Spiteri & Anor v National Australia Bank Limited
[2007] VSC 395
•12 October 2007
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8303 of 2002
| MARIO MICHAEL SPITERI | First Plaintiff |
| - and - | |
| NEZEST PTY LTD (ACN 006 789 475) | Second Plaintiff |
| v | |
| NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) | Defendant |
| ___ | |
| NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) | Plaintiff by Counterclaim |
| v | |
| MARIO MICHAEL SPITERI | First Defendant by Counterclaim |
| - and - | |
| NEZEST PTY LTD | Second Defendant by Counterclaim |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 6-8, 13-15 AUGUST 2007 | |
DATE OF JUDGMENT: | 12 OCTOBER 2007 | |
CASE MAY BE CITED AS: | SPITERI v NATIONAL AUSTRALIA BANK LIMITED | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 395 | |
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Contract – Payments by a bank to a developer to reduce the indebtedness of the developer – Whether the payments were a loan by the bank to the developer or to the first plaintiff personally
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | PT Nugent | Kennedy Guy |
| For the Defendant | GJ McEwen | Dibbs Abbott Stillman |
HIS HONOUR:
The first plaintiff in this proceeding, Mr Mario Spiteri, was a businessman with interests in concrete and garden supplies, and property development. He conducted his business through a number of companies, including the second plaintiff, Nezest Pty Ltd (“Nezest”) and Ecto Pty Ltd (“Ecto”). His dispute with the defendant, the National Australia Bank Ltd (“the NAB”), concerns the correct characterisation of two payments totalling $400,000 made by the NAB to a builder, CMR Builders (Aus) Pty Ltd (“CMR”), to reduce the indebtedness of Ecto to CMR.
The defendant contended that the $400,000 was paid at the request and direction of Mr Spiteri to enable Ecto to make overdue progress payments to CMR. The sum of $400,000 was said by the NAB to have been advanced to Mr Spiteri as a personal loan secured by a first mortgage over his property at 70 East Esplanade, St Albans (“the St Albans property”) and a guarantee and indemnity from Nezest, supported by a first mortgage over its property at Lot 41 Slater Parade, East Keilor (“the Keilor property”).
On the other hand, the plaintiffs contended that the $400,000 was an unsecured advance by the NAB to Ecto. Mr Spiteri said that although he entered into a loan agreement with the NAB to borrow $400,000, that was done to allow Nezest to continue with a development of the Keilor property and the funds were never drawn down by him.
The plaintiffs alleged that the defendant had wrongly detained their titles to the St Albans property and the Keilor property. They say the titles should have been returned to them without having to pay out the personal loan. They sought orders for the delivery up of the relevant title and conveyancing documents. The second plaintiff also sought damages for the loss suffered by it by not being able to finalise the development of the Keilor property in 2000. It claimed loss of rent and the extra cost of completing the development in 2007, rather than 2000.
The defendant counterclaimed for payment of the loan of $400,000 plus interest. It also sought orders concerning the mortgage over the St Albans property which, as will be explained below, was yet to be registered because it had been lost.
Given that the outcome of the case would depend upon findings as to credit, each side introduced a number of issues arguably related to the credit of the principal witness on the other side - Mr Spiteri in the case of the plaintiffs and Mr Matthew Patterson, a former NAB Business Banking Manager, for the defendant. In setting the factual scene for my decision I have, however, tried not to be distracted from the one critical issue, namely, whether Mr Spiteri agreed that the $400,000 paid to CMR was to be treated as an advance to him pursuant to the personal loan he subsequently entered into, and secured by Nezest’s guarantee and indemnity and the mortgages referred to in that loan agreement.
The Factual Background
Mr Spiteri was one of two directors, and held a half share interest, in Ecto. The other interest was held by his fellow director, Mr Joe Defazio. In addition, Mr Spiteri was the sole director and shareholder of Thorncrest Pty Ltd (“Thorncrest”) which was developing an apartment block in Hotham Street, East Melbourne. Mr Spiteri was also the sole director and shareholder of Waleri Nominees Pty Ld (“Waleri”) and Valeclave Pty Ltd (“Valeclave”). Waleri conducted Mr Spiteri’s concreting and garden supply business. Valeclave leased various items of equipment to Waleri. Finally, Mr Spiteri was the sole director and shareholder of Nezest, the owner of the Keilor property.
Mr Spiteri gave evidence that Nezest had acquired the Keilor property in 1990 with the intention of “eventually” developing it by constructing a factory and some offices upon it. In July 1994, Nezest was issued with a building permit and construction commenced shortly thereafter. According to Mr Spiteri, the estimated cost of the remaining building works at this time was $240,000. Mr Spiteri said that the works were unable to be completed due to a lack of funding and that the project was put on hold in 1995.
Ecto signed a Building Contract with CMR dated 14 September 1999, for the construction of 19 apartments, two retail spaces and associated works at 156 Bay Street, Port Melbourne for the sum of $6.3 million. Mr Paul Yuncken, through his company Bernstead Pty Ltd, was engaged by Ecto to be the project manager of the development, in return for the payment of a monthly consultancy fee and a profit share of the project on completion.
CMR was a company run by a father and son, Mr Herb Mackey and Mr Robert Mackey, although the father was, by this time, in semi-retirement. Even though the contract was signed in September 1999, preliminary work had been undertaken before this time. By November 1999 a substantial amount was owed to CMR by Ecto. CMR was pressuring Ecto to pay because it, in turn, was being pressured by its unpaid subcontractors. Ecto required substantial funds to enable it to proceed with the development and a loan of approximately $9 million was being sought by Ecto, at this time, from a number of financiers.
Mr Spiteri said that he was introduced at the races to a representative of the defendant by a mutual acquaintance. He discussed Ecto’s need for finance with that NAB representative. Shortly after that meeting, Mr Patterson telephoned him.
Mr Patterson was, at the relevant times, a Business Banking Manager of the NAB at its Mt Waverley office. His role included assisting “high net worth” individuals and the companies associated with them. As a Business Banking Manager, he was under considerable pressure to acquire new business for the bank. His performance was judged by comparison with other such managers.
Mr Spiteri said that his first meeting with Mr Patterson occurred a few days after the conversation at the races, at Ecto’s office near the Bay Street development site. He said that Mr Defazio and Mr Yuncken were also present at the meeting. The nature of the Ecto development and the need for a loan of approximately $9 million was discussed. Mr Patterson agreed that Mr Spiteri and Mr Defazio were present, but said that Mr Yuncken was not. He gave evidence that he had “expressed the Bank’s interest in exploring a financing alternative for the Port Melbourne project”. Mr Patterson also stated that he informed Mr Spiteri that, if an application were made for the loan, it would take the bank at least four weeks to approve, and probably more because it was close to the summer holiday period.
Mr Spiteri said that a few days later, Mr Patterson called to inform him that the NAB would be able to provide the finance that Ecto needed to develop the site. Mr Patterson denied that such a definite statement was made by him. However, Mr Patterson gave evidence that he was confident in funding Mr Spiteri and the businesses he was involved with at the time. It seems that he quickly formed this view, largely on the basis that a colleague from the bank had given a positive assessment of Mr Spiteri, having dealt with him in respect of Waleri’s banking needs. I therefore consider it likely that Mr Patterson conveyed a very positive impression to Mr Spiteri and his colleagues when talking about whether or not the NAB would lend Ecto the $9 million.
Nevertheless, by letters dated 14 December 1999, Mr Patterson was still seeking from Mr Spiteri and his accountant a raft of financial information about the companies and other entities in which Mr Spiteri had an interest. In his letter to Mr Spiteri, Mr Patterson foreshadowed a discussion with Mr Spiteri the following day about the “finance application”. Mr Patterson also said to Mr Spiteri that he needed this information “prior to our being able to proceed further” in respect of the Bay Street and Hotham Street developments. By now, up to $4 million was being sought by Thorncrest. According to Mr Patterson, the letters formed part of the due diligence required of him by his employer prior to a finance application being considered.
As time went by without Ecto receiving a firm commitment from a financier that the $9 million was available, the financial pressure on it grew. CMR and its unpaid subcontractors were becoming increasingly agitated. This was not surprising because CMR had made several progress claims and all but the first of them remained outstanding.
Mr Spiteri said that in late November 1999 there was a meeting at Ecto’s office attended by Mr Herb Mackey and Mr Robert Mackey of CMR, Mr Spiteri, Mr Defazio, Mr Yuncken and Mr Patterson. Mr Defazio and Mr Yuncken both said that this meeting took place, but Mr Patterson, Mr Herb Mackey and Mr Robert Mackey said that it did not. Both of the Mackeys said that they had never met Mr Patterson.
The purpose of such a meeting was said to be for the builders to gain an assurance that the bank’s loan would enable them to receive payment for completing the development. Mr Spiteri and Mr Defazio both gave evidence that Mr Patterson said that the NAB would provide the funding needed for the development. They maintained that on the strength of this indication, CMR undertook further building works in December 1999. Mr Yuncken said that the substance of what Mr Patterson said was that the project would be funded.
At this time, Suncorp Metway was one of a number of possible financiers which had been approached by Mr Spiteri and Mr Defazio. On 10 November 1999, Mr Yuncken informed Mr Mackey that $7.6 million was “available” from Suncorp Metway. Mr Spiteri, Mr Defazio and Mr Yuncken all gave evidence that, as a result of meetings in November 1999, a loan from Suncorp Metway was likely. Mr Spiteri said that he had received a letter of offer from Suncorp Metway. He thought the offer was for about $8.5 million. Mr Patterson said that he was first told of this letter at the first meeting he had with Mr Spiteri. He said that Mr Spiteri promised to provide him with a copy of the letter on at least two occasions, although he was never furnished with one. No such letter of offer was produced in evidence.
A diary entry of Mr Robert Mackey indicates that he attended a meeting at Ecto’s office on 9 November 1999. The note in the diary suggests that Suncorp Metway was represented at that meeting. Given the evidence of Mr Robert Mackey, I am satisfied that no meeting was held at which representatives of CMR and Mr Patterson were present. I consider that had such a meeting taken place, the promise that funds would be provided by the NAB would mean that the meeting was something that would be remembered by Mr Robert Mackey. It seems to me that Mr Spiteri, Mr Defazio and Mr Yuncken may well have been confusing the Suncorp Metway meeting, which Mr Robert Mackey did attend, with the asserted meeting with Mr Patterson.
Both Mr Spiteri and Mr Defazio attempted to minimise the quantity of work performed by CMR, and therefore the amount owed to it by Ecto, before Mr Patterson became involved. Mr Spiteri said that at this alleged meeting Mr Patterson:
virtually told the builder to start, not virtually, that’s what he told him, he said you can go ahead.
Mr Defazio gave evidence that Mr Patterson told them, at this alleged meeting, that “we could start work on Ecto’s development”. Mr Defazio said that he told Mr Patterson that the first progress claim from the builder could be up to $1 million for about six weeks work, and that Mr Patterson said that the funds would be in place by that time. Mr Defazio said in cross-examination that the builder had “done a little bit of work but not much”. He said that he could not recall whether any progress claim had been lodged by the builder. Also, Mr Defazio said in his witness statement that:
I would never have agreed to start the Ecto development unless I believed that the funding for the entire development was in place.
Yet it was he who had signed the contract with CMR on behalf of Ecto on 14 September 1999. Moreover, over $500,000 was owing to CMR from before the end of October 1999. I therefore find this evidence of Mr Spiteri and Mr Defazio to be quite misleading.
According to Mr Spiteri, in about early December 1999, Mr Patterson came to Mr Spiteri’s office at the St Albans property. He drove Mr Patterson around the area showing Mr Patterson various development sites of his companies or the premises from which they carried on business. Included in the tour was the Keilor property. Mr Patterson agreed that this occurred, although he said that he thought this meeting was a week or ten days after the first meeting.
Mr Spiteri said that, during the tour, Mr Patterson asked him why the development of the Keilor property had not been completed. Mr Spiteri told him about a past financial difficulty which had caused him to put the project on hold. Mr Spiteri said that, in answer to a question from Mr Patterson, he told him that it would take about $240,000 to complete the works at the Keilor property. Mr Patterson said that he estimated the value of the Keilor property and the St Albans property at $400,000 and $180,000 respectively. At 70%, this indicated a lending value of $406,000, or rounded off, $400,000.
Mr Spiteri said that following this tour, Mr Patterson told him that he wanted to take over the banking of all of his businesses. Mr Spiteri said that after this, he spoke with Mr Patterson “regularly”. He asked Mr Patterson for a formal letter confirming that the NAB would lend Ecto the $9 million it needed, but Mr Patterson kept putting him off.
Mr Robert Mackey sent a facsimile to Mr Defazio on 7 December 1999 informing him that one of CMR’s subcontractors was threatening legal action because of a lack of payments. In the facsimile, Mr Mackey referred to several discussions with Mr Defazio and to his strong belief “that your assurance of finance is in hand” and that a draw down to CMR could be expected by the end of that week. It seems from this correspondence that Mr Mackey was confident that finance had been attained as a result of information from Mr Defazio. Mr Defazio said that he also had the strong belief at that time that funding was assured, after a series of telephone conversations with Mr Patterson.
On 13 December 1999, Mr Herb Mackey wrote to Mr Yuncken requesting payment of $81,914 (10% of the amount owing) before 2.30 pm that day. Failing this, he said that he would have to meet with his solicitor to discuss “the closure of this project”.
The first of the two payments in question took place on 15 December 1999 when Mr Patterson arranged for the payment of $100,000 into CMR’s account with the Bank of Melbourne. This money was paid in part satisfaction of the debt of $525,913 owed by Ecto to CMR. An invoice for that amount was apparently faxed on 25 October 1999. Mr Patterson gave evidence that, following an initial call from Mr Defazio, he received a telephone call from Mr Spiteri who was concerned that funds be released immediately to CMR because, without payment, the builders would shut down the Bay Street site. Mr Patterson said that he told Mr Spiteri that the money sought could be paid to CMR but only if it was in Mr Spiteri’s name and secured against his assets, meaning the two properties, since Ecto did not have borrowing capacity with the defendant at the time. Mr Patterson said that the sum of $100,000 was agreed upon as an urgent advance. He said that in accordance with Mr Spiteri’s prior request, he called him after the deposit had been made.
Mr Spiteri denied that he had any involvement in the arranging of the payment of the $100,000. He maintained that he did not speak to Mr Patterson about the payment and did not know about it until later. Mr Spiteri denied that Mr Patterson called him to confirm that the payment of $100,000 had been made. Mr Spiteri said that this money was released without consultation, without authorisation and without any security being taken by the defendant. He said that the money advanced was a debt owed by Ecto to the NAB.
Mr Defazio said that he could recall discussing with Mr Patterson a payment to the builder of $100,000.
However, by a facsimile dated 14 December 1999, Mr Yuncken wrote to the Mackeys confirming his telephone advice that $100,000 would be paid into CMR’s account that day and that within seven days “either a large portion of the monies owed or all of the monies owed will be paid to your company”. Mr Yuncken further wrote that if verification of the above was required, contact should be made with “Joe Defazio and Mario Spiteri” [My emphasis]. A handwritten addition at the foot of the facsimile suggested that it was to be copied to Mr Spiteri. Further, by a facsimile dated 14 December 1999, Mr Robert Mackey’s secretary, Ms Melanie Olivero, sent CMR’s bank account details to “Mario” [My emphasis]. Mr Robert Mackey said that he was asked by Mr Spiteri to send him these details. They were needed by Mr Patterson if he was to pay the $100,000 to CMR’s account. When he was asked whether he had any idea how the NAB knew CMR’s bank account details, Mr Spiteri responded that he did not give them any details. He said that he did not know them. These documents, which unfortunately were not produced by Mr Robert Mackey until close to the end of the hearing, after Mr Spiteri had completed his evidence, is a strong indication to me that Mr Spiteri was involved in the discussions which led to the $100,000 being paid to CMR.
Mr Defazio gave evidence that he had the dominant role in the management of the Bay Street site. Mr Yuncken’s assessment was that Mr Spiteri’s role on a day to day basis was “very minimal”. Mr Spiteri said that he was “more a silent partner”. He put this forward as an explanation for him not knowing about the payment of the $100,000. Mr Patterson’s view of their roles was different. He said, in cross examination:
I didn't place any trust at all in Joe Mr Defazio, but I did put trust in Mario [Mr Spiteri], who I felt was the actual guy or the money - the bloke behind the whole development … the request[s] always started with Mr Defazio and then came from Mr Spiteri afterwards, that was the order of events.
Even on Mr Spiteri’s evidence, it seems to me that he was actively involved in the financial side of the development.
By a letter dated 17 December 1999, Mr Graeme Efron of Efron & Associates, the solicitors acting for Ecto, wrote to Mr Patterson setting out a list of four mortgage interest payments totalling $32,376.34, which were “urgently required”. The plaintiffs pointed to this request as an indication that Mr Efron believed that the NAB had agreed to fund Ecto’s development. However, Mr Patterson refused to fund these mortgage interest payments. He said that he told Mr Spiteri that he would have to pay them from his internal sources, such as Waleri. Further requests were made by Mr Efron in January and February 2000. On these occasions, Mr Patterson again refused to fund them. Instead, they were debited to Waleri’s account. They were substantial payments, totalling $57,876.34 and $34,626.34 respectively. The first debiting pushed Waleri’s account from credit into debit. And yet Mr Spiteri maintained that this was done by Mr Patterson without his knowledge or approval. He said that subsequently he contacted Mr Patterson and asked who had authorised the payment to come out of his account. He said that Mr Patterson explained that Mr Efron rang him desperate for the payments to be made so Mr Patterson took it out of the Waleri account. Mr Spiteri said that he asked Mr Patterson to reverse the unauthorised transaction and Mr Patterson said that he would sort it out. There was no reversal but Mr Spiteri took no further action.
On 21 December 1999, CMR sent Mr Yuncken an invoice for a further $441,000 owing in respect of work carried out at the Bay Street development. By a letter dated 22 December 1999, Mr Herb Mackey wrote to Mr Yuncken “requesting the full amount” of $593.226.00 … by Friday 24th December 1999 before 1.00 pm or the site will be closed until this matter is finalised to our satisfaction”. Pursuant to the contract between CMR and Ecto, the site was to close for holidays from 24 December 1999 and to reopen on 6 January 2000.
Mr Defazio said that, in the first few days of 2000, he became increasingly concerned about the lack of finance from the NAB for the project. Mr Defazio said that he made repeated attempts to gain a written assurance, by way of a letter of offer, from the defendant through Mr Patterson. It was not provided. Mr Patterson said that he was telephoned continually between Christmas and New Year by Mr Spiteri and Mr Defazio seeking further funds. In the first week of 2000, Mr Robert Mackey was away on holiday, so his father, Mr Herb Mackey, stood in his place. Mr Spiteri said that he was “away on vacation during the early part of January”.
The second of the two payments in question took place on 6 January 2000. On the afternoon of 4 January 2000, Mr Herb Mackey called Mr Yuncken seeking payment of the outstanding claims for works which had been undertaken to that time. Mr Yuncken advised Mr Herb Mackey by facsimile, very early on 5 January, that Mr Spiteri had rung him after their conversation and had told him that “he had spoken to the rep at the Bank” and he, Mr Spiteri, “could not understand why the money“ was not in CMR’s account [my emphasis].
On 6 January 2000, the day the building site reopened, the sum of $300,000 was paid by the NAB to CMR. Mr Patterson gave evidence that he agreed to release the $300,000 on the same basis as he had released $100,000 earlier, namely that it would be a personal loan to Mr Spiteri with security being provided. Mr Patterson said that in accordance with the arrangements he made by telephone with Mr Spiteri, a bank cheque was picked up by Mr Herb Mackey from the NAB’s Glen Waverley branch.
Mr Patterson said that, during the telephone call with Mr Spiteri confirming that the cheque had been collected by CMR, he made a time to formalise the personal loan pursuant to which the total of $400,000 had been released.
Mr Spiteri gave evidence that, to the best of his recollection, he did not speak with Mr Patterson while he was on holidays and that he first found out that a payment of $300,000 had been made to CMR when he got back to work. He said that this money was released without consultation, without authorisation and without any security being taken from him by the NAB. Mr Spiteri said that he understood that the funds were released by the NAB pursuant to the oral loan offer of $9 million by Mr Patterson for the Ecto development. He said that the money advanced was a debt owed by Ecto to the NAB. Mr Spiteri again denied that Mr Patterson called him to confirm that the $300,000 had been collected. He said that the meeting at his home on 11 January 2000 was arranged in a call on 10 January 2000.
Mr Defazio said that he spoke to Mr Patterson on several occasions asking for more money to pay the builders and Ecto’s other creditors and that eventually they agreed on a figure of $300,000 to be paid to CMR.
Mr Yuncken gave evidence that he thought it likely that he would have had contact with Mr Patterson about the release of the funds, but that he could not recall any details. In cross examination, he said that he understood the release of $400,000 to be the beginning of the funds to be released as part of the $9 million that Mr Patterson agreed to provide earlier. He said that Mr Spiteri, Mr Defazio and he “had expected to get more money than the $400,000”.
Mr Patterson gave evidence that he accounted for the release of $100,000 on 15 December 1999 and $300,000 on 6 January 2000 through use of his Manager’s Suspense Account. This account was, in effect, a personal, discretionary, unsecured loan capacity of a Business Banking Manager of the defendant. It allowed him to provide loans of up to $300,000, without seeking approval from superiors and without the need to attain security. The relevant statement, ending 11 January 2000, for his Manager’s Suspense Account shows a miscellaneous debit of $400,000 on 10 January 2000. The next statement, ending 25 January 2000, shows a credit of $400,000 on 25 January, the relevant entry being recorded as “Mario Spiteri”. The miscellaneous debit of $400,000 was in breach of the maximum approved level of authority for Mr Patterson’s Manager’s Suspense Account. In cross-examination, Mr Patterson conceded that it was a breach of his delegated lending authority to have released more than $300,000, even in multiple lots, if it was to the one entity.
Receipt of $300,000 was acknowledged by CMR to Mr Yuncken on 7 January 2007. The same letter noted that there remained a shortfall in the order of $293,226. The letter said that, with that sum still owing, the site would be closed.
Mr Spiteri said that on 10 January 2000, having returned from holiday, he sought the funds that he intended to pass to Nezest to finance the finalisation of its development. He said that $240,000 was needed to complete the project. In a telephone conversation, it was arranged that Mr Patterson would come to Mr Spiteri’s house on the following day. Mr Spiteri said that, as far as he was concerned, there was no urgency about obtaining the loan.
Mr Spiteri signed the personal loan agreement for $400,000, to be fully drawn by 31 January 2000. In rather contradictory fashion, the term of the loan was said to be six months, yet the expiry date was 30 June 2000. The loan was to be repaid in one instalment on that day. Interest was to be paid monthly. As previously stated, the loan was to be secured by a first mortgage over the St Albans property and a guarantee and indemnity of $400,000 from Nezest supported by a first mortgage over the Keilor property.
Mr Spiteri said that his best recollection was that “many of the details on the schedule” to the loan agreement were not completed at the time he signed. But he also said that he did not read the agreement very carefully. He did not notice that it was to be fully drawn by 31 January 2000 or that interest was to be monthly. That would not have been the type of loan he wanted.
According to Mr Spiteri, Mr Patterson arrived at his home on 11 January 2000 with the personal loan agreement partially completed, including the figure $400,000 as the loan amount. Mr Spiteri said that when he queried the amount of the loan, Mr Patterson told him that he had decided on that figure to ensure that he did not run out of funds and that Mr Patterson said that he did not have to use all of the facility.
Mr Spiteri said that he never received the letter of offer dated 11 January 2000 from the NAB although Mr Patterson said that he handed Mr Spiteri a copy of the letter at the meeting. Later in 2000, a signed version of that letter was still in the bank’s file. It had the wrong address for Mr Spiteri on it. The evidence does not establish whether this was the signed original, or a signed duplicate original, of the letter in question. Mr Spiteri said that he was waiting for this letter of offer before proceeding further with the Nezest development.
Mr Patterson gave evidence that, at this meeting, he and Mr Spiteri discussed and agreed that the monthly interest payments on the personal loan would be debited to a Waleri account with the NAB. He said that he told Mr Spiteri that the loan expiry date of 30 June 2000 had been set because, by then, the funding for the Bay Street project should be in place. He denied that the loan agreement had not been completed before he met Mr Spiteri.
Contrary to what Mr Spiteri believed, and told the NAB, the title to the St Albans property was still in the joint names of Mr Spiteri and his ex-wife. He believed that this had been transferred into his name alone following his recent divorce. Mr Spiteri was equivocal about whether or not he had actually signed the mortgage of the St Albans property, but the evidence suggests that he did. It appears that the original mortgage over the St Albans property signed by Mr Spiteri was lost by the NAB. But it does now hold the titles to the St Albans property. Westpac had lost these titles but on 10 March 2000 Mr and Mrs Spiteri applied for new titles and they were eventually delivered to the NAB.
The mortgage by Nezest was dated 11 January 2000 on page 1 and 16 January 2000 on pages 3, 4 and 5, which was a Sunday. It was said to be over “Certificate of Title Volume 9963 Folio 685”, which was the same description of the Keilor property set out in the loan agreement. However, at some time someone had crossed out the typed “685” and inserted by hand “705”, which was the correct folio number. Alongside the figure, there appeared the initials “MS”. The State Revenue Office appear to have picked up the mistaken folio reference in June 2000. The guarantee and indemnity by Nezest of Mr Spiteri’s personal loan of $400,000 was also dated 16 January 2000. Mr Spiteri said that he did not have Nezest’s common seal with him at the time, so it must have been applied to the guarantee and the mortgage later. He did not remember doing so. He thought that he gave the common seal to Mr Patterson.
According to Mr Spiteri’s first bank statement, his account with the NAB was opened on 24 January 2000, with a nil balance. A loan drawing of $400,000 was debited on 25 January 2000. The first bank statement ended 21 July 2000, so it could not have been seen by Mr Spiteri before then. Mr Spiteri said that when he received his bank statement in July 2000 he immediately contacted Mr Patterson, querying the $400,000 debit and that Mr Patterson said that he would sort it out. Mr Patterson denied that Mr Spiteri contacted him to query any aspect of the $400,000 transaction.
Also on 11 January 2000, Mr Spiteri, Mr Defazio and Mr Yuncken met with Mr Patterson at Mr Spiteri’s home. By a facsimile dated 12 January 2000, Mr Yuncken wrote to Mr Patterson enclosing a copy of Bernstead’s certificate No. 4 for construction works up to 26 November 1999, a progress claim summary and account for Ecto and Thorncrest. He said that “as discussed yesterday I have prioritised creditors for both companies” and referred to Ecto having creditors that required payment “immediately” whilst “the balance can be paid progressively over a four-week period.” The facsimile continued :
I have tried to structure a cashflow that addresses the need of reducing some of the pressure for payment, while providing time to progressively increase the loan, to provide additional information, so that the loan proposals are finalised and documentation is completed.
Mario and Joe are both appreciative of what you have done in the circumstances, now with the festive season and holiday period finished it is crucial that the momentum on the Port Melbourne site is not lost and that the costs at East Melbourne are refinanced as soon as possible.
Mr Patterson prepared a credit memorandum dated 11 January 2000 about the “Spiteri Group of Companies”. Its purpose was to gain approval for the refinancing by the NAB of the Spiteri Group’s current Westpac facilities. In relation to Mr Spiteri’s Fully Drawn Advance of $400,000, Mr Patterson stated:
Finance was originally sought with Westpac to develop factory site in Keilor which Mario has basically completed as a side issue. Property is now approaching completion and is envisaged to fetch in the vicinity of $550 K upon completion, at which time this facility shall be paid out in full and hence approval is out to June 2000 at which time if the property has not been sold, or contracted for sale is then to be placed on a P&I reduction basis.
Mr Patterson admitted that he had lied to his superiors in his explanation of the proposed loan of $400,000. In fact, he said, it was given for the purpose of paying the builders on the Ecto development. Mr Patterson said that he believed that, if the true position was revealed to the State Credit Department, in particular that Ecto had no funds with which to make these early payments to the builder, it would subvert the prospects of success of the application. Counsel for the plaintiffs pointed out that this was the only contemporaneous document which stated the purpose for which the funds were to be advanced. It was submitted that I should not accept Mr Patterson’s evidence about the memorandum. It is to be noted that even if Mr Patterson was not lying about the purpose, he would still have been misleading his superiors by stating that the property was “approaching completion”. This makes it more likely, in my opinion, that Mr Patterson would have been prepared to also mislead them about the purpose of the loan.
The NAB submitted that the funds were released to Mr Spiteri to pay for Ecto’s debt simply because no loan to Ecto had been approved and Mr Spiteri had the capacity to offer security for that loan. In giving evidence, Mr Patterson detailed the pressure he was under to attract new business to the bank. He also conceded, in cross-examination, that it was in his own financial interests to win new business for the bank, because it resulted in financial bonuses being paid to him. Mr Patterson also conceded that, in an effort to impress his colleagues and to increase the business he generated he was, at the time, willing to “cut corners” in procedural steps in order to write new business for the bank. Mr Patterson was asked to, and did, resign from the bank’s employ on 16 August 2002, after 16 years at the bank.
Having not received any written confirmation of the loan from Mr Patterson or anyone else at the NAB, Mr Spiteri sought the assistance of a Business Manager at the Preston branch of NAB. Mr Spiteri had an associate who knew the manager. A meeting was arranged on or about 21 January 2000. Mr Spiteri, Mr Defazio and Mr Yuncken and several bank representatives attended. It was said that the purpose of the meeting was to clarify the status of the $9 million loan for the Ecto development. Mr Spiteri said that the manager left the meeting to make a call to Mr Patterson. When he returned he said that the loan had been granted and that further funds would be advanced to pay the builder shortly.
Mr Defazio confirmed that he attended this meeting. He said that after the bank representative returned to the room he said that the deal had been done. Mr Defazio thought that this man’s name was Ford, “he was the regional manager”.
Mr Yuncken gave similar evidence. He said that, following the meeting, he conveyed the news to CMR and, then, satisfied that everything was under control, he took a week’s leave.
Mr Robert Ford said that he was the Regional Executive of the Preston Business Banking Centre of the NAB from 1998 to 2001. He gave evidence that he did not recall the meeting having taken place, but conceded that it may well have occurred. Mr Patterson said that he recalled receiving a telephone call from Mr Ford at about this time. Mr Ford asked him the status of the application. Mr Patterson said that he told him that it was being assessed.
I am satisfied that Mr Spiteri, Mr Defazio and Mr Yuncken did meet Mr Ford at the Preston branch at about this time and that, after speaking with Mr Patterson, he did tell them that the loan had been approved. There was no reason for Mr Ford to make an incorrect statement, so I must find that Mr Patterson gave him this false information.
A file note made by Mr Patterson and dated 21 January 2000 read as follows:
Received a phone call from Mario Spiteri seeking payment of $350,000 to builder CMR Builders pending our decision to complete funding on development in Bay Street Port Melbourne.
Agreed to finance amount directly from account to be opened in the name of Ecto however on the proviso that amount would be cleared if we were unable to proceed with finance from Suncorp Metway Finance to which Mario agreed.
Builder Robert Mackie is to pick up cheque from this office.
According to Ecto’s first bank statement, an account in its name with NAB was opened on 28 January 2000, with a nil balance. On 31 January 2000, a miscellaneous debit of $350,000 was recorded in the bank statement.
Another file note made by Mr Patterson and dated 4 February 2000 read as follows:
Joe Spiteri [sic] called seeking further payment to CMR. Advised that would not be able to assist at this time as finance had not been approved.
Mario then called seeking that we pay this amount at which time in order to continue the development, and that we would be cleared in full if unable to proceed.
Agreed to fund last payment once from Ecto Account however G&I to be prepared for signing by Mario and Joe in the event that finance does not proceed pending take out by Suncorp.
On 22 February 2000, the sum of $247,704.73 was advanced by the NAB to Ecto.
Mr Patterson subsequently prepared, and Mr Spiteri and Mr Defazio signed on 24 February 2000, a personal guarantee and indemnity of Ecto, with a basic liability in the sum of $600,000. This was security for the $350,000 advanced to Ecto by the NAB on 31 January 2000 and the $247,704.73 advanced to Ecto by the NAB on 22 February 2000, pending the NAB’s decision on the Ecto application for funding of $9 million. Mr Spiteri said that he could not recall signing such a document. He agreed, however, when shown the document that he and Mr Defazio had signed it.
Mr Patterson was cross-examined at length about these two file notes. He rejected the suggestion that they were fabricated well after the event. I cannot see why Mr Patterson would do that, when the guarantee and indemnity had been signed by Mr Spiteri and Mr Defazio, but not fabricate file notes about the telephone conversations concerning Mr Spiteri’s agreement to accept personal liability for the $100,000 and $300,000 payments. Mr Patterson gave some contradictory evidence about when the file notes were made and typed. Nevertheless, I find that they are reliable records of his two conversations in question.
On 31 January 2000, the NAB account of Waleri was debited with interest of $2,189.59 payable on the loan of $400,000. Mr Spiteri said that this was done without his authority. As far as can be ascertained from the incomplete set of bank statements, interest of between about $2,700 and $3,000 was debited to Waleri’s account every month thereafter in 2000. These debits appeared on the bank statements of that company. Yet Mr Spiteri seems never to have challenged these debits.
Ultimately, the NAB declined to fund the Bay Street development and building work stopped in March 2000. On 10 March 2000, a receiver was appointed to Thorncrest. No doubt, this rang warning bells for the NAB in respect of Ecto. Ecto went into liquidation on 9 August 2000. Thorncrest went into liquidation on 29 September 2000. Waleri had administrators appointed on 2 August 2002 and went into liquidation on 13 December 2002.
Mr Spiteri said that in about April or May 2000 he met with Mr Greg Stafford. He was a manager with the NAB’s Asset Structuring Unit. Mr Spiteri said that he “wanted to go over Mr Patterson’s head and speak with one of his superiors”. He said that he asked Mr Stafford why the bank was apparently not going to go ahead with the $9 million loan which Mr Patterson had promised. Mr Stafford said that he did not have to tell Mr Spiteri the NAB’s reasons. This seems to have been the only issue raised by Mr Spiteri with Mr Stafford.
Evidence was led about a number of other events that occurred with respect to the Bay Street development. I do not consider it necessary to refer to them as they are not relevant to the issue before me. It should, however, be noted that in May 2002 Nezest obtained a new planning permit for the Keilor property.
Further, by a letter dated 23 July 2002, Kennedy Guy, Mr Spiteri’s solicitors, wrote to Russell Kennedy, the NAB’s then solicitors, in response to two demands issued by the NAB to Mr Spiteri. The first demand for payment of $400,000 was in respect of the personal loan, and the second demand for payment of $597,704.73 was in respect of Mr Spiteri’s guarantee of Ecto. Kennedy Guy stated that:
Mr Spiteri has no knowledge of loaning [sic] $400,000.00 from the National Australia Bank.
The solicitors also noted that Mr Spiteri denied liability to the NAB pursuant to the guarantee.
By another letter, dated 6 August 2002, Kennedy Guy stated that they had been instructed by Mr Spiteri that “he never received” the loan of $400,000 from the NAB. The letter continued:
It would appear that the National Australia Bank has allocated advances it made on behalf of Ecto Pty Ltd to an account in the name of Mario Spiteri when it had no right or authority to do so.
Kennedy Guy further wrote that “there has never been any suggestion” that Nezest borrowed $400,000 from the NAB and a discharge of the mortgage given by Nezest was demanded by them.
The writ in this proceeding was issued on 20 November 2002. In the statement of claim, it was initially pleaded by the plaintiffs that Nezest had repaid the $400,000 loan.
Conclusion
I turn then to the critical issue in this case which is, whether Mr Spiteri agreed that the $400,000 paid to CMR was to be treated as an advance to him pursuant to the personal loan he subsequently entered into, and secured by Nezest’s guarantee and indemnity and the mortgages referred to in that loan agreement. In his final submissions, counsel for the plaintiffs presented a comprehensive and powerful series of criticisms of Mr Patterson’s credibility. Many of the criticisms are well made. Mr Patterson’s evidence was often contradictory and confusing. Despite the criticisms, I have concluded that I prefer Mr Patterson’s evidence on the critical issue to that of Mr Spiteri. I set out below, in no particular order, the factors which have led me to reach this conclusion.
The fact that the quantum of the amount paid by the NAB to CMR was the same as the quantum of the loan taken out by Mr Spiteri at this time is one reason for my finding for the NAB on this critical issue. The coincidence is too great. I did not find Mr Spiteri’s explanation as to why he agreed to borrow $400,000, rather than the $240,000 to $250,000 he said he required, convincing. I accept Mr Patterson’s evidence that he sought security from Mr Spiteri to cover the money paid to CMR in reduction of Ecto’s indebtedness. He followed the same approach when he insisted on a guarantee and indemnity from Mr Spiteri and Mr Defazio in respect of the two further payments totalling nearly $600,000.
Secondly, I reject Mr Spiteri’s denials that he had any involvement in the payment by the NAB to CMR of the two amounts in question. What documentation there is, supports Mr Patterson’s claim that Mr Spiteri was involved in both amounts being made available. Further, even if Mr Spiteri was away on holidays at the time of the second payment, there was no reason why he could not have kept in touch with Mr Patterson by telephone. It is clear that he was at least telephoning Mr Yuncken at this time. It would hardly be surprising, in my opinion, if Mr Spiteri did keep in contact because the future of his substantial Bay Street development depended upon funds being made available by the NAB to be used to pay CMR at that time. I consider that, as a experienced businessman and property developer, Mr Spiteri would have been actively involved in the financial side of this development, even if he left the day to day management to Mr Defazio.
Thirdly, I do not accept Mr Spiteri’s evidence about the purpose of his entering into a personal loan of $400,000 from the NAB. Nothing had been done about resurrecting the development at the Keilor property for about four or five years. Suddenly, the Court was told, that project had become so urgent that Mr Spiteri spoke to Mr Patterson on his first day back from holidays and Mr Patterson came to his house on the following day to have the personal loan and security documents signed. Further, this urgency has to be viewed in the context that Mr Spiteri had no current planning or building permit to enable him to proceed with the development. The suggestion that Mr Spiteri could now concentrate on his development through Nezest because the bigger developments by Ecto and Thorncrest were under control also makes no sense. The visit by Mr Spiteri and his colleagues to the NAB’s Preston branch to see Mr Ford shows how unrealistic that claim is. They were under constant financial pressure unless and until a financier gave written approval of the required loan.
Moreover, once the flurry of activity about the personal loan for the Nezest development came to an end, nothing happened. On Mr Spiteri’s version, even though he said that he had intended construction would begin in early 2000, he did not attempt to draw down on the $400,000 loan, so urgently obtained, for many months. One explanation proffered for the delay was that Mr Spiteri was distracted by what was happening with the Thorncrest and Ecto developments. But this would have applied throughout January and, in my opinion, does not explain why it was so urgent on 10 and 11 January and no longer urgent after 11 January 2000.
I also reject Mr Spiteri’s claim that he was awaiting a letter from the NAB telling him that his loan had been approved and that he could proceed. The contrast between that evidence and his evidence that he relied on Mr Patterson’s oral indication that the loan of $9 million was approved could not be greater. In any event, Mr Spiteri said that he could not recall asking Mr Patterson where the letter of approval was, again indicating that there was no urgency for this alleged construction to start. The delay in obtaining the necessary permit to enable the Nezest development to continue was explained by Mr Spiteri on the basis that applying for the permit was a formality and, in any event, the NAB was holding Nezest’s title to the Keilor property.
All of this means that I am not persuaded that Mr Spiteri in fact entered into the personal loan intending to use the proceeds of his borrowing to fund the completion of the development of the Keilor property. If the loan was not for this purpose, it seems more likely that it was as Mr Patterson said.
Next, although Mr Spiteri correctly claimed that he did not receive a statement relating to his new account until July 2000, once he did so one would have expected that he would have immediately and strenuously queried the debit of $400,000. If Mr Spiteri’s evidence is to be believed, Mr Patterson’s actions in debiting the $400,000 to his account were quite extraordinary and deceitful. Mr Spiteri said that he did query the entry, but with Mr Patterson. Yet he was the very person who had let him down so badly with respect to Ecto’s promised $9 million loan and deceived him over the $400,000 loan. Mr Spiteri was apparently content to accept Mr Patterson’s promise that he would sort it out. Despite dealing with Mr Patterson’s superiors over the Ecto loan, Mr Spiteri did not raise this issue with them. In my opinion, Mr Spiteri’s failure to do more in July 2000 by way of challenging the debiting of the $400,000, apart from, at best, raising it with Mr Patterson, is significant.
Finally, I cannot accept Mr Spiteri’s evidence about the interest payments on the $400,000, which were being debited to the Waleri account. Assuming, as I do, that Mr Spiteri must have seen the debit, with its clear explanation, repeated each month for a number of months in the first half of 2000, his failure to challenge them, both before and after receipt of the bank statement in July 2000, is damaging to his case.
I have, therefore, concluded that the plaintiffs’ claims must fail. In the circumstances, it is not necessary to embark on a consideration of what damages Nezest would have been entitled to recover had I found that the NAB had wrongly detained its title documents to the Keilor property.
The Counterclaim
Evidence was given on behalf of the NAB that, as at 31 July 2007, the amount owed by Mr Spiteri pursuant to the loan agreement was $874,346.26, and that the amount owed by Nezest pursuant to the guarantee and indemnity was $787,842.25. The calculation of these amounts was not disputed. The outstanding amounts do, however, have to be brought up to date before judgment is entered in favour of the defendant/plaintiff by counterclaim.
I will also give the parties the opportunity to formulate an agreed form of orders concerning the St Albans property. I am satisfied that Mr Spiteri did sign a mortgage over that property in favour of the NAB. Therefore, I consider that the NAB is entitled to orders which will bring about the transfer of the property into Mr Spiteri’s name alone and the registration of the mortgage by him to the NAB. Failing agreement between the parties, I will, if required, hear submissions on the point and make the orders which I consider appropriate. Despite a number of criticisms relating to the documents, I did not understand the second plaintiff to be challenging the enforceability of either the guarantee and indemnity or the mortgage.
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