State Bank of New South Wales Ltd v Krys Properties Pty Ltd
[1997] FCA 784
•18 August 1997
IN THE FEDERAL COURT OF AUSTRALIA )
) NEW SOUTH WALES DISTRICT REGISTRY ) NG 483 of 1991 ) GENERAL DIVISION )
BETWEEN: STATE BANK OF NEW SOUTH WALES LTD
ApplicantAND: KRYS PROPERTIES PTY LTD
RespondentMICHAEL VINCENT BOURKE
First Cross-ClaimantL & M HOLDINGS PTY LTD
Second Cross-ClaimantL R A RESTAURANTS PTY LTD
Third Cross-ClaimantHUNTER DEVELOPMENT CO PTY LTD
Fourth Cross-ClaimantEMAS PTY LTD
Fifth Cross-ClaimantBONOTO PTY LTD
Sixth Cross-ClaimantKRYS PROPERTIES PTY LTD
Seventh Cross-ClaimantAVITO PTY LTD
Eighth Cross-ClaimantTERRENCE BOURKE
Ninth Cross-ClaimantSTATE BANK OF NEW SOUTH WALES LTD
Cross-Respondent
JUDGE: LINDGREN J PLACE: SYDNEY DATED: 18 AUGUST 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
There be judgment for the applicant against the respondent for $3,851,872.50.
There be judgment for the applicant for possession of the land the subject of Folio Identifier 1/738913 having a street address of 36 Free Church Street, Maitland.
The applicant have leave to issue a writ of possession to enforce Order 2.
The respondent pay the applicant’s costs of the application.
The cross-claim be dismissed.
The cross-claimants pay the cross-respondent’s costs of the cross-claim.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 483 of 1991 ) GENERAL DIVISION )
BETWEEN: STATE BANK OF NEW SOUTH WALES LTD
ApplicantAND: KRYS PROPERTIES PTY LTD
RespondentMICHAEL VINCENT BOURKE
First Cross-ClaimantL & M HOLDINGS PTY LTD
Second Cross-ClaimantL R A RESTAURANTS PTY LTD
Third Cross-ClaimantHUNTER DEVELOPMENT CO PTY LTD
Fourth Cross-ClaimantEMAS PTY LTD
Fifth Cross-ClaimantBONOTO PTY LTD
Sixth Cross-ClaimantKRYS PROPERTIES PTY LTD
Seventh Cross-ClaimantAVITO PTY LTD
Eighth Cross-ClaimantTERRENCE BOURKE
Ninth Cross-ClaimantSTATE BANK OF NEW SOUTH WALES LTD
Cross-Respondent
JUDGE: LINDGREN J PLACE: SYDNEY DATED: 18 AUGUST 1997
REASONS FOR JUDGMENT
INTRODUCTION
By its amended application filed on 26 September 1995, the applicant (“the Bank”) seeks judgment for possession of a residential property at 36 Free Church Street, Maitland being the land comprised in Folio Identifier 1/738913 (“the Property”), an order that the Bank have leave to issue a writ of possession, an order that the respondent (“Krys”) pay the Bank $3,331,324.00 plus “interest at the rate of 10% from 14 September 1995”, and an order that it pay the Bank’s costs. In its submissions, the amount for which the Bank seeks judgment is $3,851,872.50.
There has been filed what I will, for convenience, refer to as an “amended cross-claim”. The first cross-claimant is Michael Vincent Bourke (“Mr Bourke”). The second to eighth cross-claimants are companies which are ultimately controlled by Mr Bourke (“the Bourke Group”). They include two companies which are of particular significance in the present proceeding. One, the second cross-claimant, is L & M Holdings Pty Ltd (“L & M”). L & M borrowed money from the Bank. The other, Krys, the seventh cross-claimant, mortgaged the Property to the Bank as security for that loan. The ninth cross-claimant is Mr Bourke’s brother. The Bank is the cross-respondent.
Mr Bourke and his brother, Terrence Bourke, are directors of each company in the Bourke Group. The companies were, at relevant times, investors in and developers of real estate in the Hunter Valley, in particular, at Maitland and nearby Metford and Rutherford. At the commencement of the hearing on Monday 5 May 1997, Mr Bourke, being himself unrepresented in his role as second cross-claimant, sought leave to appear for the companies. Upon certain evidence, I granted that leave. Mr Bourke also sought leave to appear for his brother, the ninth cross-claimant. He informed me from the Bar table that his brother knew that the case was listed for hearing. He had no evidence, however, that his brother wished Mr Bourke to represent him. I dismissed the cross-claim in so far as it was brought by the brother, but reserved liberty for him to apply for a discharge or variation of that order at 10.15 am on the following day. At that time, Mr Bourke informed me that his brother did not wish to make such an application. Subsequently, the brother signed a letter addressed to the Deputy Registrar confirming that he did not wish to do so.
PRELIMINARY OBSERVATIONS IN RELATION TO THE AMENDED CROSS-CLAIM
The Bank submitted at the outset that all cross-claimants except Krys lacked standing to cross-claim since they were not respondents to the application. However, the Bank did not move for summary dismissal and was content for the question of standing to be dealt with at the end of the day.
It is desirable that I attempt to convey the nature of the amended cross-claim. It bears the heading “ADDENDUM TO AND AMENDMENT OF STATEMENT OF CROSS-CLAIM PART A PART B and PART C”. It was filed on 23 April 1996 and comprises 41 pages. Part A comprises 46 paragraphs, Part B 24 paragraphs, and Part C 32 paragraphs. The document was apparently prepared by Mr Bourke without the assistance of professional legal skill. It consists of allegations of facts, many of which are in the form of purported paraphrases or quotations of passages from affidavits filed in another proceeding in the Court, NG 1210 of 1988, brought by the present cross-claimants as applicants against the Bank as respondent (“the Earlier Proceeding”), and other documents, interspersed with what purport to be statements of the claimed legal consequences of those facts. Those claimed legal consequences are expressed in bold typeface. By way of illustration, pars 8 and 9 are as follows:
“8. On the 9 January 1987 the applicant issued default notices under section 57 (2) (b) of Real Property Act 1900 and/or section 111 (2) (b) of Conveyancing Act 1919. These were received by the respondent and the first to the eighth cross claimant on the 13 January 1987.
State Bank invalidated these notices by its own actions.
9.On the 13 March 1987 the applicant issued default notices under section 57 (2) (b) of Real Property Act 1900 and/or section 111 (2) (b) of Conveyancing Act 1919. These were received by the respondent and the first to the eighth cross claimant on the 19 March 1987.
State Bank invalidated these notices by its own actions.”
The affidavits referred to are those of Douglas Richard Hawksford, Peter Terrence Blackmore, Graham Clive Dunkley, Phillip Hassett Harding, Brian James McGuigan and Justin Richard Bourke. The various subparagraphs of par 11, for example, purport to give an account of the content of Mr Hawksford’s affidavit and of other alleged facts, and are followed by this passage:
“State Bank had no legal right to disclose details regarding the Bourke Group. The State Bank owed a Duty of Care to the Bourke Group. The State Bank acted in Bad Faith.”
Part B of the amended cross-claim purports to recount dealings concerning Mr Bourke, the Bank and Beneficial Finance Corporation Ltd (“Beneficial”) in late 1986. Part C takes up again some of the matters raised in Part A.
Notwithstanding the way in which the amended cross-claim document is structured and expressed and the generality of the assertions made in it, I believe that I have been able to discern the complaints sought to be made by Mr Bourke and the facts on which they are said to be based.
INTRODUCTION TO FACTUAL BACKGROUND
The Bank’s case in chief falls within short compass. Its affidavit and documentary evidence establishes as follows. Krys is the registered proprietor of the Property. Shortly before 21 May 1986, Mr Bourke negotiated with Mr John Ceccato, Manager, Institutional Banking, of the Bank’s office at Martin Place, Sydney for the provision by the Bank of a credit facility for L & M. Mr Ceccato recommended approval on 21 May. His report to the Bank’s Credit Committee noted that the purpose of the facility sought was to pay off two of the major lenders to the Bourke Group, “ANZ Bank and ANZ Capital Markets Limited", that Mr Bourke had decided “to consolidate his position over the ensuing year by selling off properties not desired to be held for long term investment” and that part of Mr Bourke’s strategy was “to refinance the bulk of borrowings with one lender and repay others over the next year as properties are divested”. Mr Ceccato’s report stated:
“This proposition is attractive to us not only based on the adequate security and the margin proposed but also reflective of the substantial ancillary banking business that will come our way.”
The Bank’s Credit Committee approved of the proposal on 28 May subject to certain comments made by Mr N F Moore, Chief Manager, Institutional Banking, dated 22 May.
On 28 May 1986, the Bank wrote to Mr Bourke advising that, subject to certain conditions, the Bank had approved a credit facility in the sum of $5,300,000 over a term of three years expiring on 30 June 1989. The facility was described in the letter as a “fixed or floating rate Term Loan with a Bill Acceptance/Discount option for part or all facilities”. It advised that a satisfactory report from the Bank’s valuer was required confirming, inter alia, “Saleability of those properties detailed in the cash flow projections”. The letter stated that there was an “establishment fee” of $25,000. In relation to interest payments it stipulated: “First payment 6 months from settlement, quarterly payments thereafter”. It also advised that legal costs, stamp duty and valuer’s costs were to be on the account of L & M. Mr Bourke signified acceptance by signing (on 29 May) and returning a copy of the letter.
On 30 June 1986, at the Oxford Street, Sydney office of the Bank, the necessary documents were executed to enable the credit facility to be provided. These documents included a “Facility Agreement” between L & M as borrower and the Bank as lender. Mortgages over numerous parcels of real estate in the Hunter Valley were also executed by companies in the Bourke Group.
The position touching the mortgage from Krys to the Bank over the Property, was special. Originally it was not to form part of the security to be given. However a problem became apparent to the Bank shortly before settlement on 30 June. Apparently, amounts totalling some $80,000 were owing to the Maitland City Council (“the Council”) for rates on the various security properties. The indebtedness to the Council, being charged on the properties, reduced their value as security. The solution agreed upon was that Mr Bourke would procure Krys to mortgage the Property as additional security. However, at the time of execution of the security documents on 30 June, Mr Bourke did not have the title documents to the Property with him, and a title reference was not available. A further difficulty was that title to the Property was in the process of being converted from Old System title to Real Property Act title. In the result, Krys executed both an Old System Mortgage and a Real Property Act Mortgage in blank and Mr Bourke and his brother (Mr Bourke’s youngest brother Justin Richard Bourke who apparently acted pursuant to a “power of attorney” granted by Terrence Bourke) signed an authority in the name of Krys for the Bank to fill in the blanks and make any necessary amendments. The Old System Mortgage from Krys to the Bank was registered on 13 October 1986 Book 3681 No 50 (“the Mortgage”) and came to be noted on Folio Identifier 1/738913 after the conversion of the title to Real Property Act title, which apparently occurred in late 1986. By the Mortgage, Krys undertook to comply with and observe the provisions of registered memorandum No S709315 (“the Memorandum”).
The borrowing was substantially in the nature of a refinancing. The Bank wrote to Mr Bourke on 14 July giving him particulars of the settlement. The letter advised Mr Bourke that “settlement of [the] facility was completed on 8 July 1986”. Bank documents in evidence show that most of the advance of $5,300,000 was in fact paid out by the Bank on 30 June. The letter advised that $4,506,729.10 was paid to Australia and New Zealand Banking Group Ltd and ANZ Capital Markets Ltd on 30 June and that $448,783.63 was paid to Beneficial Finance Corporation Ltd (“Beneficial”) on 1 July. Apparently other smaller amounts were paid by 8 July. The whole sum of $5,300,000 was paid by that time. Only $68,505.87 was paid to L & M. Beneficial remained a substantial creditor of the Bourke Group - a fact which was to assume significance later.
The facility took the form of two term loans, called “No 1” and “No 2”. Term Loan No 1 is referred to variously in the evidence as having comprised $1,600,000 and $1,300,000, while No 2 is referred to as having comprised $4,000,000. Interest calculated at the rate of 16.16 per cent per annum was to become payable on the No 1 term loan and interest at the rate of 16.32 per cent per annum was to become payable on the No 2 Term Loan, in each case on 31 December 1986. After that date interest was to be calculated on a different basis, but this is of no relevance to the present case. The letter dated 14 July stated:
“In early October please provide us with a [sic] updated cash flow as at 30 September 1986. Also with this cash flow we require a report on any variances from the original statement you provided, with explanations for the variance.”
It will be necessary later to discuss the events between the writing of the Bank’s letter of 14 July and the date for payment of interest, 31 December. At present, it suffices to say that by as early as September 1986, officers of the Bank became persuaded that the cash flow of the Bourke Group was less than that which had been predicted and relied upon when the loan had been approved, and less than that which would be necessary to enable the first payment of interest to be made on 31 December. In the last quarter of 1986 the Bank was already making preliminary checks and inquiries relevant to a realisation of its securities. Mr Bourke set about selling off some assets late in 1986 but the first instalment of interest was not paid by 31 December.
On 2 January 1987 the Bank advised Mr Bourke that the following interest payments fell due as at 31 December 1986:
No 1 Term Loan $105,885.08
No 2 Term Loan $330,871.23
$436,756.31
=========
The letter advised that as payment was overdue, failure to pay by close of business on 2 January would leave the Bank no alternative but to commence appropriate recovery action or to enforce its security, or to do both. The letter was delivered to Mr Bourke personally on 2 January.
On 6 January 1987, Mr Ceccato wrote a lengthy report, the general nature of which is indicated by its title: “Review of Facilities for Commencement of Call Up Action”. On 9 January, the Bank served documents entitled, “NOTICE PURSUANT TO SECTION 57(2)(b) OF REAL PROPERTY ACT 1900 AND/OR SECTION 111(2)(b) OF CONVEYANCING ACT 1919 REQUIRING RECTIFICATION OF DEFAULT UNDER SECURITY DOCUMENT” bearing date 8 January. Krys received the notice on 13 January. However, the Bank does not rely on this notice.
Discussions took place with a view to finding a solution to the problems confronting the Bourke Group. For example, on 19 February, there was a lengthy meeting at the Bank attended by Mr Bourke, his brother-in-law Mr Lindsay Upton, and his adviser Dr Peter Clyne, and Messrs Van Holst and Robertson of the Bank. Unfortunately, such negotiations were inconclusive.
On 13 March 1987 the Bank issued a further notice bearing date 10 March, which Krys received on 19 March 1987. The notice demanded payment of $5,902,138.52.
On 10 April 1987, the Bank appointed Robert George Dunn and James Morrison Millar as receivers of property and managers of businesses of the second to sixth cross-claimants. The documents tendered by the cross-claimants not include instruments of appointments in respect of Krys or of the eighth cross-claimant.
The Bank retained Jones Lang Wootton to provide written valuations of many of the security properties. They provided such a report dated 27 August 1987. The report described the Property as comprising a refurbished semi detached two storey terrace which, the valuers said, they understood, was “integrated with the adjoining terrace” at 34 Free Church Street and was occupied with it as “one house”. There is other evidence that while the two properties have separate titles, openings in the dividing wall had been made so that the two could be occupied as one dwelling. The valuers expressed the opinion that the open market value of the Property and 34 Free Church Street offered together was $250,000 and that the value of the Property offered alone was $130,000.
Over a period, the Bank sold the security properties with the exception of the Property. There is evidence that the amount owing upon the Mortgage was $3,851,872.50 as at 5 May 1997. For some years, the Bank has treated this amount on a “non-accrual” basis. Accordingly, the Bank’s position is that it does not seek to recover further interest which accrued in accordance with the terms of the Facility Agreement. As noted earlier, the Bank seeks judgment for $3,851,872.50.
THE RELIEF SOUGHT BY THE BANK IN ITS APPLICATION
By the Mortgage, Krys mortgaged the Property to the Bank as security for all moneys to become owing or payable to the Bank by L & M. These included moneys to become payable to the Bank by L & M under the Facility Agreement. The following provisions of the Facility Agreement may be noted:
“‘1.1.
......“Interest Payment period”: means a period beginning on the date hereof and expiring 6 months from the date hereof and thereafter each and every 3 month period until the Facility is terminated or such other period as the Lender shall specify to the Borrower.’
‘3.4.a) The Borrower will, at the end of each Interest Payment Period or upon repayment of the Advance (whichever is earlier) pay to the Lender interest on the Advance or on so much thereof as for the time being shall remain unpaid and upon any judgment or order in which the liability of the Borrower under this Agreement becomes merged, such interest is to be computed on daily balances calculated from the date the Advance is drawn and on the basis of a year of 365 days and compounded at the end of each Interest Payment Period and bear interest in accordance with the terms of this Agreement.’
‘10.1.Upon the occurrence of any of the following events:
a) the Borrower shall fail to pay any principal or interest sum which is due and payable under this Agreement on the due date.
.......
THEN in any of such events (in this Agreement referred to as an ‘Event of Default’) ... all Outstanding Amounts shall unless otherwise agreed upon between the parties without notice be immediately due and payable.’”
As noted earlier, the date of the Facility Agreement was 30 June 1986. Therefore, pursuant to the foregoing provisions, L & M undertook to pay interest on the “Advance” on 31 December 1986. The expression “Advance” was defined to mean the principal amount of the advance or advances by the Bank under the two term loans granted by the Bank to L & M.
Mr Bourke submitted that on the basis that the credit facility was not fully drawn down on 30 June 1986 there was no default until early January 1987. The evidence does not clearly establish when the various parts of the facility of $5,300,000 were drawn down, that is to say, paid by the Bank. As noted earlier, it does establish that amounts totalling at least $4,506,729.10 were paid on 30 June. It also establishes that the whole amount was paid by 8 July. On the view most favourable to Krys (I do not say the correct view), interest became due and payable six months later on 8 January 1987. Since it was not paid, there was an “Event of Default” of the kind described in par (a) of cl 10.1 of the Facility Agreement, and principal then also became immediately due and payable by L & M pursuant to that clause.
By cl 3(a)(ii) of the Mortgage, Krys undertook to pay to the Bank upon demand the moneys secured by the Mortgage. Those moneys included the moneys that had become due and payable by L & M to the Bank under the Facility Agreement. The notice bearing date 10 March 1987 which the Bank served on Krys demanded payment of $5,902,138.52 within one month from the date on which the notice would, in the ordinary course of certified letter post, have been delivered to Krys. The notice was served by certified mail and Mr Bourke has deposed that Krys received it on 19 March 1987.
The notice performed the function of a demand provided for by cl 3(a)(ii) of the Mortgage. It referred to the sum of $5,902,138.52 as being money due and unpaid and secured by the Mortgage. Perhaps oddly, the notice gave the following particulars of this amount:
“Arrears of Instalments, Reductions, Interest and other moneys $5,902,016.52
Costs and expense of preparing and serving this Notice $122.00
_____________TOTAL $5,902,138.52”
==========
The notice also purported, as noted earlier, to be a notice under s 57(2)(b) of the Real Property Act 1900 (NSW), and/or s 111(2)(b) of the Conveyancing Act 1919 (NSW), but I need not be concerned with this aspect, since the Bank’s power of sale is not in issue in the present proceeding.
As noted above, Mr Bourke’s submission that interest did not become due and payable until 8 January 1987, even if accepted, does not assist Krys. But in view of the terms of the Facility Agreement and the fact that most of the advance was paid by the Bank on 30 June, it would be difficult to argue against the proposition that most, if not all, of the interest became due and payable on 31 December 1986. For convenience, and without exploring the matter to conclusion, I will refer to the first instalment of interest as having become due and payable on that date.
At one stage of the hearing, Mr Bourke raised the possibilities (a) that it was not the impression of Krys’s seal that appeared on the Mortgage, and (b) that what appeared to be the signature of his brother was not that signature at all. The implication was that forgery by a Bank officer may have been committed. The second suggestion was not pressed.
There was no basis whatever in the evidence for either suggestion. Notwithstanding the fact that the documents were signed in mid 1986 and litigation has been on foot between Mr Bourke and the Bank since 1987 (see later) these matters were raised as possibilities for the first time orally in the course of the hearing. They appeared to have occurred to Mr Bourke then for the first time. The suggestions were startling and serious ones which Mr Bourke made impulsively, without reflection as to whether there was any foundation for them or as to their implications. Unfortunately, the raising of the matters, and the failure, without apology, to seek to support them, did Mr Bourke no credit. Conduct of that kind, if engaged in by a legal practitioner, would have had repercussions for the practice of his or her profession.
Mr Bourke also submitted that although he and his brother signed the form of “authority to fill in blanks” in the name of Krys, this was not binding on Krys for no reason other than that the form was not executed under the common seal of Krys. It is not required, however, that such a document be executed under common seal. I reject the submission.
At one stage, Mr Bourke claimed that in making certain payments to Beneficial in accordance with a letter dated 1 July 1986 from the Bank signed by Mr Ceccato, the Bank made payments out of the advance which it was not authorised to make. The allegation, which was not put to Mr Ceccato in cross-examination, is not made out on the evidence.
Clauses 20, 21(b) and 22(a) of the Memorandum are as follows:
“20.A statement in writing signed by any duly authorised officer of the Bank of the amount due or owing upon or secured by this Mortgage at the date mentioned in such statement shall be and be accepted as absolutely final and conclusive and binding upon the Mortgagor who shall not be entitled to make any objection thereto and such statement shall be prima facie evidence that such amount is so due or owing or secured.
21.The Bank may at any time after default in payment of any moneys hereby secured or in performance or observance of any covenant or agreement on the part of the Mortgagor herein contained or if the estate of the Mortgagor shall be sequestrated or if some circumstance shall exist or happen which in the opinion of the Bank shall make it necessary or desirable for the protection or security of the Bank and without giving any notice take the following action:-
(a) ...
(b)enter upon and take possession of the mortgaged premises ...
22.The power [...] of sale ... conferred on a mortgagee by the Real Property Act, 1900 or Conveyancing Act, 1919 shall be varied and the exercise thereof regulated as follows:
(a)The power of sale conferred on a mortgagee by the Real Property Act, 1900 or Conveyancing Act, 1919 shall be exercisable immediately or at any time after default in payment of any moneys hereby secured or in the performance or observance of any of the covenants or agreements on the part of the Mortgagor herein contained and no notice or expiration of time whatsoever under the said Act apart from such as is mandatory under the Statute law shall be required previous to the exercise of any such powers.”
There is in evidence a statement dated 5 May 1997 by Jeffrey Buckle, an account manager employed by the Bank having the carriage of Krys’s file. It is annexed to an affidavit of that date sworn by him. He says that he is a “duly authorised officer” of the Bank and has signed the statement purportedly pursuant to cl 20 of the Memorandum, to the effect that the amount owing on the Mortgage was $3,851,872.50 as at 5 May 1997, that is to say, the first day of the hearing before me. Mr Buckle’s evidence was that he had reviewed the Bank’s records in relation to the indebtedness of Krys. He gave an outline of how the figure of $3,851,872.50 was arrived at. He conceded in cross-examination by Mr Bourke, that he had not arrived at that figure by himself making a detailed calculation, taking into account and analysing every movement on the relevant account or accounts of L & M, since 30 June 1986. Rather, he said that he had relied upon current summary records of the Bank. No evidence has been led by Mr Bourke to the effect that the amount of Krys’s indebtedness to the Bank was any particular lesser figure, or that it was less at all than $3,851,872.50 as at 5 May 1997. Mr Bourke submits, however, that I should not accept the amount referred to by Mr Buckle as having been established by the evidence, for the reason that the Bank has not provided a detailed statement of account covering every movement on L & M’s account or accounts.
I do not accept the submission. It has not been suggested that Mr Buckle is not a “duly authorised officer” for the purpose of cl 20 of the Memorandum. The prima facie evidence afforded by his statement under cl 20 is not displaced by any other evidence. Independently of the effect of that clause, it would be open, and perhaps necessary as a practical matter, for an officer giving evidence on behalf of the Bank of the amount of a customer’s indebtedness to rely on summaries made by other Bank officers and found in the Bank’s ordinary business records.
I find on the evidence that Krys was indebted to the Bank for $3,851,872.50 as at 5 May 1997.
Mr Buckle’s evidence addressed “formal matters”, proof of which is required in certain circumstances by Part 40 r 11 of the Rules of the Supreme Court of New South Wales (the proceeding was commenced by summons No 19021 of 1987 filed by the Bank in the Supreme Court of New South Wales on 19 November 1987 and was ordered by that Court on 21 June 1991 to be transferred to this Court). But that rule applies only where judgment for possession of land is to be given or entered “against a defendant in his absence”. In the present case such a judgment is sought against Krys which is present.
In the result, subject to any question arising on the amended cross-claim, I conclude that the Bank has established its right to judgment against Krys for $3,851,872.50 as sought, the judgment for possession and leave to issue a writ of possession, and an order that Krys pay the Bank’s costs of the application.
THE AMENDED CROSS-CLAIM - PRELIMINARY MATTERS
Standing of the cross-claimants other than Krys
The Bank submits that a cross-claim can be brought only by a respondent, and that therefore, of the nine cross-claimants, only Krys was competent to cross-claim against the Bank. Order 5 of the Federal Court Rules provides that “a respondent” may cross-claim in the circumstances there set out. The cross-claim, in so far as it is brought by Mr Bourke, Terrence Bourke and the Bourke Group, with the exception of Krys, should be dismissed with costs as incompetent. As will appear below, I will also dismiss it for other reasons in the alternative.
The Earlier Proceeding
All nine of the present cross-claimants were the applicants, and the present applicant was the respondent, in the Earlier Proceeding. The amended statement of claim in the Earlier Proceeding was identical to the original “cross-claim” which was filed in this proceeding on 2 September 1994, except for necessary changes of appellation of parties.
On 15 June 1994, Wilcox J made the following orders in the Earlier Proceeding:
“1.The proceedings stand dismissed, unless not later than Friday, 1 July 1994, the Applicant companies:
(a)File and serve an Amended Statement of Claim;
(b)File and serve all affidavits on which they propose to rely at the trial in respect of issues of liability;
(c)Provide security in the sum of $40,000 either by cash deposit with the Registrar or by payment into a bank account under the joint control of the solicitors for the Applicant companies and the Respondent, or in such other form as the solicitor for the Respondent may agree in writing.
2.Order that the proceedings insofar as they are brought in the name of Michael Vincent Bourke and Terrence Bourke, be dismissed forthwith.
3.Order the Applicant companies to pay the costs of the Notice of Motion filed on 15 June 1992.
4.Stand over to the Directions List on 22 July 1994.”
Order 1 was not complied with. Rather, the eight corporate applicants (the Bourke Group) moved for a variation of it. Their motion was dismissed by Davies J on 7 July 1994. There was an appeal form the orders of Wilcox J and Davies J. The appeal was dismissed with costs by a Full Court on 4 August 1995. The Full Court, exercising afresh the discretion of the trial Judge in relation to Mr Bourke’s defamation claims, summarily dismissed them. In the Reasons for Decision of the Full Court it was noted that “[all] the other causes of action [i.e. other than actions for defamation] pleaded by him [Mr Bourke] and his brother [Terrence Bourke] have vested in their trustee and are deemed to have been abandoned” (at 12). The reference to “their trustee” is a reference to the bankruptcy of Mr Bourke and of his brother Terrence Bourke. They were discharged from bankruptcy well before the present hearing.
The Bank submits that that part of the amended cross-claim which repeats the claims made in the Earlier Proceeding (and in the original cross-claim filed in the present proceeding) should be dismissed, on the basis of res judicata. However, the Bank has not attempted to identify precisely what parts of the amended cross-claim fall into that category.
The current form of cross-claim is found in the document entitled “ADDENDUM TO AND AMENDMENT OF STATEMENT OF CROSS CLAIM PART A PART B and PART C” filed on 23 April 1996 to which I have referred earlier. It is an expanded form of the original “cross-claim” which had been filed on 2 September 1994. In so far as it repeats the claims made by the cross-claimants as applicants in the Earlier Proceeding, and therefore in the original cross-claim filed in this proceeding on 2 September 1994, it is an attempt to circumvent the order made in the Earlier proceeding, represents an abuse of process accordingly, and should be dismissed on that ground. However, I do not find it necessary to assay the task of distinguishing between those causes of action and claims in the amended cross-claim which were asserted in the Earlier Proceeding and those which were not, in the light of the clear view which I have formed, for the reasons that appear below, that the amended cross-claim fails on the merits.
THE AMENDED CROSS-CLAIM - GENERALLY
Introduction and general observations
The amended cross-claim contains numerous allegations of “bad faith” and “fraud and conspiracy”. These allegations are not supported by the evidence. Nor was any of the Bank’s witnesses confronted with the allegations in any particular respect. Although they feature in many of the paragraphs of the amended cross-claim, I will not repeat them in the quotations of materials from those paragraphs set out below in these Reasons.
A “duty of care” owed by the Bank is also propounded in many paragraphs of the amended cross-claim (cf pars 11, 24, 25, 29, 30, 33, 35, 42). The “duty of care” is elaborated upon in par 21 (“a Duty of Care to act in the best interests in [sic] the Bourke Group of Companies”), par 39 (“a duty of care to the Bourke Group of Companies not to take away overdraft without reasonable notice”) and par 42 (“a Duty of Care to the Bourke Group not to take overdraft away without reasonable notice”). In par 20, the person or persons to whom the “Duty of Care” there referred to is said to be owed are not identified. In par 22, a duty of care is said to be owed to “Michael Bourke, not to defame him and to act properly as his banker” and par 31 asserts that the Bank owed a “Duty of Care to Michael Bourke and the Bourke Group”.
Prima facie, both before and after entering into the transaction, the Bank was entitled to act in its own interests. A financier has no general duty to provide an applicant for funds with commercial advice: see, for example, Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 (CA) at 276 (Meagher JA). There is no general duty owed by a financier to save an applicant to it for financial accommodation against a loan which is imprudent from the applicant’s view point. There is authority to the effect that, where the terms of an agreement are reasonable as between the parties, and the Bank has not engaged in conduct depriving the mortgagors of a “real or informed choice” to enter into the agreement, the contract is not unjust by reason only of the fact that “it was not in the interest of the claimant to make the contract or because [the claimant] had no independent advice”: see, for example, Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398 (CA) at 419-420 per Sheller JA (with whom Meagher JA and Abadee AJA agreed). (In the absence of bad faith on the part of a financier, it must surely be in the interests of both financier and borrower that the borrower have a capacity to pay and that the value of the security be adequate.) Similarly, as a general proposition, a financier is entitled to act in its own interests in realising its securities, and is not obliged, for example, to stay its hand in the hope, or even the expectation, that the market will rise. What I have said does not deny that in special circumstances in a particular case, a duty of care in a specific respect may arise. I have not, however, found such circumstances to exist in the present case.
The amended cross-claim does not refer distinctly to “unconscionability” or to any of that word’s derivatives, although perhaps, having regard to the fact that the amended cross-claim was prepared without professional legal assistance, it should be taken, wherever “bad faith”, “fraud and conspiracy” or a “duty of care” is alleged, to claim that the Bank dealt unconscionably with the cross-claimants. I will assume in their favour that the amended cross-claim makes that allegation. In my opinion, the evidence does not support it. In 1993, Mr Bourke was an experienced businessman and accountant who had, through the Bourke Group, built up a sizeable and diverse portfolio of real estate. In a letter dated 19 December 1986 tendered by Mr Bourke, the then Mayor of Maitland, Alderman Peter Blackmore, had written “to whom it may concern” that Mr Bourke had been responsible for a great deal of property development in the City of Maitland and that his expertise in that field was regarded by the Council as being a most valuable asset to the City. Similarly, in a letter dated 6 January 1987 (the letter is wrongly dated 6 January 1986) to Mr Nicholas Whitlam, Managing Director of the Bank, Mr Bourke stated:
“ ... apart from being involved in property development, I am a Public Accountant employing four accountants. My family has been in business and residents of the Maitland area for over one hundred and forty years.”
Mr Bourke sought refinancing as a result of his assessment of the commercial interests of the Bourke Group. He was not subject to any special disadvantage (such as illiteracy or limited understanding of the English language, old age, infirmity or frailty of body or of mind, the effect of alcohol or drugs, emotional vulnerability, financial inexperience or naivety) in his dealings with the Bank and the Bank had no reason to think that the transaction was other than an ordinary commercial one.
Mr Bourke relies on statements made by Mr Ceccato which, he says, led him to borrow from the Bank. There is conflict between Mr Bourke and Mr Ceccato as to what was said and as to whether certain conversations alleged by Mr Bourke took place at all. I do not find it necessary to analyse all the evidence that was given or to resolve all the conflicts. Mr Bourke told Mr Ceccato that the local
ANZ manager did not understand his business and Mr Ceccato said “The Bank does understand property developers”. Although it is not spelled out in the amended cross-claim and therefore, understandably, has not been addressed by the Bank in its submissions, one complaint which Mr Bourke seems to make is that the Bank, through Mr Ceccato, assured him that it was “flexible” in relation to property developers, understood that a property developer might experience cash flow difficulties from time to time, and would not insist upon strict performance by such a developer of its contractual obligations. I am not satisfied on the evidence that Mr Ceccato said anything which would support a finding to that effect or that he lulled Mr Bourke into believing that the Bank would not insist upon punctual payment of the first amount of interest to fall due.
On the contrary, even according to Mr Bourke’s evidence, he was conscious of that obligation. According to par 14 of his affidavit sworn 1 July 1994 annexed to his affidavit sworn 2 September 1994, the following telephone conversation took place between himself and Mr Ceccato in late May 1986:
Ceccato:“I’ve got an approval of your $5.3 million facility. I’m faxing you a letter to sign if you accept our offer. It’s a good facility that we’ve approved. I’ve got them to defer interest for six months to December.”
Bourke: “I expect over a million dollars from the sales of Windella Downs. That alone will be enough to pay your December interest.” (emphasis supplied)
Mr Ceccato does not dispute that these words were said, although he goes further. He states in par 29 of his affidavit sworn 18 September 1995 that the following words were also spoken:
Ceccato:“A credit committee member has directed me to tell you that you must make your interest payments on time, there will be no leniency.”
Bourke:“Of course, what do you expect?”
Whether or not the additional words alleged by Mr Ceccato were spoken, it is clear on Mr Bourke’s own version of the conversation that he knew that the “deferred” interest had to be paid six months into the term of the facility.
In any event, the evidence does not establish that if the Bank had shown “understanding” and “flexibility” in relation to the first instalment of interest, the cross-claimants, and Krys in particular, would have been in any different position from that in which they came to find themselves. No doubt, the Bank would have allowed some further time for the first payment of interest. But how much further time would it have had to allow in order to honour the alleged assurance of “understanding” and “flexibility”? A little over two months elapsed following the date when the interest fell due for payment and the date when the notice of demand on which the Bank relies was served. Still the interest was not paid. The representation which Mr Bourke seems to allege is of too vague and uncertain a nature to give rise to an estoppel against the Bank, but even if it were capable of doing so, I am not satisfied that adherence to it by the Bank would have saved the Bourke Group from the unfortunate collapse of its enterprise.
Another complaint which Mr Bourke seems to make, but which is not made in the amended cross-claim and therefore has not been addressed by the Bank in its submissions, concerns the giving of the Mortgage. Mr Bourke seems to complain that Mr Ceccato suggested that he need not obtain the advice of independent solicitors on the Mortgage documents. He states that at the Bank’s office on 30 June, Mr Ceccato said to him:
“You don’t want to worry about solicitors. They’ll only cost you money.”
Mr Ceccato denies saying those words and states on the contrary that he had advised Mr Bourke to seek his own legal advice and had asked for the name of Mr Bourke’s solicitor so that the Bank could forward the documents to that solicitor. I am not satisfied that Mr Ceccato said the words attributed to him by Mr Bourke. But even if he did, I find that Mr Bourke well knew the advantages of engaging a solicitor to advise him in relation to the documents. I further find that he knowingly decided to forego those advantages in favour of concluding the transaction on 30 June. The fact is that Mr Bourke and the Bourke Group were in a difficult situation. They needed to find the means to prevent the ANZ Bank from exercising its rights as mortgagee. Mr Bourke persuaded Mr Ceccato, and perhaps to some extent Mr Ceccato persuaded himself, that there was sufficient security and cash flow in the Bourke Group’s properties to support a refinancing by the Bank. Unfortunately, the commercial imperative was for Mr Bourke to proceed with the Bank. He does not point to any particular provision in the Mortgage, explanation of which by a solicitor would have led him to refrain from proceeding on 30 June 1986. Indeed, he alleges (although Mr Ceccato denies) that he queried the provision which empowered the Bank to appoint receivers. In sum, while I am not satisfied that Mr Ceccato said what Mr Bourke alleges he said, the evidence does not establish that even if he had said the particular words alleged, the cross-claimants would be entitled to any relief.
The other complaint which Mr Bourke seems to make in relation to the grant of the Mortgage is that Mr Ceccato assured him that the Bank would not resort to it. It is common ground that there was a conversation at the Bank’s office on 30 June 1986 about the giving of the Mortgage in view of the fact that there was a substantial charge on the security properties for rates owed to the Council. It is also common ground that Mr Bourke said that he did not want to give a mortgage over the Property. According to Mr Bourke, Mr Ceccato said:
“We won’t use it, it will be the very last thing. When things get moving, we will release it. It’s just as a sign of good faith, that’s all.”
Mr Ceccato states that the relevant part of the conversation was as follows:
Ceccato:“It is a sign of good faith that you’re committing your family home. We may consider releasing it in the future.”
Bourke: “When could you release it?”
Ceccato: “That is a matter to be considered, there are no guarantees.”
Bourke: “All right, I’ll give the home.”
I am not satisfied that Mr Ceccato said the words attributed to him by Mr Bourke. But if he did, I do not see that Krys would be in any different position from that in which it finds itself. The Bank would have resorted to the Property but only after selling the Bourke Group’s commercial properties. The Bank would never have released the Property, because “things” never did “get moving”. Notwithstanding a sale of the Property, the Bank would suffer a substantial loss.
In his affidavits, Mr Bourke refers to other matters which do not find a place in the amended cross-claim. For example, he refers to an alleged statement made by Mr Ceccato at the meeting on 30 June 1986 to the effect that the Bank would not appoint receivers without first giving one month’s notice, and an alleged statement by Mr Ceccato (inconsistent with that just mentioned) that Mr Bourke need not worry because the Bank would not rely upon the power to appoint receivers. Mr Bourke also refers to an alleged conversation with Mr Ceccato in September 1986 in which Mr Ceccato is said to have stated that “pressure” was being applied to him because he had made recommendations in favour of the refinancing. Mr Ceccato either denies that the conversation as alleged took place at all or that it took place in the terms identified by Mr Bourke. I do not find it necessary to address all of the conversations alleged in the affidavits but not relied upon in the amended cross-claim. I have, however, concluded that there are no findings to be made on the basis of the conversations which would give rise to an entitlement to relief in Krys or, for that matter, in any of the other cross-claimants.
It is necessary now to consider the particular allegations made against the Bank in Part A of the amended cross-claim (excluding those analogous to the allegations made in Part B). These may be conveniently considered to fall into three categories:
The Bank’s pre-transaction conduct;
The Bank’s post-transaction and pre-default conduct; and
The Bank’s post-default conduct.
I will deal with the allegations accordingly, and will set out the conclusory allegation first then address the factual basis said to support it. It assists to know the identity of the various Bank officers involved. All were based at the headquarters of the Bank at Martin Place, Sydney. Some have already been mentioned. Mr John Ceccato and Mr Paul Robertson were Managers, Institutional Banking. As noted earlier, Mr Bourke negotiated the loan with Mr Ceccato who recommended to the Credit Committee that it be granted. Mr Robertson’s responsibilities appear to have been in relation to the security aspects of the Bank’s position. Mr Hans Van Holst Pellekaan (“Mr Van Holst”) was Senior Manager, Institutional Banking. Mr Neil Moore was Chief Manager, Institutional Banking. The facility was “managed” at the Institutional Banking Division at the Bank’s head office in Martin Place, Sydney, not at the local branch at Maitland.
The particular paragraphs of Part A of the amended cross-claim
The Bank’s pre-transaction conduct
1.1 “State Bank received extra security as at 30 June 1986 for payments of outstanding rates. State Bank had a Duty of Care”. (amended cross-claim, par 20)
The Bank did not receive the extra security in the form of the Mortgage to enable the Bank to pay the outstanding rates. The Bank required the Mortgage because the outstanding rates, being charged on the security properties, reduced their value as security. It remained the obligation of the Bourke Group to pay the rates. I also refer to my earlier reasons in relation to the alleged “duty of care”.
1.2 “On 30 June 1986 extra security was provided to the State Bank of New South Wales for payment of rates.
State Bank appointed Receivers to some of the Bourke Group of Properties because of unpaid rates. Bourke Group of Companies provided security to the State Bank for payment of these rates on 30 June 1986. The State Bank owed a Duty of Care to the Bourke Group”. (amended cross-claim, par 35)
I have dealt with this submission above in 1.1.
The Bank’s post-transaction and pre-default conduct
2.1 “State Bank had no legal right to disclose details regarding the Bourke Group. The State Bank owed a Duty of Care to the Bourke Group”. (amended cross-claim , par 11)
This is the first of several claims made in the amended cross-claim that the Bank wrongfully disclosed information about the Bourke Group in connection with the proposed realisation by the Bank of its securities. Complaint is made about disclosure both prior to and after default.
It is appropriate to note, in outline, the history during the six month period down to default on 31 December 1986.
July
It will be recalled that it was a term of the approval granted on 28 May 1986 that the Bank’s valuer was to comment on the saleability of the various parcels of real estate, the foreshadowed proceeds of which were included in the Group’s cash flow prediction. On 17 July, the Bank (Mr Robertson) requested Mr Bourke to supply a “cash flow”. It was not supplied. Following a report from the Bank’s valuer, there was a discussion with Mr Bourke as a result of which the forecast was revised downwards. According to a report prepared by Mr Ceccato, Mr Bourke said that he regarded the revised forecast as the “absolute worst case” and that he believed that his original forecast was quite achievable.
In July, accounts became overdrawn without arrangement but subsequently the position was rectified after some cheques had been returned.
August
In early August, Mr Bourke sought a temporary overdraft to pay rates, pending, he said, receipt of proceeds of sales of lots in the Windella Downs subdivision. He told the Bank that he had sold ten lots and expected gross proceeds of $400,000. The Bank approved of an overdraft up to a limit of $40,000 for two months.
September
In September, Mr Bourke sought an increase in the overdraft limit. The Bank asked him to produce copies of exchanged contracts in respect of the Windella Downs allotments. Mr Ceccato’s report states:
“MB [Mr Bourke] suddenly became evasive about this matter so we then contacted his solicitor who advised that no contracts had been exchanged. When queried about this, customer stated that sales had fallen through because of current economic conditions. Apparently, MB had taken $20 holding deposits from interested parties and then issued contracts in the hope that a sale would eventuate. At this point, we suggested that he find another banker if he could not see himself paying interest in December.”
The temporary overdraft was placed in reduction and cheques were returned. The Bank contacted Beneficial which advised that it had just come by the information referred to above after there had been default in meeting an interest payment which had been promised to Beneficial. The Bank also learned that the Council was considering issuing demand notices in respect of arrears of rates.
October
On 1 October, Mr Bourke, in his capacity as director of Avifast Pty Ltd, wrote to the Bank applying for a $450,000 loan to enable purchase of four-hundred acres known as “Pinabar”, which was apparently a part of “Windella Downs” to the north of that already owned by the Bourke Group.
On 9 October, the Bank (Mr Robertson) wrote to Mr Bourke advising that it required urgently the “cash flow” which had been requested in its letter dated 17 July and, as well, an up to date tenancy schedule, a statement of all statutory charges outstanding over the security properties, and a statement of the Bourke Group’s overall borrowings and the position of those accounts.
Also in October, the Bank approached Mr Arnold Newhouse, who was said to be a specialist in rural residential sales, and introduced him to Mr Bourke. Apparently Mr Newhouse informed the Bank that he was confident that he could sell most of the lots by Christmas. Mr Ceccato’s report states:
“Later in the month [October] MB advised us that he had pacified both the Council and BF [Beneficial], when asked how he was again evasive.”
The report continues:
“We were approached [still in October] by AGC Newcastle for reference on a $2 million application. The funds were to be used to pay State Bank and BF interest, and fund development costs for a land subdivision called Pinabar. Application was refused.”
On 23 October, Mr Bourke, as Manager of L & M, wrote to Beneficial advising that he was led to believe that “notices may be served [by Beneficial] within 24 hours” and seeking an “urgent conference” with the “NSW Executive” of Beneficial.
On 31 October settlement of a sale by the proprietor company of one of the security properties took place. The net proceeds were credited to L & M’s current account but served only to reduce the amount of its overdraft.
By a telephone call from Mr James Pantel of Beneficial on 13 November and a letter from him dated 14 November, Mr Robertson learned that Mr Bourke and his companies were indebted to Beneficial for $1.4 million, that Mr Bourke had approached Beneficial with a view to “restructuring the entire outstandings into one facility”, and that he had requested Beneficial to “provide for capitalisation of interest for a few months, until his cash flow [was] enhanced from the sale of portions of substantial real estate holdings”. Beneficial advised that in order for the proposal to proceed, it was necessary that Beneficial take second mortgages over all the properties on which the Bank held first mortgages. Beneficial sought certain information from the Bank in relation to the security properties, and the Bank’s consent to the grant of the second mortgages.
The seeking of the Bank’s consent was to mark the commencement of a course of communication between Beneficial and the Bank. It was a term of the Bank’s security documents that the mortgagors would not give second mortgages without the Bank’s prior written consent. The Bank, as a condition of giving its consent, insisted on payment of its first instalment of interest (more than $400,000) on 31 December. Beneficial was not prepared to advance this amount. Yet if the restructuring of the indebtedness to Beneficial did not proceed, the financial collapse of the Bourke Group seemed inevitable.
Mr Robertson also learned from Beneficial that Mr Bourke had agreed, without the Bank’s permission, to adjust rate arrears in respect of other properties out of proceeds of sales of lots in the Windella subdivision. According to Mr Ceccato’s report, he protested to Mr Bourke who replied that several key properties would be auctioned in the new year.
Also in November, Mr Robertson spoke to Douglas Richard Hawksford, Manager, Special Projects, Richardson & Wrench, Sydney, about the Bourke Group portfolio. Subsequently, they met at the Bank’s office in Sydney. Mr Robertson gave Mr Hawksford a list of the security properties and particulars of tenancies of them. There is a conflict between the two men as to what was said at the meeting. According to Mr Hawksford, Mr Robertson said: “The State Bank is selling all of these properties”; “I want you to go to Maitland and have a look at all of these properties” (Mr Hawksford did so and met Mr Bourke who told him that the Bank had no power to sell); “The State Bank now has the authority to sell all of these properties”; and “It is the State Bank’s intention to dispose of all of Mr Bourke’s real estate assets”. This is the “disclosure” by the Bank about which Mr Bourke complains (in par 11 of the amended cross-claim).
Even if one were to accept Mr Hawksford’s evidence in its entirety (I do not make findings directed to resolving the conflicts between Mr Hawksford and Mr Robertson), it would not avail Krys or the other members of the Bourke Group. The Bank was entitled to consult a real estate agent in November 1986 about what appeared then to be a likely realisation of its securities in early 1997. The Bank had not become entitled by November 1986 to sell the properties, but it did not do so at that stage. Further, if the statements allegedly made by Mr Robertson to Mr Hawksford were in fact made (as to which I make no finding) they caused no loss.
December
On 1 December, Beneficial again wrote to Mr Robertson about the question of the Bank’s consent to the grant of second mortgages to Beneficial. It referred to the fact that the Bank was insisting on a condition of its consent that the interest to fall due to the Bank be paid. Beneficial asserted that its principal motivation was to prevent the financial downfall of the Bourke Group. It suggested that the Bank was not entitled to insist on the condition and, in effect, asked the Bank to reconsider its position.
On 9 December, Mr Robertson recommended to his superior, Mr Van Holst, that the Bank consent to Beneficial taking second mortgages.
Some time around 12 December, sale of a further security property by the proprietor company took place and the net proceeds were applied to discharge L & M’s overdraft and the balance was credited to a credit “suspense account”.
On 18 December, Mr Robertson advised Mr Paul Stenhouse in the Bank’s “Legal Services” section that he believed that interest to fall due at the end of December would not be paid and he requested Mr Stenhouse to review the Bank’s documentation and securities and to report “on their current status and enforceability”. The next day, 19 December, Mr Robertson advised Mr Stenhouse that the Bank, as first mortgagee, had agreed to allow Beneficial to register second mortgages over the security properties and requested him to prepare a “Priority Deed” for execution by Beneficial. On the same day, Mr Robertson wrote to Beneficial advising it of the Bank’s decision and of the terms of the Bank’s consent (this matter is taken up towards the end of these Reasons).
On 19 December, Mr Robertson instructed the Bank’s valuer to make further inspections of security properties. On the same day, Mr Bourke wrote to Mr Robertson supplying him with information and advising him of his (Mr Bourke’s) plans for effecting sales. On 23 December, Mr Robertson requested that the Bank’s Manager of Insurance and Risk Management check relevant insurance policies over the properties. The Bank did consent to the second mortgages to Beneficial and Beneficial’s “transaction” with the Bourke Group settled on 23 December.
In my opinion, the Bank was not in breach of any duty owed to Krys or to other members of the Bourke Group in taking the steps which it took down to the time of default in preparation for the expected realisation of its securities after that date. In particular, it was not in breach of duty by making the disclosures which it made to Mr Hawksford. In any event, it is not shown that any of the preparatory steps taken caused loss to Krys, or, for that matter, to any other members of the Bourke Group.
2.2 “State Bank was committed as Pinabar was in cash flows adjusted and produced by State Bank”. (amended cross-claim, par 17)
The allegation seems to be that the Bank had a legal obligation to provide additional funds to enable completion of the purchase of the Windella Downs/Pinabar land not already owned by the Bourke Group. Krys’s case in this respect is that proceeds of sales of lots in the subdivision of the Windella Downs/Pinabar land formed part of the Bourke’s Group cash flow as submitted to the Bank in about May 1986. The case propounded by Mr Bourke is that in September 1986 he asked Mr Robertson for funding to enable completion of the purchase and that Mr Robertson said: “put it to me in writing”.
The evidence simply does not establish that the Bank had committed itself to provide additional funds in order to enable completion of the purchase of the outstanding Windella Downs/Pinabar land. The evidence of Mr Ceccato and Mr Bourke that their understanding was that the proceeds of the sale of lots at Windella Downs would be used to pay interest, does not establish the commitment suggested. In any event, Mr Ceccato’s understanding was based on information supplied by Mr Bourke. It is also relevant that Mr Bourke applied elsewhere for funds to develop Pinabar, for example to AGC Newcastle, around October 1986.
2.3 “Paul Robertson said on 10 November 1986 in his Sydney Office, ‘one family should only have one subdivision, you’re in over your head’.
State Bank was paid a substantial fee by the Bourke Group in July 1986 for the Facility with them on which the first interest payment was not due until 31 December 1986. Other substantial fees and costs were incurred by the Bourke Group at the behest of the State Bank in entering into Facility Agreement with the State Bank at 30 June 1986 and as such had a duty to honour its contract in good faith without intimidation ...”. (amended cross-claim, par 19)
The factual allegation which precedes this passage is that on 10 November 1986, Mr Robertson said, apparently to Mr Bourke, “Hans’ boss, Neil Moore, would prefer you to take your business elsewhere”.
Mr Robertson conceded that he said to Mr Bourke that Mr Moore would prefer Mr Bourke to take his business elsewhere. At the time the statement was made, there was no real prospect that the first instalment of interest would be paid. There were reasons too why officers of the Bank had lost confidence in Mr Bourke’s assurances and predictions (see section 2.1 above). One can, perhaps, understand Mr Bourke’s disappointment that the Bourke Group had incurred “substantial fees and costs” and that Mr Bourke was being told so early (four months into a three year term facility) that the Bank would prefer that he seek finance elsewhere. But there was no breach of contract or other legal wrong committed in the making of the statement.
2.4 “State Bank had a Duty of Care to act in the best interests in [sic - of] the Bourke Group of Companies”. (amended cross-claim, par 21)
The factual allegation which precedes this assertion is that at a conference in about November 1986, Mr Bourke told Mr Van Holst, “All investment properties held by our group were purchased prior to the introduction of Capital Gains Tax and are not subject to Capital Gains Tax” and “The properties were negatively geared for tax purposes and ... the group ha[s] substantially carried forward tax losses”. It is also alleged that Mr Van Holst replied “All this is unimportant to the Bank”.
There is no evidence advanced as to when the various properties were purchased or as to what the tax position of the various companies in the Bourke Group was. In any event, no relevant duty of care or other duty was generated by the conversation and the alleged response by Mr Van Holst does not establish breach by the Bank of a duty of care arising otherwise. The claim seems to be that the Bank had a duty to conduct itself in relation to the realisation of its securities in a manner which would best serve the taxation position of the Bourke Group. It did not have such a duty. The Bank was entitled in due course to act in its own interests in seeking to recover its advance of $5,300,000 and unpaid interest of over $400,000.
2.5 “State Bank had a Duty of Care to Michael Bourke, not to defame him and to act properly as his banker”. (amended cross-claim, par 22)
The factual allegation which leads to this claim is that in late 1986, the Bank dishonoured a trust account cheque on “Michael V Bourke and Associates Trust Account”. The allegation is also made that there were sufficient funds in that account to cover the amount of the cheque. The Bank makes the following submission:
“Mr Bourke put forward no evidence as to which cheque was dishonoured, what was its amount, whether it was ever re-presented, whether any damage was suffered or who suffered any damage. The only evidence is the handwritten note by Mr Van Holst that a cheque had been dishonoured because of a bank error. No other elements of the pleaded causes of action were established.”
I accept the submission.
Mr Bourke attached to his submissions filed on 5 June 1997, sixteen documents. As the Bank has pointed out in its submissions in reply, only three of these documents are in evidence. Mr Bourke has not sought leave to re-open. I have read the other thirteen documents in case any of them should have a bearing on the result in this case. If they did, I would have caused Mr Bourke to be notified of the possibility of his seeking leave to re-open, in which event the Bank would, of course, have been entitled to be heard in opposition, and, in particular, the question of any responsive evidence to be adduced by the Bank would have had to be considered. In my view, none of the thirteen documents would have made any difference to my conclusions. In particular, I note that document MVB6 annexed to Mr Bourke’s submissions appears to relate to a cheque for $1,178.85 which was drawn on the account of “Mr M V Bourke C/- of Michael V Bourke & Assoc” at the Bank’s Maitland branch on 23 December 1986 number 127185 and debited to that account on 6 January 1987. Against the date 2 January 1987 there is a credit of the same amount by way of “entry reversal”. Whatever these entries may signify, they do not give Krys a cause of action. It is not necessary for me to consider whether they, with other facts not pleaded or proved, might have once given Mr Bourke himself a cause of action, because the cross-claim by him is incompetent and because Mr Bourke’s claim against the Bank for damages for defamation based on the dishonour of cheque number 127185 was dismissed summarily by a Full Court of this Court on 4 August 1995 in proceeding NG 471 of 1994.
2.6 “State Bank had no legal right to threaten or disclose details of the Bourke Group of Companies and Properties. State Bank had a Duty of Care to the Bourke Group ...”. (amended cross-claim, par 24)
The allegations of fact in pars 23 and 24 of the amended cross-claim which precede this conclusory allegation are, first, that on 11 December 1986 at 11.30 am, Mr Robertson told George Williams, Mr Bourke’s solicitor in Maitland, that the Bank might be having one of the biggest auctions that Maitland had ever seen and, secondly, that towards the end of December 1986, Mr Robertson said to Mr Bourke, “My little mate Johnny Ceccato looks like getting the sack over this deal”.
No evidence of the conversation on 11 December was led from Mr Williams. Mr Robertson denied that it occurred. I do not find the allegation made out. In any event, the evidence does not establish that the conversation had any consequences for Krys or, for that matter, for any other cross-claimant.
The alleged conversation between Mr Robertson and Mr Bourke at the end of December 1986 is without legal consequences for present purposes. Let it be assumed that within the Bank there was criticism of Mr Ceccato on the basis that he had acted imprudently in recommending in May 1986 that Mr Bourke’s application for financial accommodation be accepted. Let it be further assumed that the criticism was justified. This would not give a cause of action to any of the cross-claimants.
2.7 “State Bank had a Duty of Care to the Bourke Group not to take overdraft away without reasonable notice”. (amended cross-claim, par 42)
The factual allegation in par 42 of the amended cross-claim which precedes this conclusory allegation is that on 4 November 1986, Mr Bourke made a request to Mr Van Holst for an extension of the overdraft facility of $40,000 to which Mr Van Holst replied:
“It could remain at $13,446.05 O/D balance until further sales of properties at Windella Downs”.
The complaint is made that the account was placed “in reduction” without further notice and all cheques currently drawn on the account were returned to the drawer. The evidence establishes that Mr Bourke’s request for overdraft accommodation was made in early August and that it was granted for a period of two months only. Therefore, after early October, the customer was not entitled to maintain the overdraft for any further period and the amount overdrawn was repayable on demand. In any event, according to the evidence, the overdraft was not required to be paid at once but was “placed in reduction”. As I understand it, this signifies that the only movements on the account which were recognised by the Bank were reductions, not increases, in the actual amount overdrawn from time to time. Finally, no damage is shown to have flowed from the Bank’s action.
The Bank’s post-default conduct.
3.1 “State Bank invalidated these notices by its own actions”. (amended cross-claim, pars 8 and 9)
The allegations relate to the notices issued on 9 January 1987 received on 13 January 1987 and those dated 10 March 1987 and received on 19 March 1987. As noted earlier, it is only the one addressed to Krys and dated 10 March 1987 on which the Bank relies. There is no factual basis for the allegation that the Bank “invalidated” that notice. No reason has been identified by Mr Bourke for concluding that that notice is “invalid” for any purpose.
3.2 “State Bank had no legal right to disclose details regarding the Bourke Group or try to induce Maitland City Council to take such action”. (amended cross-claim, pars 12 and 13)
The factual allegations in pars 12 and 13 of the amended cross-claim relate to meetings in February 1987 at the offices of the Council (Bank documents show that the meeting occurred on 24 February). In pars 12 and 13 it is alleged that Mr Robertson came to Maitland and met with the then Aldermen Blackmore and Dunkley of the Council. According to the amended cross-claim, Mr Robertson began by saying “This meeting is one of those meetings that didn’t happen”; Mr Robertson complained that Mr Bourke had “not performed” and said that the Bank wanted the Council to take recovery action in respect of the arrears of rates owed on the security properties; and the Aldermen decided that since the Council would have first call on any moneys owed for rates by reason of the Council’s statutory charge, they would not support it taking the initiative in terms of recovery action.
Mr Blackmore (now a member of the Legislative Assembly of New South Wales) gave evidence as did Mr Robertson. There was some conflict between them as to the content of the conversation which took place. Let it be assumed (I refrain from making a finding) that the allegation in the amended cross-claim is to be accepted at face value. It does not form a basis for relief to Krys or to any other cross-claimant. Let it be assumed that Mr Robertson sought to persuade the Council to “do the Bank’s dirty work” by being the party to take the initiative in selling the security properties. The fact is that the Council did not do so, and if it had done so, the result for Krys and the other cross-claimants would, so far as the evidence reveals, have been no different from that which they have unfortunately experienced. The properties would have been sold and the proceeds would have been applied towards satisfaction of the debts owed to the Council and the Bank in that order of priority. The only difference would have been that the Council, rather than the Bank, would have been seen to be the creditor taking the initiative, and the Bank, rather than the Council, would have been seen as a secured creditor paid out as a result of action taken by another.
3.3 “State Bank had no legal right to make such statements nor threaten or intimidate the Bourke Group”. (amended cross-claim, par 14)
The factual allegations which leading to this conclusory allegation are that on or about 9 July 1987, while Mr P H Harding, a consultant retained by Mr Bourke, was “endeavouring to negotiate a commercial settlement” between Mr Bourke and the Bourke Group on the one hand and the Bank on the other, Mr Robertson said to Mr Harding: “In Michael Bourke’s and companies’ case the State Bank wants no survivors”.
Both Messrs Harding and Robertson gave evidence. There was a conflict between them as to exactly what was said. Mr Harding says that his understanding was that Mr Robertson was intending to convey that the Bank had come to a firm view by 9 July 1987 that the only way out for the Bank was for it to sell the security properties. Let it be assumed (I refrain from making findings) that the exact words quoted were stated by Mr Robertson to Mr Harding. While the words used would have been a poor choice, and the offence taken to them by Mr Bourke would be understandable, nevertheless on the evidence they would be without legal consequence for Krys or, for that matter, for any other cross-claimant. The Bank was entitled as at 9 July 1987, so far as the evidence reveals, to sell all the security properties without exception.
3.4 “State Bank had no legal right to devalue the property”. (amended cross-claim, par 15)
This conclusory allegation follows upon the making of factual allegations in par 15 relating to dealings between Mr Robertson and Mr B J McGuigan. Mr McGuigan was a potential purchaser of some or all of the Bourke Group companies or some or all of their assets. The allegation is that on 29 July 1987 Mr McGuigan met with Mr Robertson at his office at the Bank’s headquarters in Martin Place, Sydney to discuss a possible purchase by Mr McGuigan, when Mr Robertson said: “The Bank is anxious to divest of Bourke’s properties and will negotiate at a discount price”. The allegation is, further, that on 6 August 1987, Mr Robertson and another officer of the Bank attended at Mr McGuigan’s office at Wyndham Estate Winery, Branxton, and that Mr Robertson said, “I am in a hurry to do a deal with Bourke’s Properties”; that Mr McGuigan enquired whether the Bank would be “prepared to leave a fair amount of money in the deal”; and that Mr Robertson replied that the Bank was “prepared to lose one million dollars” on the loans to the Bourke Group after waiving interest, and that “this would be the biggest loss the State Bank has ever suffered”. Finally, it is alleged that Mr McGuigan decided not to proceed further because of the Bank’s wish to act quickly and because it was not prepared to finance him.
Let it be assumed that all the allegations are made out (I refrain from making findings). They are without consequence in terms of the legal rights of Krys and, for that matter, those of any other cross-claimant. Mr McGuigan did not purchase. The Bank was entitled to have discussions with a potential purchaser about price. Whether the Bank in fact sold in a manner and at a price constituting a breach of duty on its part is another matter (and is referred to below).
3.5 “State Bank had no legal right to make such threats or disclose any details regarding the Bourke Group of Properties or Companies or Michael Bourke or to take such action”. (amended cross-claim, par 16)
This complaint follows fifteen subparagraphs of allegations. The evidence relied on is that of Justin Richard Bourke, Mr Bourke’s youngest brother. However, the particular allegation which is germane for present purposes is that made in the last subparagraph, subpar 15. This is that in November 1988, Mr Justin Bourke attended a luncheon in Woollahra at which Mr Hawksford (referred to earlier in these Reasons) made the statement that Mr Robertson had said to him and other people in January 1987: “We want to get Bourke, we want to sell his house so that he doesn’t have a roof above his head”. More importantly, Mr Hawksford gave evidence that Mr Robertson had said words to that effect in January 1987. Mr Robertson denied saying those words or words to their effect.
I need not, and do not, make any finding as to whether Mr Robertson did make that statement in January 1987. If he did, it would have been a vindictive and spiteful statement deserving of condemnation. But the making of it would not have infringed the rights of Krys or of any other cross-claimant. It is with the Bank’s acts and omissions that I must be concerned. The Bank has not yet sold the Property or even obtained possession of it.
3.6 “On a rising property market these blocks were sold at about half the price sometimes below Newcastle Permanent Building Society Valuer’s valuation, less the cost of huge marketing costs of the State Bank of New South Wales and their agents”. (amended cross-claim, part of conclusory allegation in par 17)
The “blocks” referred to are the allotments in the Windella Downs/Pinabar subdivision. Paragraph 17.7 of the amended cross-claim is as follows:
“All blocks at Windella Downs were valued by Brian O’Loughlin Valuers, for the Newcastle Permanent Building Society Limited. In order for 90% funding to be available to any prospective purchaser from Newcastle Permanent Building Society Limited on attractive conditions at the behest of State Bank’s nominee. Valuation fees were paid for by the Bourke Group of companies.”
This seems to be an allegation of a sale of security properties at an under value. But Mr Bourke has not led any evidence of precisely which properties were sold, when, and at what prices. He has not led expert valuation evidence to demonstrate that the prices obtained by the Bank were below the real market value of the allotments. He has not led expert evidence with a view to establishing negligence or other breach of duty on the part of the Bank as to, for example, its marketing strategy. He has not led evidence about the sequence in which properties were sold or the “rate” of sale. There is simply no expert evidence directed to showing that the Bank’s conduct fell short of that required of a mortgagee exercising its power of sale, and there is no evidence that the prices realised were such that Krys or any other cross-claimant suffered loss in consequence of any breach of duty by the Bank.
3.7 “State Bank had no legal right to threaten or disclose details of the Bourke Group of Companies and Properties. State Bank had a Duty of Care to the Bourke Group”. (amended cross-claim, par 25)
The factual allegation which precedes this conclusory allegation is that on 20 January 1987, Mr Robertson told George Williams, Mr Bourke’s then solicitor in Maitland, “State Bank has taken possession of all securities”. The allegation is not established by any evidence (Mr Williams did not give evidence). Mr Robertson denied making the statement. It is not established that the conversation took place. If it had been established, there is no evidence that a statement made in January 1987 that the Bank “had taken possession of all securities”, although it would have been false, caused loss to Krys or to any other cross-claimant.
3.8 “State Bank had no legal right to be dealing in the Bourke Group of Properties as Default Notices had not been issued and were not entitled to so issue because of the State Bank’s involvement in fraud and conspiracy with Beneficial Finance Corporation Limited in November and December 1986. State Bank had no legal right to intimidate Michael Bourke”. (amended cross-claim, par 27)
The factual allegation which precedes this conclusory allegation is that on or about 8 January 1987, Messrs Robertson and Ceccato inspected the security properties in Maitland, and that Mr Robertson took photographs of them. The Bank officers did not infringe the rights of Krys or of any other cross-claimant by viewing, photographing and generally appraising security properties. The fact that the Bank was not in a position then and there to sell them does not signify that the Bank was not entitled to do what it did.
3.9 “State Bank had no legal right to intimidate Michael Bourke”. (amended cross-claim, par 28)
The factual allegation which precedes this conclusory allegation is that in January 1987, at a meeting attended by Bank officers and Mr Bourke, Mr Ceccato said to Mr Bourke: “What are you going to do for a living? Where will you live?”.
There is a conflict on the evidence as to whether these words were said. Mr Bourke did not give evidence that he was intimidated by the comment. Let it be assumed (I refrain from making a finding) that the words alleged were spoken by Mr Robertson. The making of the statement is not shown to have had any legal consequences for Krys or for any other cross-claimant.
3.10 “State Bank had no legal right to disclose details or deal in the Bourke Group of Properties and/or Companies. The State Bank owed a Duty of Care to the Bourke Group”. (amended cross-claim, par 29)
The preceding factual allegation is that in January 1987, Mr Robertson and Mr Van Holst had a meeting with a local real estate agent, Tony Cant, about the Bourke Group’s properties, and that they provided to Mr Cant a list showing “low valuations of property”. It is alleged that the meeting occurred prior to expiration of the first batch of notices which were issued by the Bank. Let it be assumed that the Bank officers handed to Mr Cant a list of security properties with figures purporting to be their “values”. Those facts do not give rise to any right of redress in Krys or any other cross-claimant. The Bank, through its officers, was entitled to take preliminary steps in anticipation of a realisation of its securities. It is perhaps conceivable that, exceptionally, a mortgagee might incur liability by taking steps prematurely and, as it happens, without warrant, with a view to a realisation of securities, where the mortgagee does not in fact become entitled to sell. I need not explore that possibility further. Such circumstances are far from those of this case.
The evidence led by Mr Bourke does not establish that the Bank sold at less than full market value or that any figures purporting to be “valuations” supplied by Mr Robertson to Mr Cant were “low”. The mere supply of “low” figures would not, in any event, constitute a legal wrong by the Bank to Krys or to any other cross-claimant. Again, the amended cross-claim fails to distinguish between preliminary statements made by Bank officers, on the one hand, and the Bank’s conduct (acts and omissions) in relation to the selling, on the other.
3.11 “State Bank had no legal right to intimidate Michael Bourke. State Bank had no legal right to disclose details or deal in the Bourke Group of Properties and or Companies. The State Bank had a Duty of Care to the Bourke Group”. (amended cross-claim, par 30)
“State Bank had no legal right to intimidate Michael Bourke ... The State Bank owed a Duty of Care to Michael Bourke and the Bourke Group”. (amended cross-claim, par 31)
The factual allegations which precede these respective conclusory allegations are that in January 1987, Mr Ceccato said to Mr Bourke “the word will get out”, and on 20 January 1987, Mr Robertson said to Mr Bourke, “if you do not do exactly what we say, we will crush your balls”. There is a dispute between the respective Bank officers and Mr Bourke as to whether the words alleged were in fact said. Let it be assumed (I refrain from making findings) that they were said. They do not assist Krys or any of the other cross-claimants. The making of the statements did not constitute legal wrongs. There is no evidence of intimidatory effect. The statements are not shown to have caused loss.
3.12 “State Bank had no legal right to disclose details or deal in the Bourke Group of Properties and/or Companies”. (amended cross-claim, par 32)
The factual allegation which precedes this conclusory one is that at a meeting held at 2.30 pm on 19 February 1987 at the Bank’s office in Sydney, attended by Mr Bourke, his brother-in-law, Lindsay Upton, Mr Bourke’s adviser, Dr Peter Clyne and various Bank officers, Mr Van Holst and Mr Robertson said that they had sought the opinion of the Maitland real estate agent Mr Cant, as to the values of security properties. It appears to be assumed that they had, for that purpose, provided Mr Cant with particulars of the properties. I have dealt with such complaints of disclosure by the Bank elsewhere (see sections 2.1, 2.6, 3.2, 3.5, 3.7, 3.10, 3.11 above). For the reasons given previously the “disclosure” is not actionable.
3.13 “State Bank owed a Duty of Care to the Bourke Group of Companies”. (amended cross-claim, par 33)
The factual allegation which precedes this particular claim of a duty of care is that in about April 1987, Jones Lang Wootton, real estate agents, wrote to the Bank warning it that any “bulk or fire sale” of the properties of the Bourke Group would depress and have a devastating effect on the Maitland property market. The making of any such statement was without legal consequence in terms of infringement of the rights of Krys or of any other cross-claimant. To the extent that the complaint may be that the Bank should not have been speaking to Jones Lang Wootton, see the sections of these Reasons referred to in the preceding paragraph. To the extent that the complaint is that the Bank in fact sold security properties at less than market value in circumstances constituting a breach of duty owed to the Bourke Group, see sections 2.4, 3.6 and 3.10 above in these Reasons, and my comments under the subheading “Introduction and general observations” in relation to the amended cross-claim.
3.14 “State Bank acted illegally and improperly in disposing of this property irrespective of their legal rights to sell any Properties”. (amended cross-claim, par 36)
The factual allegation which precedes this sentence is that on 16 July 1987, a security property at Lot 416, Turton Street, Metford was sold at auction for $410,000 and that this was below market value. It is alleged in par 36 of the amended cross-claim that this property had been valued by the Bank at about $800,000 and that the auctioneer had stated that it was worth $750,000. It is alleged that a person named George Pullin announced at the auction that he represented the tenant and that the tenant would be “pulling out in one month”. It is alleged that George Pullin proceeded to bid at the auction and was the successful bidder. It is complained that Mr Robertson did not, on behalf of the Bank, withdraw the property from the auction. It is also alleged that Mr Pullin had himself made an offer of $600,000 in early 1986 and that Mr Ceccato had said to Mr Bourke on that occasion, “you’d be silly to accept”.
There is no expert evidence directed to showing that in the particular circumstances which prevailed at the auction on 16 July 1987, the Bank did not obtain the best price that was available on the day or that the steps taken to promote the sale were deficient. Indeed, Mr Bourke led no expert evidence whatever with a view to establishing breach of duty in the respect alleged. Underlying this paragraph seems to be the misconception that the Bank owed a duty of care, discharge of which could require it to delay realisation for the purpose of obtaining a higher price in the interests of the Bourke Group.
3.15 “ State Bank illegally intimidated the Bourke Family and acted improperly in concert with Jones Lang Wootton to overvalue the family home by in excess of $100,000. ... The State Bank sold some of the Bourke Group of Properties for less than half State Bank 30/6/86 valuation and most well below State Bank 30/6/86 valuation”. (amended cross-claim, conclusory allegation in par 40)
The factual allegation which precedes this statement is as follows:
“On 30 June 1986, State Bank took security by way of blank signed mortgages over 36 Free Church Street, Maitland to secure rates. Total Property, 34 and 36 Free Church Street, Maitland, was valued by E K Prince at the time at around $140,000. In April 1987, Paul Robertson requested Jones Lang Wootton to value 36 Free Church Street, Maitland. They placed a valuation of $250,000 on both 34 and 36 Free Church Street, Maitland (36 Free Church Street has no services connected to it). Valuation of $130,000 was placed on 36 Free Church Street, Maitland. About 4 months later, David Haggarty Real Estate and co-agents Jones Lang Wootton sold a similar property owned by Krys Properties Pty Limited at the rear of 34 and 36 Free Church Street, Maitland for $70,000. This property, at 35 to 37 Hunter Street, Maitland was better situated, larger in land area and comprised 4 flats.”
The complaint made seems to be that the Property was overvalued by the Bank. It is not obvious, however, how the facts alleged, if proved, are said to give rise to that conclusion. The claim is not made out. Mr Bourke did not lead any expert evidence. The factual matters alleged by him, to the extent that they are established by the evidence, do not establish the alleged intimidation or that the Bank breached any duty which it owed to Krys or to any other member of the Bourke Group of companies.
3.16 “State Bank had no legal right to be dealing in the Bourke Group of Properties”. (amended cross-claim, par 41)
This claim is preceded by allegations made in relation to a meeting on 23 January 1987 between Mr Bourke, Kerry Bennett, a partner of Clayton Utz, and Mr Neil Moore who, as noted earlier, was Chief Manager, Institutional Banking, and in relation to a letter written by Kerry Bennett on 2 February 1987 to the Bank’s solicitor. By the letter, Clayton Utz, on behalf of L & M, denied the validity of the first notice under s 57(2)(b). Again, it is wrong to say that the Bank was not entitled to issue a notice following in March 1987. The fact that the particular notice “issued” on 9 January and received by Krys on 13 January may have been invalid is inconsequential as the Bank has not relied upon it.
3.17 “State Bank acted illegally in converting and allowing to be converted properties over which they had no charge. The State Bank destroyed the Bourke Group and its Directors, spouses and families’ opportunity to earn substantial income by converting Indoor Cricket equipment over which the State Bank had no charge and not allowing the Bourke Group to remove and re-establish at another site. This equipment worth approximately $120,000 was sold by the State Bank for a Net $516. The State Bank charged the Bourke Groups’ account $5,000 for storage and removal of these goods, so the sale of the Indoor Cricket plant and equipment cost the Bourke Group approximately $4,500”. (amended cross-claim, par 43)
The factual allegation in par 43 of the amended cross-claim which precedes the claim quoted above is that the Bank converted property worth approximately $120,000 at the Indoor Cricket Centre, Turton Road, Metford which allegedly belonged to Avito Pty Ltd, the eighth cross-claimant. The allegation is also made in par 43 that the Bank allowed to be converted property belonging to L & M which was in storage at Lot 21, Chiefly Street, Metford worth approximately $30,000 (according to documents comprised in Exhibit R32, the correct reference is Lot 18, Chifley Street, East Maitland). Finally, it is alleged that the Bank allowed a tenant to convert plant and equipment of the third cross-claimant, LRA Restaurants Pty Ltd, worth approximately $30,000, at 542 High Street, Maitland.
Mr Bourke tendered various documents with a view to proving these alleged conversions. The documents were admitted into evidence as Exhibit R32. But the various factual allegations made are not established by this or other evidence in the case. The evidence does establish that goods from the “old Indoor Cricket Centre” were stored at Lot 18, Chifley Street, East Maitland at the cost of the Bank pending their sale, and that on 17 May 1989 auctioneers forwarded to the Bank a cheque for $1,219.75 as representing the proceeds of “the auction of Indoor Cricket items”, which appears to have been credited to L & M’s account. But otherwise the elements of the tort of conversion are not established. The identity of the owner is not established by the evidence and it is not established that in selling, the Bank exceeded authority which it derived from that owner. Further, if there was a conversion for which the Bank is liable, it would be entitled to set off the damages for which it is liable to the owner against the particular owner’s liability to the Bank on its personal covenant in the mortgage from it to the Bank. Finally, as noted earlier, cross-claimants other than Krys have no standing in this proceeding and it is not alleged that goods of Krys were converted.
3.18 “State Bank had no legal right to disclose details of Bourke Group Properties or Companies”. (amended cross-claim, par 44)
The factual allegation in par 44 is that on 21 January 1987, Mr Robertson wrote to Mr Cant, of Tony Cant Real Estate, inter alia, as follows:
“‘Thank you for meeting us on Monday’ and ‘You will find enclosed a copy of our request to Richardson and Wrench to report on a marketing programme for the commercial properties described’.”
Again, there is no substance in the contention that the Bank was not entitled to take preliminary steps of that kind. Default had already occurred. Moreover, even if it was not entitled to do so, it is not shown by the evidence that such action caused loss to Krys or to any other cross-claimant.
3.19 “Damages for loss of income”.
“Particulars
The State Bank and its Officers have breached the Laws Governing New South Wales and other Laws, including The Conveyancing Act 1919 No. 6, The Real Property Act 1900 No. 25, The Crimes Act 1900 No. 40 and such other Acts that are applicable to this claim including the Contracts Review Act and the Act covering Entrapment.
Further Particulars
The Applicant and Cross Respondent (State Bank of New South Wales) breached Facility Agreement with second Cross Claimant which was guaranteed by the Respondent and the first to the eighth Cross Claimants; by dealing in the Bourke Groups’ Properties prior to interest falling due on 31 December 1986; by bad newsing and disclosures regarding the Bourke Group before and after interest fell due on 31 December 1986; by conspiring with and acting fraudulently with Beneficial Finance Corporation Limited in November and December 1986; by breaching their Duty of Care; by acting in Bad Faith.
Because of the Applicant and Cross Respondents’ breaches and actions the Respondent and first to ninth Cross Claimants have suffered loss and are entitled to claim:
a)damages for loss of income;
b)return of Deeds unencumbered to 36 Free Church Street, Maitland which is land comprised in folio identifier 1/738913;
c)return of properties, illegally transferred, to their rightful owners;
d)damages for loss of reputation, personal injury and wrong done;
e)damages;
f)costs;
g)such further or other orders as this honourable Court thinks fit.”
(amended cross-claim, pars 45 and 46)
There was no evidence establishing these losses and no evidence that any particular cross-claimant had suffered any particular loss alleged.
Parts B and C of the amended cross-claim
What I have said to date addresses Part A of the amended cross-claim and provides my reasons for dismissing it. As noted earlier, Part C repeats in substance, particular allegations in Part A. It follows that Part C should be dismissed.
Part B makes allegations in relation to Beneficial. Some of the facts relating to Beneficial were noted earlier. It will be recalled that Beneficial was, as at 30 June 1986, and continued to be after that date, a secured lender to the Bourke Group, notwithstanding the payment to it by the Bank of $448,783.63 on 1 July 1986. Many of the allegations in Part B of the amended cross-claim are clearly directed, not against the Bank, but against Beneficial. I need not address these. The allegations against the Bank in Part B, expressed in extremely general terms, appear to be that it was “conspiring with and acting fraudulently with Beneficial Finance Corporation Limited in November and December 1986; ... breaching their Duty of Care; ... acting in Bad Faith”. Numerous of these allegations have been dealt with earlier in these Reasons.
There was some concern within Beneficial over the effectiveness of the securities which it held. The relevant borrower was in default: according to an internal Bank memorandum dated 9 December 1986 from Mr Robertson to Mr Van Holst, Beneficial had advised Mr Robertson that it had not been paid interest for five months. Beneficial contemplated giving a formal notice of demand for payment but decided against that course apparently because Beneficial was of the view that receipt of the demand would constitute default by the Bourke Group under the Bank’s securities. Beneficial pursued a course of consolidating all existing loans to the Bourke Group into one facility, seeking second mortgages over the security properties over which the Bank held first mortgages, and providing a six month interest facility to the Bourke Group. Accordingly, for the cost of only a six month “moratorium” on interest and, in particular, without the necessity of any fresh advance, Beneficial’s security position would be strengthened considerably. Although the Bourke Group could have given second mortgages to Beneficial without the Bank’s consent, it was a term of the various mortgages to the Bank that the mortgagor would not grant any further mortgage without the Bank’s prior written consent. For a long while, the Bank would not consent unless it actually received payment of its interest on 31 December. However, Beneficial was insisting on a settlement on 23 December and could not see its way clear to fund the payment of the interest which was about to become due and payable to the Bank. Eventually, on 19 December, the Bank did consent. The Beneficial transaction was settled on 23 December, when Mr Bourke and his brother attended at Beneficial’s office in Sydney. The Bank’s consent was subject to receipt of a written request from the Bourke Group, Beneficial’s execution of a “deed of priority” to be prepared by the Bank’s solicitors, and Beneficial’s consent to the Bank’s taking second mortgages over those properties which were subject to first mortgages to Beneficial.
Mr Bourke appears to complain that Beneficial failed to honour an undertaking that it had given to him that the interest to fall due to the Bank on 31 December would be paid out of the funds being provided by it. It is not clear what his complaint is against the Bank in relation to Beneficial. Perhaps it is that the Bank did not persist in insisting that Beneficial pay the Bank’s interest. But the Bank had not undertaken to Mr Bourke or his companies to insist upon this and was not otherwise obliged by law to do so. For as long as the Bank in fact did insist, it was acting in its own interests as it was entitled to do. Moreover, if the Bank had continued to insist on that condition, the transaction with Beneficial would not have taken place and Beneficial would possibly have realised its securities before the Bank realised its own securities. Perhaps Mr Bourke’s complaint is that the Bank conspired with Beneficial to cause harm and loss to the Bourke Group, or that in some way the dealing was a “sham transaction”. If so, any such complaint is entirely unsupported by the evidence.
In the result, the conduct of the Bank in relation to Beneficial is not shown to give rise to any cause of action in Krys or in any of the other cross-claimants.
CONCLUSION
On the Bank’s application there will be a money judgment against Krys, judgment for possession, leave to issue a writ of possession and an order for costs. The cross-claim will be dismissed with costs.
I certify that this and the preceding thirty (30) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren
Associate:
Dated: 18 August 1997
Counsel for the Applicant/Cross-Respondent: Mr D J Russell Solicitor for the Applicant/Cross-Respondent: Mallesons, Stephen Jaques Pursuant to leave: Mr M V Bourke represented the respondent/cross-claimants
Date of Hearing: 5, 6, 7, 8, 9, 12 May 1997 Date last submission received: 12 June 1997 Date of Judgment: 18 August 1997
Key Legal Topics
Areas of Law
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Property Law
Legal Concepts
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Judgment
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Possession
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Costs
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Dismissal
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Compensatory Damages
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