous four year average and 3% less than the previous year.

previous four year average and $10k less than the previous year.

Gross Margin

Gross Margin for the 2007 financial year is $385586. This was an increase of $1091< of 1% over the previous four year average and 1% less than the previous year.

over the previous four year average and $351< more than the previous year.

Net Profit excluding fixed costs

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Net profit excluding fixed costs for the 2007 financial year is $150726. This was an increase of $261< over the previous four year average and $121< more than the previous year.

Net profit excluding fixed costs as a percentage of sales for the 2007 year was 27%. This was a reduction of 5% over the previous four year average and 1% less than the previous year.

Fixed costs

Fixed Costs for the 2007 financial year were $112657. This was an increase of $661< of 4% over the previous four year average and 2% more than the previous year.

over the previous four year average and $231< more than the previous year.

SUMMARY

2007 financial report indicated a deteriorated financial performance with reduction in the business was not performing strongly nor in a position to sustain increased debt, costs and cashflow requirements.

net profit, worsen KPls for profit, net profit before fixed costs and fixed costs.
BALANCE SHEET
A review of the balance sheet as at 30/6/07 indicate that current assets were $83474
and non current assets were $134007, given a Net current assets of -$50533 or a current
ratio of 0.69. This ratio has steadily declined over the previous five years from 1.29 to
0.62.
A net asset of -$17989 was also reported. This was the only negative net asset shown
over the years 2003-2007.
Poverty line

Based.on the 2007 poverty line, the Saltmarshes were only $121< above this line, so there was not a lot of surplus left to meet additional costs and still keep the Saltmarshes above the poverty line.

Challenges post loan (2009 onwards)
Fixed cost increases

With the supplying of the loan by WBC and subsequent purchase of the commercial property, the Saltmarshes would be faced with increased fixed costs in comparison with the business prior to the supplying of the loan. This would include the payment of interest on the loan, water rates, council rates, land tax, insurance on the building, repairs and maintenance on the building, improvements on the building, legal costs and increase accounting/ASIC costs. There would be a removal of the need to pay rental payments to a third party. Below is a summary of these expected (based on historical and future actual costs) costs including net effect on the Saltmarshes.

Annual expense changes:

Rent	$18000	Decrease
Interest	$24000	Increase
Land Tax	$700	Increase
Water Rates	$1450	Increase
Council Rates	$3000	Increase
ASIC Fees	$200	Increase
Accounting Fees	$2600	Increase
Building Repairs and Maintenance	$1500	Increase

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Building Insurance	$3700	Increase
Net Annual Change to Expenses	$19150	Increase
Annual non expense cash/low requirements
Principal Payment on loan	$9600	Increase
Net Annual non expense cashflow req	$9600	Increase
TOTAL ANNUAL CASHFLOW	$28750	Increase
VARIATION
Other expected costs (not annual):
Building upgrades and improvements
Legal fees

It is normal for any lending institution to consider serviceability when assessing loan applications and this often includes provision and evaluation of cashflow projections as a part of this process. This would take into account the ability of the business, based on past history and expected changes to meet the financial obligations of both the loan and any additional expenses for the purchase. In the case of the Saltmarsh's proposed purchase of the commercial property, it would include the ownership expenses (eg rates, R&M, property/infrastructure improvement, insurance, water, land tax, etc) and any additional business expenditure needed. Every commercial loan application I have submitted has had the requirement of a cashflow projection (1-5 years) to prove serviceability of the proposed loan by the client.

Effect of these increases

With increase cashflow/fixed costs and the business's recent historical performance not revealing significant surplus to absorb these additional costs, it became very obvious that the business could not meet the increased financial obligations of the loan/property purchase in the existing state and so significant changes would need to occur to increase net profit to meet these additional cost/cashflow requirements. Based on the recent performance history before the loan was supplied, the likely outcome would have been significant and accumulating losses post loan/property purchase if the business remained as is and the Saltmarshes expected to live above the poverty line.

Gross Margin

To meet the increased costs, the turnover needed to increase and/or the expense base need to decrease to increase the net profit of the business. That is, the increase in cost needs to be met by an increase in turnover less additional cost of goods sold (eg materials) less any increase in variable costs to give increased net profit to meet the additional costs associated with the loan and purchasing of the commercial property.

Required turnover

Without the ability to absorb the additional cost into the existing business, increased net profit and therefore turnover is required. Based on increased annual net costs of $28750 and net cost% of 27 (at the time of the loan), the increase in turnover required to just meet the additional net costs is estimated as $106481. With an assumed allowance of 10% of capital value ($27000) each year for the continual improvement and development of the building and resources, an additional turnover of $100000 (based on existing net profit ratio) will be needed to fund the cash requirements of these upgrades. This will mean that around $206481 (37%) in increased turnover in total will be needed to fund the additional expenses and cash requirements associated with the supplying of the loan/purchase of the commercial building. This is all assuming that the current ratios and efficiencies are maintained and that the business has the capacity to increase turnover by this amount without having to increase resource costs (staff, equipment, space, financial funding costs), which is unlikely.

13   No 8/2022

The need to increase turnover introduces several challenges and requirements. The main challenges are if it is achievable, how to achieve it and how long to achieve it? Considerations such as skills matching, market analysis, budgets, product lines, market capacity, marketing, cashflow funding, external/consulting assistance and capacity are all crucial to being able to achieve any turnover increases.

These should have been considered during the loan approval process to assess viability and serviceability of any potential loan.

Capacity increase

Having a requirement to increase turnover is only part of an equation, however having the capacity to achieve that turnover is often a limited factor. If the capacity to achieve a higher turnover is not existing in the current business, then changes must be taken to increase the capacity. These changes maybe in the form of staff increases, staffing restructures, increased and/or upgraded equipment, additional space and/or the reconfiguration of existing space, improvement of infrastructure or development/upgrading of building utilities.

These changes take time and require financial commitments. The financial commitment may be in the form of increased debt, working capital, reduced turnover/capacity/efficiency whilst changes are made or training of staff occurs. Both the time and financial implications of these changes need to be factored into the cashflow projections of the business and its ability to meet other financial commitments.

Capital investment

As discussed above, increases in capacity require a capital investment. This may be in the form of additional equipment, upgraded equipment, improved infrastructure, increased space, external expertise, improved/increased skills/staff/knowledge or combinations of the above.

Year by year analysis post loan (2009-2015)

2009 Financial Year

2009 was the first full year after the approval of the loan by WBC and purchase of the

commercial property.

Turnover

Turnover increased by $209647 or 37% over 2007's performance.

Profit

Profit for the 2009 financial year is $49309. This was a reduction of $5k over the pre over the pre loan average and 1% less than the 2007.

loan average.

Gross Margin

Gross Margin for the 2009 financial year is $542151. This was an increase of $2431< of 1% over the pre loan average and 2% less than the 2007 year.

over the pre loan average and $157k more than the 2007 year.

Net Profit excluding fixed costs

Net profit excluding fixed costs for the 2009 financial year is $163693. This was an
increase of $34k over the pre loan average and $131< more than the 2007 year.
Net profit excluding fixed costs as a percentage of sales for the 2009 year was 20%.

This was a reduction of 10% over the pre loan average and 7% less than the 2007 year.

Fixed costs

Fixed Costs for the 2009 financial year were $114384. This was an increase of $39k
over the pre loan average and $2k more than the 2007 year.
SUMMARY

14   No 8/2022

2009 financial reports indicated a significant upturn in turnover. In discussions with the plaintiff, significant investments were made (marketing, capacity, staffing, etc) to try and improve the turnover and profit to cover the additional costs and cashflow requirements leading from the loan. This investment is evident in the over $205k in additional expenses (excluding direct costs) incurred in the 2009 when compared to the pre loan average. The plaintiff sets out details of some of these additional expenses in their affidavit.

Despite the increased turnover, the profit was lower than the pre loan average due to an increase in fixed costs against the pre loan average and deterioration against pre loan profit ratios. This is often the case when a business goes through significant turnover growth as capacity, staffing and efficiencies take time to adapt to the changing business situation.

When factoring the additional cashflow requirement of the loan, the Saltmarshes were in reduced cashflow situation in 2009, compared to the pre loan 2007 year, despite a significant turnover increase.

2010 Financial Year
2010 was the first full year at the new capacity and after the initial 'Honeymoon year'

following an expansion or marketing drive occurs.

Turnover

Turnover decreased by $97855 or 13% against 2009's performance.

Profit

Profit for the 2010 financial year is $9563. This was a reduction of $481< over the pre
loan average.
Profit as a percentage of sales for the 2010 year was 1%. This was a reduction of 13%
over the pre loan average and 5% less than the 2009 and 6% less than the pre loan 2007
year.

Gross Margin

Gross Margin for the 2010 financial year is $484716. This was a decrease of $1861< as the pre loan average and 1% more than the 2009 year.

over the pre loan average and $571< less than the 2009 year.

Net Profit excluding fixed costs

Net profit excluding fixed costs for the 2010 financial year is $118025. This was a
decrease of $261< over the pre loan average and $551< less than the 2009 year.
Net profit excluding fixed costs as a percentage of sales for the 2010 year was 17%.

This was a reduction of 11% over the pre loan average and 3% less than the 2009 year.

Fixed costs

Fixed Costs for the 2010 financial year were $108462. This was an increase of $331< additional costs and cashflow requirements associated with the WBC loan and commercial property purchase, the profit was just above breakeven and much lower that pre loan average due to an increase in fixed costs against the pre loan average and deterioration against pre loan profit ratios. The gross margin remained constant but

over the pre loan average and $6k less than the 2009 year.
SUMMARY
2010 financial reports indicated a significant downturn in turnover following on from
the honey moon year associated with a marketing/capacity push. In discussions with
the plaintiff, significant investments were still made (marketing, capacity, staffing, etc)
to try and improve/maintain the turnover and profit to cover the additional costs and
cashflow requirements leading from the loan. This investment is still evident with over
$1851< in additional expenses (excluding direct costs) incurred in the 2010 when
compared to the pre loan average. The plaintiff sets out details of some of these
additional expenses in their affidavit.

15   No 8/2022

profit, after direct costs and variable costs were removed, dropped significantly and in negative cashflow situation in 2010 and much worst compared to pre loan 2007, despite significant turnover increase and more workload. This is backed up by statements in the Saltmarsh's affidavit about difficulties in meeting financial commitments and increased workloads bearing on them physically and mentally.

only just left enough to cover fixed costs.
2011 Financial Year

2011 followed on from a breakeven 2010 with a negative cashflow.

Turnover

Turnover decreased by $79569 or 12% against 2010's performance.

Profit

Profit for the 2011 financial year is $15490 loss. This was a reduction of $69k over the over the pre loan average and 3% less than the 2010 and 8% less than the pre loan 2007 year.

pre loan average.
Gross Margin

Gross Margin for the 2011 financial year is $431569. This was a decrease of $133k as the pre loan average and 1% more than the 2010 year.

over the pre loan average and $53k less than the 2010 year.

Net Profit excluding fixed costs

Net profit excluding fixed costs for the 2011 financial year is $105686. This was a
decrease of $39k over the pre loan average and $12.5k less than the 2010 year.
Net profit excluding fixed costs as a percentage of sales for the 2011year was 17%.

This was a reduction of 10% over the pre loan average and the same as the 2010 year.

Fixed costs

over the pre loan average and $131< more than the 2010 year.
SUMMARY
2011 financial reports indicated a continuing significant downturn in turnover despite
attempts to maintain or increase existing levels. In discussions with the plaintiff,
significant investments continued to be still made (marketing, capacity, staffing,
external consultants etc) to try to improve/maintain the turnover and profit to cover the
additional costs and cashflow requirements leading from the loan. This investment is
still evident with over $160k in additional expenses (excluding direct costs) incurred in
the 2011 when compared to the pre loan average. The Saltmarshes set out details of
some of these additional expenses in their affidavit.
With the turnover failing to meet the required additional turnover needed to meet the
additional costs and cashflow requirements associated with the WBC loan and
commercial property purchase, a loss resulted and much worst that the pre loan average
profit due to an increase in fixed costs against the pre loan average and previous years
as additional costs (debt funding, improvements, external consultants, etc) and further
deterioration against pre loan profit ratios.
The gross margin remained constant but profit after direct cost and variable costs were
removed continued to dropped significantly and failed to leave enough to cover fixed
costs. To cover the deteriorating cashflow additional borrowing were undertaken to
ensure business could continue, however this came at the cost of additional repayments
negatively impacting cashflow into the future. Fixed Costs for the 2010 financial year were $121176. This was an increase of $45k in an increasingly negative cashflow situation in 2011 and much worst compared to pre loan 2007, despite investment, outside assistance and increased personal effort being

16   No 8/2022

implemented. In the Saltmarshes' affidavit there are statements of having to work increased unpaid hours and decreasing health. This could fairly easily be attributed to the situation the Saltmarshes found themselves in financially.

2012 Financial Year

2012 followed on from a loss in 2011 with increasing negative cashflow.

Turnover

Turnover increased by $54667 or 9% against 2011's performance.

Profit

Profit for the 2012 financial year is a $156053 loss. This was a reduction of $2103481< over the pre loan average.

Profit as a percentage of sales for the 2012 year was - 23%. This was a reduction of 37% over the pre loan average and 21% less than the 2011 and 30% less than the pre loan 2007 year.

Net Profit excluding fixed costs

A detailed break up of expenses was not available for this financial year, so no analysis for this category could be provided with reasonable confidence.

Fixed costs

A detailed break up of expenses was not available for this financial year, so no analysis for this category could be provided with reasonable confidence.

SUMMARY

2012 financial reports indicated an upturn in turnover as a result of significant changes to the business model and investment in external consulting advice, staff and equipment. This was in attempt to stem the continuing downturn in turnover and profitability. These changes and investment are set out in the Saltmarshes' affidavit and reflected in over $800k in expenses being incurred in the 2012 to run and develop the business. This is around $2001< extra expenses compared to 2011 year.

With the turnover rising $551< but expenses increasing near $2001< to meet the additional costs and cashflow requirements associated with the WBC loan and commercial property purchase, a $1561< loss resulted, which was much worse than pre loan average profit due to an increase in fixed costs against the pre loan average and previous years as additional costs (debt funding, improvements, external consultants, equipment, additional staffing, etc).

When factoring the additional cashflow requirement of the loan, the Saltmarshes were in a significant negative cashflow situation in 2012 and much worse, compared to pre loan 2007 financial year, despite investment, outside assistance and increased personal effort being implemented. In the Saltmarshes' affidavit there are statements that the Saltmarshes have commented on steps they took to seek additional cashflow funding, loans and this even included funds from family as the cashflow situation would be critical.

2013 Financial Year

2013 followed on from a large loss year with a negative cashflow.

Turnover

Turnover decreased by $50306 or 8% against 2012's performance.

Profit

Profit for the 2013 financial year is a $94443 loss. This was a reduction of $1491< over
the pre loan average.
Profit as a percentage of sales for the 2013 year was - 15%. This was a reduction of
29% over the pre loan average and 8% better than the 2012 and 22% less than the pre

loan 2007 year.

Gross Margin

Gross Margin for the 2013 financial year is $294782. This was a decrease of $4k over the pre loan average.

17   No 8/2022

Gross Margin as a percentage of sales for the 2013 year was 46%. This was 22% lower than the pre loan average.

Net Profit excluding fixed costs

Net profit excluding fixed costs for the 2013 financial year was $70726. This was a
decrease of $741< over the pre loan average.
Net profit excluding fixed costs as a percentage of sales for the 2013 year were 11%.

This was a reduction of 16% over the pre loan average.

Fixed costs

Fixed Costs for the 2013 financial year were $165169. This was an increase of $641< over the pre loan average.

SUMMARY

2013 financial reports indicated that despite a $50k improvement in turnover, continuing investment in infrastructure, market presence, external consulting, staff and equipment to improve efficiency and profitability, the additional fixed costs associated with the servicing of the WBC loans, purchase of the commercial property and funding of increasing debt, coupled with a reduction in gross margin led to a significant loss. In discussions with the Saltmarshes, significant investments continued to be still made (marketing, capacity, staffing, external consultants etc) to try and improve/maintain the turnover and profit to cover the additional costs and cashflow requirements leading from the loan. This investment is still evident with over $101k in additional expenses (excluding direct costs) incurred in the 2013 when compared to the pre loan average. The Saltmarshes sets out details of some of these additional expenses in their affidavit. When factoring in the additional cashflow requirement of the loan, the Saltmarshes were in an overwhelming negative cashflow situation in 2013 and much worse compared to pre loan 2007, despite investment, outside expert assistance and increased personal effort being implemented. In the Saltmarshes' affidavit there are statements of continuing steps taken to increase cash availability via external loans, seeking expert assistance, restructuring the business to reduce expenses as well as the personal, physical and emotional toll of their current situation.

2014 Financial Year

2014 followed on from three years of losses in and serious negative cashflow.

Turnover

Turnover decreased by $235852 or 40% against 2013's performance.

Profit

Profit for the 2014 financial year is a $89612 loss. This was a reduction of $1441< over the pre loan average.

Profit as a percentage of sales for the 2014 year was -25%. This was a reduction of 32% over the pre loan average and 10% less than the 2013 and 32% less than the pre loan 2007 year.

Net Profit excluding fixed costs

Detailed break up of expenses was not available for this financial year, so no analysis associated with the WBC loans and commercial property purchase, a $901< loss

for this category could be provided with reasonable confidence.
Fixed costs
Detailed break up of expenses was not available for this financial year, so no analysis
for this category could be provided with reasonable confidence.
SUMMARY
2014 financial reports indicated a significant decline in turnover and another significant
loss as funds from operation were unable to meet financial obligations associated with
increased fixed costs mainly attributed to the servicing of debt and payment of
operating cost of the commercial building.

18   No 8/2022

resulted, which was much worst that pre loan average profit. This represent the forth in a dire cashflow situation in 2014 and much worse, compared to pre loan 2007, despite investment, outside assistance and increased personal effort being implemented. In the Saltmarsh's affidavit lists the effects that the current situation were having on their health (physical and mental), relationships, financial situation and family situation.

consecutive loss with the last three being significant.
2015 Financial Year

2015 represented the end of the Saltmarshes' business as the toll of high expenses, high debt levels, cashflow issues and continuing losses finally cause the loss of the business, health and mental wellbeing.

Lost totals (2009-2015)

It is clear from the above analysis that the Saltmarshes' business suffered a significant downturn as a result of the WBC loan being supplied and commercial property being purchased. Up until the point where the loan was supplied, their business was a relatively low cost operation that had consistently made a small profit (average $541< per year) that provided them with a modest living and allowed appropriate levels of business development. It should be noted that the years immediately prior to the WBC loan being supplied and the financial records being assessed by the WBC as part of their assessment process showed a decrease in profit levels despite an increase in sales. It is fairly obvious that the business could not sustain any significant increase in operating costs/cashflow requirements (loan or building ownership expenses) in its current state based on the financial performance presented.

Once the WBC loan was supplied and the commercial property purchased, the Saltmarshes were faced with a situation they hadn't faced before and were unprepared for. They had significant additional expenditure/cashflow requirements to meet to service the WBC loan, meet the financial expenses associated with owning a commercial property as well as to significantly expand their business turnover and profitability in a short time to meet these extra expenses. This would take additional and significant funds, working capital, specialist skills, infrastructure, staff, marketing and equipment that didn't exist (nor need to) in their current business model.

The subsequent years to the WBC loan being supplied and the commercial property purchased resulted in a fair rapid decline in profitability with a small profit in the first year, then a break even year result in the second, a small loss in the third then four consecutive significant losses in a row that eventuated in the demise of the business. Post the WBC loan being supplied, the average yearly performance was a $54k loss or a $108k/year reduction in profitability compared to pre WBC loan average profitability. In the post WBC loan supplying period of 2009-2013FY and additional (above the average of the pre WBC loan approval - ie 2003-2007) $907k of expenditure (excluding direct costs but including debt servicing/property ownership costs) was incurred in the attempt to meet the financial obligations of the higher cost model that resulted from the WBC loan/commercial property purchase. If the loan was not supplied and the commercial property purchased, then it could be proposed that there would have been no need for the Saltmarshes to change their low cost business model, continued to rent a premises and continued to make their modest profits yearly without having this additional expenditure or need to expand their business to pay for the higher costs associated with servicing the WBC loan, funding expansion costs and paying ownership costs associated with the purchased commercial premises.

Either the lost profit method or actual additional expenditure method used above highlight the financial cost of the WBC loans approvals/commercial property purchase, but these don't take into account the increased levels of unpaid work done by the Saltmarshes as a result of trying to meet their obligations under the post WBC loan approval/Commercial property purchase and the financial losses associated with that. The Saltmarshes have listed their claim for unpaid work in their affidavit.

Mental health

Although not qualified as a medical practitioner for mental health, I do have over eight years' experience working as a financial counsellor for businesses in financial trouble. During that time, I have experienced the effects on many clients of continued financial

19   No 8/2022

stress over a longer period of time. My experience is that continued financial stress, especially where it involves the risk of losing their house or property, can lead to significant issues with both mental and physical health, relationship breakdowns, marriage breakdowns, family breakdowns, reduced or ineffective work performance, domestic violence, self-harm and have even had several clients attempt or succeed at suicide. Some of those clients took a long time to or never recovered fully, despite professional help.

After reading the Saltmarshes' affidavit, some of the above symptoms are consistent with the effects they state they experienced due to prolong financial stress at the risk of losing their business and home."

33   The proposed particulars of loss placed before Geason J were as follows:

"PROPOSED PARTICULARS OF LOSS

1            The Plaintiffs operated an image copying and sign business as a partnership until the 2008 financial year.

2            In 2008, the Plaintiffs continued their business operation using a wholly owned and managed private company as the operating entity, called Image Signs & Graphics (Tas) Pty Ltd ('the entity').

3            In the 2008 financial year, the M&S Saltmarsh partnership purchased the commercial property situated a 30 Wellington Street, South Bernie in the State of Tasmania in which they had been operating and rented the property to the operating entity, to cover the costs of owning the property such as the loan, interest and depreciation.

4            The entity operated until the 2016 financial year.

5            The rental expense incurred by the entity is generated by the rental income gained by the M&S Saltmarsh partnership. The two figures are assumed to be the same.

6            The average annual interest expense for the M&S Saltmarsh partnership was $24,563.50.

7            Annual capital improvement deductions (depreciation) of $339 have been stated post purchase.

8            The 2008 and 2016 financial years have been excluded from the calculation of losses because:

a	2008 represented a partial year of pre loan and post loan operations, being a transitional year. Inclusion of 2008 in either the pre or post loan average calculation would distort the resultant figure.
b	2016 presented a partial year of operation and so inclusion of the financial performance in the post loan combined average profit calculation would distort the figure for comparison purposes.

Pre loan trading indicators and trends

9            Average profit for the years 2003-2006 is $58,352. The range was $72,415 (2005) to $48,796 (2006).

10          Average profit as a percentage of sales for the years 2003-2006 is 15%. The range was 23% (2005) to 10% (2006). The trend has been that the profit percentage has decreased over the review period.

11          The average gross margin for the years 2003-2006 is $276,959.75. The range was $350,118 (2006) to $184,119 (2003). The trend has been that the gross margin is increasing over the review period.

12          The average gross margin as a percentage for the years 2003-2006 is 68%. The range was 71% (2003) to 65% (2004). The trend has been that the gross margin percentage is relatively stable over the review period.

13          Average profit excluding fixed costs for years 2003-2006 is $124,355. The range was $102,319 (2003) to $139,083 (2005).

20   No 8/2022

14          Average profit excluding fixed costs as a percentage of income for the years 2003-2006 is 32%. The range was 39% (2003) to 28% (2006). The trend has been that the profit excluding fixed costs percentage has been relatively stable over the review period.

15          Average fixed costs for the years 2003-2006 are $66,003. The range was $89,345 (2006) to $42,277 (2003). The trend has been that the fixed cost are increasing over the review period.

16          Average fixed cost of income as a percentage for the years 2003-2006 are 16%. The range was 18% (2004, 2006) to 13% (2005). The trend has been that the gross margin percentage is relatively stable over the review period.

17          In summary, net profit levels have been relatively stable in dollar terms, despite a slow deterioration of KPIs for profitability after fixed costs. This has been due to increased turnover compensating for lower margins.

Financial Position as at the Loan Approval in 2007

18          2007 was the closest completed year prior to the year the loan was applied for and approved.

19          Net profit for the 2007 financial year is $38,069, being a reduction of $20,000 over the previous four-year average and $10,000 less than the previous year.

20          Average profit as a percentage of sales for the 2007 year was 7%. This was a reduction of 8% over the previous four-year average and 3% less than the previous year.

21          Gross margin for the 2007 financial year is $385,586. This was an increase of $109,000 over the previous four-year average and $35,000 more than the previous year.

22          Gross margin as a percentage of sales for the 2007 year was 69%. This was an increase of 1% over the previous four-year average and 1% less than the previous year.

23          Net profit excluding fixed costs for the 2007 financial year is $150,726. This was an increase of $26,000 over the previous four-year average and $12,000 more than the previous year.

24          Net profit excluding fixed costs as a percentage of sales for the 2007 year was 27%. This was a reduction of 5% over the previous four-year average and 1% less than the previous year.

25          Fixed costs for the 2007 financial year were $112,657, which was an increase of $66,000 over the previous four-year average and $23,000 more than the previous year.

26          Fixed costs as a percentage of sales for the 2007 year were 20%, which was an increase of 4% over the previous four-year average and 2% more than the previous year.

27          In summary, the 2007 financial records indicate a deteriorated financial performance, with a reduction in net profit, worsened KPIs for profit, net profit before fixed costs and fixed costs.

28          The entity's balance sheet as at 30 June 2007 indicates that the current assets were $83,474 and that current liabilities were $134,007, giving a net current asset figure of -$50,533 or a current ratio of 0.69. This ratio has steadily declined over the previous five years from 1.29 to 0.62. As at 30 June 2007, a net assets figure of -$17,989 was recorded in the balance sheet.

29          The deteriorating current ratio and net assets indicates that the entity was not performing strongly and was not in a position to sustain increased debt, costs and cashflow requirements.

30          Based on the 2007 poverty line, the Plaintiffs were $12,000 above the line, leaving minimal surplus to meet additional costs and remain above the poverty line.

Challenges Post Loan from 2009 Onwards

21   No 8/2022

31          By reason of the Defendant supplying the Plaintiffs with the loan, and the Plaintiffs' subsequent purchase of the commercial property, the Plaintiffs were faced with increased fixed costs in comparison with the business prior to the supply of the loan.

32          Additional expenses post the granting of the loan included interest on the loan, water rates, council rates, land tax, insurance on the building, repairs and maintenance on the building, improvements on the building, legal costs, and increased accounting/ASIC costs.

33          After the loan was granted, the only reduced cost was the removal of rental expenses.

A summary of expected costs, based on historical and future actual costs

Annual expenses changes:

Rent	$18,000	Decrease
Interest	$24,000	Increase
Land Tax	$700	Increase
Water Rates	$1,450	Increase
Council Rates	$3,000	Increase
ASIC Fees	$200	Increase
Accounting Fees	$2,600	Increase
Building repairs and maintenance	$1,500	Increase
Building insurance	$3,700	Increase
Net annual Change to Expenses	$19,150	Increase

Annual non expense cashflow requirement

Principal payment on loan $9,600 Increase

Net Annual Change to Expenses $9,600 Increase

TOTAL ANNUAL CASHFLOW VARIATION: $28,750 INCREASE

Other expected costs (non-annual):

i) Building upgrades and improvements; and
ii) Legal fees

34          The Plaintiffs' proposed purchase of the commercial property included ownership expenses, comprising of rates, repair and maintenance, property/infrastructure improvement, insurance, water rates, land tax, and any additional business expenditure required.

Effect of increased costs

With an increased cashflow and fixed costs, and the business's recent historical performance not revealing any significant surplus to absorb the additional costs, the business could not meet the increased financial obligations of the loan/property purchase in its existing state.

Significant changes would need to occur to increase net profit to meet the additional costs and cashflow requirements.

36          Based on the recent performance history of the business before the loan was supplied, the likely outcome would have been significant and accumulating losses post loan/property purchase if the business remained the way it was. The Plaintiffs were expected to live below the poverty line.

Gross Margin

37          To meet increased costs, the turnover needed to increase and/or the expense base needed to decrease, in order to increase net profits of the business.

38          The increased costs needed to be met by an increase in turnover, less additional cost of goods sold, such as materials, less any increase in variable costs to give

22   No 8/2022

an increased net profit to meet the additional costs associated with the loan and

purchasing of the commercial property.

Required Turnover

39          Without the ability to absorb the additional costs into the existing business, increased net profit and therefore turnover is required.

40          Based on increased annual net costs of $28,750, and net profit (less fixed costs) % of 27 as at the time of the loan, the increase in turnover required to meet the additional net costs is estimated at $106,481.

41          With an assumed allowance of 10% of capital value, being $27,000 each year for the continual improvement and development of the building and resources, an additional turnover of $100,000 (based on the existing net profit ratio) will be needed to fund the cash requirements of the upgrades. This means that approximately $206,481 (37%) in increased turnover in total will be required to fund the additional expenses and cash requirements associated with the supplying of the loan/purchase of the commercial building. This is also assuming that the current ratios and efficiencies are maintained, and that the business has the capacity to increase turnover by this amount without having to increase resource costs (staff, equipment, space, financial funding costs), which is unlikely.

42          The requirement to increase turnover introduces several challenges and requirements, such as if it is achievable, how to achieve it and how long will it take to achieve it.

43          Considerations such as skills matching, market analysis, budgets, product lines, market capacity, marketing, cashflow funding, external/consulting assistance and capacity are all crucial to being able to achieve any turnover increases.

Capacity Increase

If the capacity to achieve a higher turnover is non-existent in the current business, then changes must be made to increase the capacity. These changes may include staff increases, staffing restructures, increased and/or upgraded equipment, additional space and/or the reconfiguration of existing space, improvement of infrastructure or development/upgrading of building utilities.

45          These changes take time and require financial commitments, such as increased debt, working capital, reduced turnover/capacity/efficiency whilst changes are implemented.

46          Both time and financial consequences need to be factored into the cashflow projections of the business and its ability to meet other financial commitments.

Capital Investment

47          Increases in capacity require a capital investment, such as additional equipment, upgraded equipment, improved infrastructure, increased space, external expertise, improved/increased skills/staff/knowledge or combinations of each.

Year by Year Analysis Post Loan (2009 – 2015)

2009 Financial Year

2009 was the first full year after the approval of the loan by the Defendant and purchase
of the commercial property.
Turnover increased by $209,647 or 37% over 2007's performance.
Profit for the 2009 financial year was $49,309. This is a reduction of $5,000 over the
pre-loan average.
Profit as a percentage of sales for the 2009 year was 6%. This was a reduction of 8%
over the pre-loan average and 1% less than 2007.
Gross margin for the 2009 financial year was $542,151. This was an increase of
$243,000 over the pre-loan average $157,000 more than the 2007 year.

23   No 8/2022

decrease of 1% over the pre-loan average and 2% less than the 2007 year.
Net profit excluding fixed costs for the 2009 financial year is $163,693. This was an
increase of $34,000 over the pre-loan average and $13,000 more than the 2007 year.
Net profit excluding fixed costs as a percentage of sales for the 2009 financial year was
20%. This was a reduction of 10% over the pre-loan average and 7% less than the 2007
year.

Gross margin as a percentage of sales for the 2009 financial year 67%. This was a over the pre-loan average and $2,000 more than the 2007 year.

Summary

48	The 2009 financial reports indicated a significant upturn in turnover. Significant investments had been made by the Plaintiffs, including into marketing, capacity, building and staffing, to try and improve the turnover and profit, to be able to cover the additional costs and cashflow requirements leading from the loan.
49	The Plaintiffs' investments are evident in the $205,000 plus in additional expenses, excluding direct costs, incurred in 2009 when compared to the pre- loan average.
50	Despite the increased turnover, the profit was lower than the pre-loan average due to an increase in fixed costs against the pre-loan average and deterioration against pre-loan profit ratios.
51	When factoring in the additional cashflow requirements of the loan, the Plaintiffs were in a reduced cashflow situation in 2009, compared to the pre- loan 2007 year, despite a significant turnover increase.

2010 Financial Year

following an expansion or marketing drive occurs.
Turnover decreased by $97,855 or 13% against 2009's performance.
Profit for the 2010 financial year is $$9,563. This was a reduction of $48,000 over the
preloan average.
Profit as a percentage of sales for the 2010 year was 1%. This was a reduction of 13%
over the pre-loan average and 5% less than the 2009 financial year and 6% less than the
pre-loan 2007 year.
Gross margin for the 2010 financial year was $484,716. This was a decrease of
$186,000 over the pre-loan average and $57,000 less than the 2009 year.
Gross margin as a percentage of sales for the 2010 financial year was 68%. This was
the same as the pre-loan average and 1% more than the 2009 year.
Net profit excluding fixed costs for the 2010 financial year was $118,025. This was a
decrease of $26,000 over the pre-loan average and $55,000 less than the 2009 year.
Net profit excluding fixed costs as a percentage of sales for the 2010 financial year was
17%. This was a reduction of 11% over the pre-loan average and 3% less than the 2009
year.

2010 was the first full year at the new capacity and after the initial 'Honeymoon year' overt the pre-loan average and $6,000 less than the 2009 year.

Summary

52	2010 financial year reports indicated a significant downturn in turnover following on from the 'Honeymoon' year associated with a marketing/capacity push.
53	Significant investments were made, including into marketing, capacity, staffing and the like to try and improve/maintain the turnover and profit to

24   No 8/2022

cover the additional costs and cashflow requirements leading from the loan and
commercial property purchase.

54          This investment is still evident with over $185,000 in additional expenses (excluding direct costs) incurred in 2010 when compared to the pre-average loan.

55          With the turnover failing to meet the required additional turnover required to meet the additional costs and cashflow requirements associated with the loan and commercial property purchase, the profit was just above break even point, and much lower than the preloan average, due to an increase in fixed costs against the pre-loan average and deterioration against pre-loan profit ratios.

56          The gross margin remained constant, but profit, after direct costs and variable costs were removed, dropped significantly and only just left enough to cover fixed costs.

57          When factoring in the additional cashflow requirements of the loan, the Plaintiffs were in a negative cashflow position in 2010, and much worse compared to the pre-loan 2007 year, despite significant turnover increases and higher workloads.

2011 Financial Year

2011 followed on from a breakeven 2010 with a negative cashflow. Turnover decreased by $79,569 or 12% against 2010's performance. Profit for the 2011 financial year was a $15,490 loss. This was a reduction of $69,000

Profit as a percentage of sales for the 2011 year was -2%. This was a reduction of 16%
over the pre-loan average and 3% less than the 2010 year and 8% less than the pre-loan
2007 year.
Gross margin for the 2011 financial year was $431,569. This was a decrease of
$133,000 over the pre-loan average and $53,000 less than the 2010 year.
Gross margin as a percentage of sales for the 2011 year was 69%. This was the same as
the pre-loan average and 1% more than the 2010 year.
Net profit excluding fixed costs for the 2011 financial year was $105,686. This was a
decrease of $39,000 over the pre-loan average and $12,500 less than the 2010 year.
Net profit excluding fixed costs as a percentage of sales for the 2011 year was 17%.
This was a reduction of 10% over the pre-loan average and the same as the 2010 year.

over the pre-loan average. over the pre-loan average and $13,000 more than the 2010 year.

Summary

58	2011 financial reports indicated a continuing significant downturn in turnover, despite attempts to maintain or increase existing levels.
59	The Plaintiffs continued to make significant investments into marketing, capacity, staffing, external consultants and the like, in an attempt to improve/maintain the turnover and profit to cover the additional costs and cashflow requirements leading from the loan.
60	This investment incurred over $160,000 in additional expenses (excluding direct costs) incurred in the 2011 year when compared to the pre-loan average.
61	With the turnover failing to meet the required additional turnover required to meet the additional costs and cashflow requirements associated with the Defendant's loan and commercial property purchase, a loss resulted, and much worse than the pre-loan average profit due to an increase in fixed costs against the pre-loan average and previous years as additional costs and further deterioration against pre-loan profit ratios.
62	The gross margin remained constant, but profit after direct cost and variable costs were removed, continued to drop significantly and failed to leave enough to cover fixed costs.

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63          To cover the deteriorating cashflow, additional borrowing was undertaken to ensure the business could continue, however this came at the cost of additional repayments negatively impacting cashflow into the future.

64          When factoring in the additional cashflow requirements of the loan, the Plaintiffs were in an increasingly negative cashflow situation in the 2011 year and much worse compared to the pre-loan 2007 year, despite investments, outside assistance and increased personal effort being implemented.

65          The Plaintiffs had to work additional hours, which had an adverse impact on their mental health.

2012 Financial Year

The 2012 financial year followed on from a loss in 2011 with increasing negative for next profit excluding fixed costs and fixed costs could be provided with reasonable confidence.

cashflow.
Turnover increased by $54,667 or 9% against 2011's performance.
Profit for the 2012 year was a $156,053 loss. This was a reduction of $210,348 over the
preloan average.
Profit as a percentage of sales for the 2012 year was -23%. This was a reduction of 37%
over the pre-loan average and 21% less than the 2011 year and 30% less than the pre-
loan 2007 year.
Summary

66          2012 financial reports indicated an upturn in turnover as a result of significant changes to the business model and investments in external consulting advice, staff and equipment. This was an attempt to stem the continuing downturn in turnover and profitability.

67          These changes and investments are reflected in over $800,000 in expenses being incurred in the 2012 year to run and develop the business. Thi8s constitutes approximately $200,000 in additional expenses compared to the 2011 year.

68          With the turnover rising to $55,000, but expenses increasing to near $200,000 to meet additional costs and cashflow requirements associated with the Defendant's loan and commercial property purchase, a $156,000 loss resulted, which was much worse than the pre-loan average profit due to an increase in fixed costs against the pre-loan average and previous years and additional costs.

69          When factoring in the additional cashflow requirement of the loan the Plaintiffs were in a significant negative cashflow situation in 2012 and in a much worse position compared to the pre-loan 2007 year, despite investments, outside assistance and increased personal efforts being implemented.

70          The Plaintiffs had to seek out additional cashflow funding, and loans including loans from family to assist with their dire cashflow position.

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• The supply of the loan funds "led to the above losses" by causing or contributing to the loss "because the new funds were unsuitable and unserviceable and as a consequence the business was put under undue financial pressure and the Plaintiffs did not earn as much as pre-supply of those financial services …". As to the "causative link" (order 2(b)(ii)), as it has not been possible to identify by date and amount each loss or expenditure, "the order does not require particulars to be given of a link between each item and the making of the loans by the bank to the Plaintiffs. Nonetheless the best particulars the Plaintiffs can give with respect to each calculation which has been used, and pending full discovery of documents by the bank, is as follows …".

• Figures are then provided for the period 2009-2013 of amounts lost in each financial year which the particulars state are losses caused by the respondent's financial misconduct because, "but for such wrong doing complained of by them they would have continued with their former small business and its undertaking without variation with respect to the funds supplied by the bank and would not have suffered the loss specified in this calculation in the financial year …".

90           The fundamental premise of the latest particulars is found in the proposition that had the appellants not taken out the loan and purchased the Wellington Street property, they would have continued their former small business without additional borrowings, and without purchasing the Wellington Street property, and because of the borrowings and the purchase they suffered the specific losses identified in the period 2009-2013. However, such a broad proposition does not identify facts from which a conclusion can be drawn as to how the borrowing and purchase caused the losses in each financial year. Geason J correctly characterised the latest restatement of particulars as a "mix of contentions and submissions arguing for a conclusion that there has been a loss caused by the conduct of the bank." While a figure of loss for each financial year is identified, the causal link between the losses and the borrowing and purchase of the Wellington Street property is not identified.

91           As Geason J observed, "the thrust of the appellants' claim is not difficult to understand: the business was doing better before it took on the additional borrowing the bank unconscionably urged it to take, and having taken on those loans the business could not service them and significant financial and emotional losses followed". As the claim was expressed in written submissions: the appellants "lost the opportunity to conduct the business successfully as they had before" they took out the loan. However, in my view Geason J was correct in his view that the appellants were required to identify a claim "that exposes its foundation in a way that enables the basis for it to be understood and a response considered".

92           In oral submissions counsel for the appellants emphasised that the appellants advance a "tortious claim to be put back into the position they would have been but for the bank's financial misconduct". He contended that the particulars answered the questions posed in the order as to the different course the appellants would have taken if the loans had not been advanced. Unable to identify the date and amount of each loss or expenditure, a calculation of the loss had been provided in accordance with the order.

93           Counsel for the appellants urged that the particulars provide the causal link between the conduct of the bank and the losses. After the loan, the profitability of the business suffered because of the costs associated with the Wellington Street premises and meeting the loan commitments.

Corporate structure/causation

94           Counsel drew attention to the remarks of Geason J in which he referred to the "problem" for the appellants because, at the time of the loan and purchase of the Wellington Street premises, the operation of the business changed from a partnership to a company. His Honour observed that the comparison to be relied upon by the appellants was between "differently structured businesses", and the claim uses losses suffered by different legal entities as the basis for the calculation of loss. Counsel

49   No 8/2022

submitted that "the mere fact that the business structure may have changed later, doesn't matter, the loss
still arose". The submission continued:

"The fact that it was suffered by a differently structured part of the plaintiffs' business doesn't alter the fact that they were put into a worse position at the moment of the bank's misconduct …".

95           Further, counsel for the appellants submitted it was "misconceived" for Geason J to "try and double guess the plaintiffs' case on damages when the case on damages was clearly set out at the particulars of quantum …". In this context, counsel accepted that the financial figures provided in the particulars for the period after the loan when the company operated the business represented the business loss suffered by the company in that period. It was an assessment of the business loss over a five year period which the appellants contend was suffered as a consequence of entering into the loan and purchasing the property. Asked how the bank loan was responsible for the business loss in that five year period, in particular how the bank loan to the appellants personally caused the company to sustain the losses over the five year period, counsel contended this was the wrong question. It is not what caused the company to sustain the losses, but rather how did the appellants suffer loss. Asked how the company losses caused the appellants to suffer losses, counsel responded:

"Because the – that's the measure of the loss – that's how they would have been better off but for the misconduct of the bank. It's the measure of the no transaction basis that was dealt with by Hammerschlag J in Coco. It wouldn't make any difference – let's assume the company and this is important in terms of the particulars, and in a since we're suggesting that your Honour's really raising a question for trial and not for particulars because in our respectful submission the appellants are entitled to put their loss claim as they see appropriate and fit. And that they are a proper answer to the learned judge's question.

But, leaving that issue of the way in which they wish to put their case to one side, the short answer is that unless the Court would compensate them for that loss, they wouldn't be put back into the position they were otherwise in. They'd be worse off, all they would get is the lost rental which was about $25,000 a year but, in fact their profit loss was about $125,000 a year. So, in other words, unless that full compensation was granted, the Court wouldn't put them back into the position they were otherwise in."

96           In response, counsel for the respondent referred to the statement in the Smith report to the effect that in the 2008 financial year the appellants' partnership purchased the commercial property and rented it to the operating entity, Image Signs and Graphics Pty Ltd, "to cover the costs of owning the property, eg, loan, interest and depreciation". In other words, after the loan from the respondent, the business was operated by a corporate entity which paid, or should have paid, rent to the appellants who were the owners of the property leased by the business. Any business losses were suffered by the company.

97           The respondent emphasised that the particulars compare the financial results when the business was being operated in partnership, with the financial results when the business was being operated as a company, but the particulars do not say anything about why the difference in results arose. Nothing is identified in the particulars about causation. The fact that the company did not trade profitably says nothing at all, of itself, about whether or not a causal relationship existed between the lack of profitability and the earlier transaction between the respondent and the appellants.

98           In this context, counsel for the respondent referred to the increase in expenses following the company taking over the business, hence profits were reduced, but observed that the respondent does not know why the expenses for the company increased. In reality, the particulars are not particulars of the loss suffered by the company: "They are the difference between the performance of a business under a partnership and the performance of the similar – I wouldn't say necessarily the same, but a similar business under a corporation."

50   No 8/2022

99           In reply, the appellants contended it is "simply an error" to submit that the particulars do not plead cause and effect. Counsel submitted that the particulars identify the different course that the appellants would have taken if the loans had not been advanced: "Now that's the cause and effect issue".

100         It may be accepted for present purposes that if the respondent had refused the loan, the appellants would not have purchased the Wellington Street property, and would not have changed the business model from a partnership to a company. However, it was the appellants personally who incurred the liability to the respondent, together with expenses associated with the property, not the company. The particulars do not identify how the personal loan (and personal purchase), and increased personal expenses, caused the company's business losses upon which the appellants' rely for their comparison calculation. The particulars calculate the appellants' losses by comparing the profitability of the partnership business with the profitability of the company business, but the particulars do not identify how the change in the business model, from partnership to company, caused the business to become less profitable.

101         Put another way, it is readily understandable that the appellants claim they were unable, personally, to meet the loan commitments and expenses associated with running the Wellington Street property; hence their personal financial situation deteriorated. However, it is far from apparent how:

(i)	the increased personal outgoings, and the deterioration in the appellants' personal financial position, impacted adversely upon the company's business operation;
(ii)	the increase in personal expenses, and the deterioration in the appellant's financial position, caused a deterioration in the company's business (in comparison with earlier partnership profitability).

102         The respondent is entitled to particulars of causation, and such particulars are required by the orders of 30 August 2018 and 4 September 2020. In my opinion Geason J was correct in his conclusion that the particulars do not comply with the orders.

Errors
103	Although not the subject of specific grounds of appeal, counsel for the appellants submitted that Geason J erred on matters of fact and law. First, his Honour made an error of fact in purporting to recite particulars filed by the appellants and referring to pars [11] and [12], which details quoted by his Honour do not appear in the filed particulars.
104	It is correct that his Honour erred in stating that pars [11] and [12], as cited by his Honour, appeared in the filed particulars. However, counsel for the appellants apparently overlooked that pars [11] and [12] came from his outline of submissions filed in the proceedings before Geason J. The error as to the source of pars [11] and [12] is of no consequence. Those paragraphs merely set out historical facts and the essence of the case for the appellants.
105	Counsel for the appellants also referred to Geason J's remarks concerning the effect of the latest particulars, which was followed by the following statement relied upon as an error:

"The obligation is further deflected with this: '… the present matter is not the trial, and all these particulars will be proved … by their expert and personal evidence at the final hearing'."

106         Counsel contended that the statement was a "plain error of fact" because "no such words appear anywhere within the particulars". It is correct that the particular passage does not appear in the particulars, but counsel again apparently overlooked the fact that the statement cited came directly from counsel's written submissions filed for the purposes of the proceedings before Geason J. The error is of no consequence, if it is an error. The paragraph concerned is open to the view that having identified the

51   No 8/2022

inadequacy of the latest particulars, Geason J was merely commenting on the manner in which the
obligation to provide appropriate particulars was "deflected" by the appellants' case.

107         Finally with respect to factual errors, counsel for the appellants criticised the observation of Geason J that the appellants "also refer to and rely upon the report prepared by Mr Smith to particularise their claim." It is correct that the report of Mr Smith does not form part of the particulars filed by the appellants, but counsel accepted that, "in the first instance", the Smith report was provided by the appellants in purported satisfaction of the order for particulars. This issue is of no consequence.

108         In my opinion, there is no merit in the proposition that in determining the adequacy of the particulars, Geason J "proceeded upon an error of fact". His Honour was well aware of the particulars that had been filed following his order, particulars which he described as the "last re-statement of the particulars". Although the numbering is different in par [10] of his Honour's judgment, his Honour correctly quoted from the particulars filed on 21 September 2020 as being the "latest re-statement". His Honour quoted those particulars both as to quantum and causation. I reject the contention that his Honour was proceeding upon a misapprehension of fact as to the contents of the particulars filed in answer to his Honour's earlier order.

109         In challenging the finding of Geason J that the particulars filed following his Honour's order did not satisfy the order, counsel submitted that the finding was an error of law because the particulars are adequate "in the sense used in Dare v Pulham and Ratcliffe v Evans and in the sense used by ordinary trial judges who are asked to decide questions of quantum assuming the causative action had been otherwise proved". Urging the Court to examine the particulars, counsel emphasised that the appellants are claiming to be put back into the position they were in but for the grant of the loan, and submitted that Geason J misapprehended the basis of the claim. I am unable to discern any error in Geason J's understanding of the basis of the claim.

Conduct of the appellant

110         In Pumptech Tasmania Pty Ltd v CB & M Design Solutions Pty Ltd [2009] TASSC 78, Blow J (as he then was) discussed the history of r 374 and the case law developed in Victoria as to the principles to be applied upon an appeal from a self-executing interlocutory order. One of the relevant factors is whether the party in default has complied with the order. In this context, the appellants submit they have complied and that they have proceeded "in good faith". I have dealt with the issue of compliance, but it is appropriate to reflect upon the conduct of the appellants in view of the submission that they have acted in good faith.

111        As set out earlier, in response to the submission that the appellants have proceeded in good faith, in written submissions the respondent advanced the following contentions:

"a	the failure to answer the numerous letters from the respondent's solicitors regarding the shortcomings in their materials in relation to loss. This includes the letters from BMB dated 19/3/19, 5/2/20, 11/6/20, and 29/7/2014;
b	the many (and serious) shortcomings in Mr Smith's report;
c	the failure to explain or provide materials in relation to the purported $512,000 of R&D expenditure in 2012 and 2013;
d	the failure to provide MYOB documentation for other than the 2009-2013 years (and Mr Smith's unexplained failure to even examine the MYOB records);
e	the failure to respond to queries arising from significant ambiguities caused by the various conflicting editions of the appellants' financial documents;
f	the failures to particularise losses;

52   No 8/2022

g	the failure to particularise any losses suffered by the appellants personally, as distinct from losses said to have been suffered by their company (Image Signs and Graphics (Tas) Pty Ltd);
h	the failure by the appellants to verify the factual matters upon which they rely in support of their application for the judgment to be set aside;

(To say that there was, at one point in time, a misunderstanding in the office of the appellants' solicitors does not justify a finding that the appellants' overall conduct of the litigation has been in good faith or otherwise to a standard deserving of indulgence. The evidence is to the contrary.)"

112         An overview of the relevant chronology does not assist the appellants. The first written request for particulars was made in February 2017. Orders were made on 11 September 2017 consolidating the two sets of proceedings but, in his affidavit of 13 March 2020, Mr Hudson deposed that "the question of whether the Plaintiffs had potential to demonstrate a loss arising from the lending was a key matter of contention during the numerous hearings held before the associate justice during early to mid-2017 in respect of Westpac's application for a summary possession order …". According to Mr Hudson, on 12 October 2017 he spoke with Mr King, representing the appellants, and "directly raised with him the failure of the Plaintiffs to, in their materials delivered since 11 September 2017, include any meaningful materials as to loss."

113         On 6 February 2018 Mr Hudson wrote to Ms Bramham noting that the appellants had not delivered any formal particulars of loss. Mr Hudson pointed out that before the respondent could commence preparing its case, it needed to know the case as to quantum which it was answering, and "meaningful particulars of loss" were required. The letter identified the type of particulars required which included any causative link between the items claimed and the loans. Mr Hudson sought particulars as a "matter of priority".

114         Ms Bramham responded by email of 14 February 2018 indicating that the appellants had sought assistance from an accountant to provide a formal report containing particulars of loss which she anticipated would be finalised by 16 February 2018. She requested an extension of two weeks to allow the report to be completed and documents filed in court.

115         The respondent delivered a sworn list of documents on 30 April 2018, but a report or particulars were not provided. On 21 May 2018, Mr Hudson wrote to Ms Bramham requesting "properly particularised Particulars of Loss".

116        On 14 August 2018 the appellants served an application for further discovery, and the bank was able to locate a small number of additional documents which were provided on 28 August 2018. Eventually the further discovery application was listed for hearing and, following discussions with Mr King, was resolved on the basis of the orders made on 30 August 2018.

117         It was not until 20 November 2018 that the appellants made their first attempt at providing particulars through a loss report by Mr Smith dated 15 November 2018. That attempt was plainly inadequate.

118         There is no dispute that to December 2018 the appellants had failed to provide adequate particulars and were in breach of the order of 30 August 2018. As discussed earlier in these reasons, the self-executing order was made on 12 December 2018, but it was not until April 2019 that judgment was entered in accordance with that order.

119        Following the decision of Geason J, reasons for which were delivered on 4 September 2020, the appellants were well aware that the particulars filed before Geason J were regarded by his Honour as inadequate and not in compliance with the order of 30 August 2018. Notwithstanding two years of non-compliance, the appellants were given another opportunity by Geason J to comply with the order,

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but the further particulars filed on 21 September 2020 added very little of substance to the particulars rejected by Geason J. There was no change in the assertion as to the different course the appellants would have adopted but for the loan, namely, they would have continued the business operation as a partnership without undertaking additional debt and financial obligations to the respondent. Similarly, the calculation of the loss by way of comparison was repeated.

120         The last set of particulars filed on 21 September 2020 added nothing to the earlier inadequate particulars as to causation. Although the submissions of counsel contended that the borrowings caused the appellants to lose the opportunity to conduct the business "successfully as they had before" taking out the loan, no attempt has been made to particularise how the personal liabilities incurred following the loan caused the appellants to lose such opportunity, bearing in mind the business was being conducted through the company which did not incur liability for the loan or the Wellington Street property. In another section of submissions counsel urged that after the loan, the profitability of the business suffered because of the costs associated with the Wellington Street premises and meeting loan commitments. No attempt has been made to particularise how those personal commitments caused the profitability of the business run by the company to suffer. Evidence given by the first appellant before Holt AsJ strongly suggests that the downturn in business resulted from the global financial crisis, closure of businesses in Burnie and loss of clients.

121         Although various causes of action are pleaded, if the appellants are to succeed, ultimately it will be necessary for the appellants to prove that, personally, they suffered loss and damage as a consequence of the wrongful conduct of the respondent. According to the particulars, the appellants' claim in this regard centres upon the deterioration in profitability of the business in comparison with the profitability of the business before the loan was taken out and the Wellington Street property was purchased. In these circumstances, it is not sufficient to simply point to the decrease in profitability of the business following the loan. The appellants are required to identify facts capable of establishing a causal relationship between the conduct of the bank and the decline in the profitability of the business following the loan.

122         A helpful summary of the relevant principles is found in the judgment of French J (as he then was) in Bond Corporation Pty Limited v Thiess Contractors Pty Ltd (1987) 14 FCR 215. His Honour was concerned with proceedings under the Trade Practices Act 1974 for breach of contract and negligence causing loss and damage. The following passages from the judgment of French J explain the requirement to plead or particularise "the necessary material facts to establish the causal relationship between contravention and loss which is necessary to the cause of action":

"Loss or damage as a consequence of the contravention is an element of the cause of action - Fenech v Sterling (1983) 51 ALR 205, 221, Arcadi v Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473 at 45,454, James v ANZ Banking Group Ltd (1985) ATPR 40-523 at 46,233.

The material facts establishing the necessary causal link should be pleaded. In cases of contravention of s 52 said to be constituted by misrepresentation this will generally require more than appears in the opening words of para50 – 'by reason of such conduct ...'.

Some guidance to the proper approach may be derived from the ordinary rule of pleading applicable in cases of fraud of which Lord Watson said in Dow Hager Lawrance v Lord Norreys (1890) s 210 at 221:-

'...The ordinary rule of pleading applicable to cases of fraud, ... was thus expressed by Earle Selborne in Wallingford v. Mutual Society 5 App Cas 697: "General allegations, however strong may be the words in which they are stated, are insufficient to amount to an averment of fraud of which any Court ought to take notice." It is not a sufficient compliance with the rule to state facts and circumstances which merely imply that the defendant, or someone for whose action he is responsible, did commit a fraud of some kind. There must be a probable, if not necessary, connection between the fraud averred and the injurious consequences which the plaintiff attributes to it; and if that

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connection is not sufficiently apparent from the particulars stated, it cannot be supplied by general averments. Facts and circumstances must in that case be set forth, and in every genuine claim are capable of being stated, leading to a reasonable inference that the fraud and the injuries complained of stood to each other in the relation of cause and effect.'

A perusal of the relevant precedents in Bullen & Leake & Jacob's Precedents of Pleadings 12th Edition pp 702-707, supports the view that the approach enunciated by Lord Watson is equally applicable to actions for negligent mis-statement.

While the same point did not arise squarely in James v ANZ Banking Group Ltd (1985) ATPR 40-504, Toohey J in striking out particulars of loss and damage there pleaded said at 46,034:-

'While the Bank is not required to plead specifically to particulars of damages, it is entitled to know with some certainty what is being claimed and the basis of the claim.'

In my opinion the statement of claim in para 50 does not plead the necessary material facts to establish the causal relationship between contravention and loss which is necessary to the cause of action. In the case of misleading and deceptive statements said to constitute a contravention of s 52, to paraphrase Lord Watson, facts and circumstances should be set out leading to a reasonable inference that the conduct and the damage stood to each other in the relation of cause and effect.

To the extent that sub-para 50(2) contains the relevant allegation as a particular, it does function of particulars said at 246:-
not cure the defect in the pleading.

'In order to disclose a reasonable cause of action the statement of claim must contain statements of material facts which support the claims made. Particulars are not statements of material facts; particulars perform a different purpose.'

Quoting from the judgment of Scott LJ in Bruce v Odhams Press Ltd (1936) 1 KB 697, his Honour made the point that particulars cannot be used to fill gaps in the statement of claim which ought to have been filled by appropriate statements of the various material facts together constituting the cause of action."[12]

[12]    The issue of the inadequacy of the statement of claim to plead the necessary material facts has not been raised in these proceedings.

123         The appellants' submissions place significant reliance upon the decision of Hammerschlag J in Salvatore Coco v Westpac Banking Corporation [2012] NSWSC 565. His Honour was concerned with a claim under the ASIC Act that the plaintiff had suffered loss and damage as a consequence of the defendant's misleading or deceptive conduct. His Honour found in favour of the plaintiffs, but rejected the plaintiff's primary claim that damages should be assessed on a "no transaction basis", namely, "the difference between the position he is now in and the position he would have been in had he not entered into the transaction" [95]. His Honour considered it was appropriate to make an award on the basis that the plaintiff receive "the value of the bargain which the bank held out he would get" [99].

124         The decision in Coco does not assist the appellants with respect to the issue of causation. Hammerschlag J noted that "commonly, the tortious measure is applied, that is, the amount required to place the plaintiff in the position he would have been had the conduct complained of not occurred". However, as required by the terms of the legislation, his Honour also observed that whether any relief was available to the plaintiff depended upon whether the plaintiff "has suffered loss or damage by the conduct of the bank" [88]. [Trial judge's emphasis.]

Prejudice to the respondent

125         Although not a major factor, another issue which does not assist the appellants' case concerns the likely prejudice to the respondent if the proceedings were reinstated and proceeded with the "particulars" in their current state. I agree with the observations of Geason J that by reason of the

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appellants' failure to keep sufficiently comprehensive records, "there is likely to be an additional prejudice to the defendant by way of compromise to its ability to investigate the losses said to have been caused by its conduct." His Honour continued at [21]:

"There are, for example, significant expenditures claimed in the records, including over half a million dollars for 'research and development' in 2012 and 2013. This for a printing business in Burnie. It is not unreasonable for the defendant to say it ought be able to properly investigate expenditures claimed to result from its conduct, in order to answer the claim. It could not be done; the plaintiffs do not 'fill the picture of … the cause of action with information sufficiently detailed to put the defendant on … guard as to the case …' it is required to meet."

Conclusion

126         The appellants have been unable to demonstrate any appealable error by Geason J. It is now a little over 3½ years since the first order was made, and, notwithstanding numerous requests and the judgment of Geason J delivered 4 September 2020, the appellants have failed to comply with the order. No doubt difficulties were caused by the unfortunate illness of the appellants' solicitor, but more than ample allowance was made for such difficulties through adjournments and extensions of time.

127         The appellants have not advanced any satisfactory reason for failing to comply with the orders, even to the extent of providing meaningful particulars of causation. There is no indication in any of the material provided to the Court, or in submissions, to suggest that if the judgment is set aside, in the future the appellants will comply with the orders. In particular even if the appellants are able to establish wrongful conduct by the respondent, it appears highly unlikely that they will be able to establish that such conduct and damage "stand to each other in relation of cause and effect".

128   For these reasons, in my opinion, both appeals should be dismissed.

rejected by the respondent who wrote that it did "not go close" to providing particulars.

exhaust fans $8000; 3 phase lighting $8000; printing machine $72000.