Timms v Commonwealth Bank of Australia

[2004] NSWSC 76

CITATION:	Timms v Commonwealth Bank of Australia; Commonwealth Bank of Australia v Timms [2004] NSWSC 76 revised - 26/02/2004
HEARING DATE(S):	17/06/03; 18/06/03; 19/06/03; 20/06/03; 23/06/04; 24/06/03; 25/06/03; 26/06/03; 27/06/03; 26/09/03; 30/09/03; 01/10/03
JUDGMENT DATE:	24 February 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Barrett J
DECISION:	Plaintiffs' claims of misleading or deceptive conduct, breach of fiduciary duty and negligence against bank dismissed. Plaintiffs' claims of breach of retainer and negligence against accountants dismissed. Bank entitled to judgments for debt and order for possession of mortgaged premises.
CATCHWORDS:	TRADE AND COMMERCE - misleading or deceptive conduct in trade - whether bank made untrue representation as to state of business being purchased by customer applying for acquisition finance - whether bank's failure to correct customer's statement as to state of business known to the bank to be incorrect actionable - whether bank's failure to inform customer of customer's accountant's failure to give favourable report on financial position of business actionable - EQUITY - fiduciary duty - whether bank owed fiduciary duty to customer in connection with customer's purchase of business financed by bank - TORTS - negligence - duty of care owed by bank to customer - PROFESSIONS AND TRADES - accountants - nature and incidents of retainer of accountant advising on purchase of business - whether breach of contract or negligence - ELECTION - circumstances in which person with inconsistent rights, having resorted to one, may not resort to the other - whether creditor properly regarded as having concurrent rights to sue for full debt and to sue for such smaller amount as creditor chooses
CASES CITED:	Australian Competition and Consumer Commission v Oceana Commercial Pty Ltd [2003] FCA 1516 Briginshaw v Briginshaw (1938) 60 CLR 336 Commonwealth v Verwayen (1990) 170 CLR 394 Commonwealth Bank of Australia v Finding [2001] 1 QdR 168 Commonwealth Bank of Australia v Smith (1991) 102 ALR 453 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation (1970) 125 CLR 52 G E Crane Pty Ltd v Federal Commissioner of Taxation (1971) 126 CLR 177 Gold v Essex County Council [1942] 2 KB 293 Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 Kratzmann v Federal Commissioner of Taxation (1970) 44 ALJR 293 In re London and General Bank (No 2) [1895] 2 Ch 673 Metalcorp Recyclers Pty Ltd v Metal Manufactures Ltd [2003] NSWCA 213 Moukhayber v Camden Timber & Hardware Co Pty Ltd [2002] NSWCA 58 New South Wales v Lepore (2003) 77 ALJR 558 Point v Federal Commissioner of Taxation (1970) 119 CLR 453 Rehsa Shipping Co SA v Edmunds [1985] 1 WLR 948 Sanders v Snell [2003] FCAFC 150 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284 United Australia Ltd v Barclays Bank Ltd [1941] AC 1 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Watson v Foxman (1995) 49 NSWLR 315
PARTIES :	2644/94 Anastasia Timms - First Plaintiff Brian Timms - Second Plaintiff TW Holdings Pty Limited - Third Plaintiff BDA International Pty Limited - Fourth Plaintiff Commonwealth Bank of Australia - First Defendant Leslie Ludovic Rosenfeld and Alfred Kant t/as Rosenfeld Kant & Co - Third Defendants 3054/97 Commonwealth Bank of Australia - Plaintiff Anastasia Timms - First Defendant Brian Timms - Second Defendant TW Holdings Pty Limited - Third Defendant BDA International Pty Limited - Fourth Defendant 2644/94 Anastasia Timms - First Plaintiff Brian Timms - Second Plaintiff TW Holdings Pty Limited - Third Plaintiff BDA International Pty Limited - Fourth Plaintiff
FILE NUMBER(S):	SC 2644/94; 3054/97
COUNSEL:	2644/94 Mr A J Sullivan QC/Mr M Clarke - First to Fourth Plaintiffs Mr R G Forster SC/Mr N Manousaridis - First Defendant Mr R E Dubler - Third Defendant 3054/97 Mr R G Forster SC/Mr N Manousaridis - Plaintiff Mr A J Sullivan QC/Mr M Clarke - First to Fourth Defendants
SOLICITORS:	2644/94 Browne & Co - First to Fourth Plaintiffs L E Taylor - First Defendant Phillips Fox - Third Defendants 3054/97 L E Taylor - Plaintiff Browne & Co - First to Fourth Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

TUESDAY, 24 FEBRUARY 2004

2644/94 – ANASTASIA TIMMS & ORS v COMMONWEALTH BANK OF AUSTRALIA & ORS
3054/97 – COMMONWEALTH BANK OF AUSTRALIA v ANASTASIA TIMMS & ORS

JUDGMENT

The proceedings

1 In proceedings 2644 of 1994, Mr Timms, Mrs Timms and two companies controlled by them (which I shall call “TW Holdings” and “BDA”) sue a bank (Commonwealth Bank of Australia, referred to simply as “the bank”) and a firm of accountants (Rosenfeld Kahn & Co) upon several causes of action related to advice allegedly given and statements allegedly made to Mr Timms and Mrs Timms about a business that was ultimately purchased by the Timms interests.

2 The causes of action, as eventually pleaded, are set out in the third amended statement of claim which, by leave, was filed in court on 20 June 2003, the fourth day of the hearing before me. The second amended statement of claim was filed almost three months earlier, on 28 March 2003, by leave granted by the court by consent of the parties on 4 November 2002.

3 The statement of claim in its original form was filed on 8 June 1994. An amended statement of claim was filed on 14 February 2001. A trial of the claims pleaded in the amended statement of claim filed on 14 February 2001 took place before a judge of this Division over eight days in March and April 2001. On 6 July 2001, the claims against the bank and the accountants were dismissed. The Timms interests appealed to the Court of Appeal. On 23 September 2002, the appeal was allowed, the judgment and orders at first instance were set aside and the matter was remitted to this Division for re-trial.

4 I mention this background for two main reasons. The first is to emphasise that, although the matter was remitted for re-trial, the plaintiffs have, by leave, amended their statement of claim on two occasions since the Court of Appeal made orders and published its reasons. The claims as eventually framed and litigated before me were not identical with those considered by the Court of Appeal, although it must be said at once that the general thrust did not change. Secondly, while all the affidavits read and oral evidence adduced upon the original hearing at first instance were relied upon again before me, certain parts of affidavits previously read were not read upon the re-trial and objections were taken and dealt with afresh, in addition to which further affidavits sworn since the determination of the appeal and further tendered documents were also relied upon by the parties and there was extensive cross-examination of witnesses. The evidence I received thus differed from the evidence received in the earlier trial.

5 Although both the matters to which I have referred may be regarded as not unexpected by-products of full remitter for retrial in circumstances where, as the judgments in the Court of Appeal show, it was not intended that any part of the original decision should stand (cf Sanders v Snell [2003] FCAFC 150), it is as well that they be recorded at the outset; also that the course taken was taken with the concurrence of the parties. My task is to determine the proceedings as now constituted by reference to the evidence placed before me. I must find all facts afresh.

6 There are cross-claims in proceedings 2644 of 1994. Two remain extant. By the second cross-claim, the accountants claim contribution from the other defendants. By the third cross-claim, the bank makes a like claim against the accountants. It should also be mentioned that both the bank and the accountants allege contributory negligence on the part of the Timms interests.

7 Associated and heard together with proceedings 2644 of 1994 were proceedings 3054 of 1997 by which the bank claims judgment for debt and interest against Mr and Mrs Timms, like judgment against TW Holdings, like judgment against BDA and orders against Mrs Timms for possession of a property mortgaged by her to the bank as security for the total indebtedness of the Timms interests. By way of cross-claim in those proceedings, the four Timms parties assert claims against the bank and the accountants corresponding with those in proceedings 2644 of 1994. The reasons for judgment published on 6 July 2001 stated that the bank was entitled to judgment for its debt plus interest against all debtor parties; also an order for possession against Mrs Timms as mortgagor. All these aspects are comprehended by the Court of Appeal’s order for re-trial.

8 In the proceedings before me, a new aspect was added to the controversy concerning the bank’s debt and mortgage claims. The Timms interests say that, if they are indebted to the bank at all, the debts are not of the magnitude claimed by the bank because of what I refer to for the moment as the “shadow ledger issue”. That issue, although not made the subject of any formal amendment of the pleadings, was articulated in writing in a way that the bank and the Timms parties agreed provided sufficient definition. The “shadow ledger issue” will be elaborated and explained in due course, quite separately from my consideration of the other claims.

Background facts

9 A number of factual disputes arise for determination in these proceedings. It is nevertheless possible to give a sufficient account of undisputed matters in which the Timms participated (particularly those arising from contemporary documents) to explain the background against which the various claims have arisen.

10 In mid-1991, Mr Timms and Mrs Timms were making efforts to find a business that they might acquire or establish. Mr Timms was a self-employed consultant in the information technology industry. Mrs Timms had devoted herself to the home. With their three sons growing up, Mr Timms and Mrs Timms were seeking a business to which Mr Timms might devote some of his time and in which Mrs Timms could be engaged on a full time basis.

11 Mr Timms and Mrs Timms engaged Mr Rosenfeld of Rosenfeld Kant & Co, a firm of chartered accountants, to provide certain advice in relation to certain proposed business ventures. Before October 1991, Mr Rosenfeld, at their request, looked at aspects of several different businesses with a view to possible purchase. For various reasons, Mr Timms and Mrs Timms decided not to proceed with these proposals. The first contact Mr Timms and Mrs Timms had with Mr Rosenfeld was in August 1990.

12 On 8 October 1991, Mr Timms and Mrs Timms consulted Mr Rosenfeld about the possible purchase of a business that involved manufacture and retailing of high quality leather furniture. The meeting followed a telephone call made by Mr Timms to Mr Rosenfeld a few days earlier. The manufacturing operation was conducted by Artrona Pty Limited in factory premises at Brookvale. The retailing activities were conducted by 2001 Interiors Pty Limited at Crows Nest and the Gold Coast. For convenience, the two operations are referred to together as “the Artrona business”. The two companies were owned by Mr Richard Wheeler and Mrs Virginia Wheeler. I shall return to the early October and subsequent meetings with Mr Rosenfeld. It is sufficient, at this point, to note that Mr Rosenfeld provided certain professional services to the Timms interests and, in relation to one matter (to be mentioned in due course), had contact with their bank.

13 Mr Timms and Mrs Timms were introduced to the Artrona business by a business broker, Stephen Golosky. At an early stage, they were introduced to Mr Wheeler and Mrs Wheeler. The four met on several occasions. Mr Timms and Mrs Timms came to the view that, if they bought the Artrona business, it would be advantageous to have Mr Wheeler and Mrs Wheeler retain a working role within it. Mr Wheeler was seen by them as a good designer whose skills in that area would be useful. His abilities as a manager were not highly regarded by the Timms. The arrangements eventually settled upon entailed purchase of the Atrona business by a company 90% owned by the Timms and 10% owned by the Wheelers, with provision for the Wheelers to increase their shareholdings to a maximum of 50% over time on certain conditions. This company was TW Holdings (“TW” standing for “Timms Wheeler”).

14 On 16 December 1991, TW Holdings entered into a contract for the purchase from 2001 Interiors Pty Limited and Artrona Pty Limited of the assets and goodwill of the businesses respectively carried on by the vendor companies. The purchase price was stated to be $297,000. The contract does not appear to apportion this between the two vendors. The purchase included stock in trade at its value at the date of completion, such value to be determined by agreement between the parties and in default at a price determined by an expert, subject to an upper limit of $360,000. Provision was also made for assignment of leases of business premises (subject to lessors’ consent) and employment by the purchaser of persons employed by the vendors in the businesses. Certain other provisions commonly found in agreements of this kind were also included and it is unnecessary to say more about the terms and conditions of sale. Separate contracts entered into at the same time made provision for Mr Wheeler and Mrs Wheeler to work in the business.

15 Before this contract was entered into, Mr Timms and Mrs Timms had had discussions not only with Mr Rosenfeld but also with two officers of the bank based at its Five Dock branch, Mr Hart and Mr Walker. It will be necessary, in due course, to examine accounts of those discussions in some detail. For the moment, it is sufficient to record, so far as the bank is concerned, that, at an unidentified point in early October 1991, Mr Timms and Mrs Timms saw Mr Hart at the Five Dock branch and outlined to him the possibility of their purchasing the Artrona business and the need for financing. One of the things said by the Timms to Mr Hart at that meeting was that the principals of the vendor companies, Mr Wheeler and Mrs Wheeler (as well as those companies themselves), banked at the bank’s Barrack Street branch. Some time later (apparently on 18 October 1991), Mr Hart telephoned the Barrack Street branch and spoke to Ms Saar, an officer employed at that branch. Following that conversation, Ms Saar sent to Mr Hart on 18 October 1991 a memorandum which was accompanied by two documents and read as follows:

“Re Artrona P/Ltd Group of Companies
We refer to telephone discussions of today & enclose copy of Report provided by Deloitte Ross Tohmatsu. We have also included photocopy of relevant pages of Report which was completed by our office 24/5/91 which may be of assistance.
As discussed the forementioned are provided on a strictly confidential basis.”

16 The first of the documents enclosed with the memorandum of 18 October 1991 from the Barrack Street branch was a report of Deloitte Ross Tohmatsu dated 21 November 1990 addressed to the Barrack Street branch. The second document was what appeared to be pages 5 to 12 of an internal bank document, although without any signature or other identifying characteristic but nevertheless said in the memorandum itself to have been completed by the Barrack Street branch on 24 May 1991. The content of these documents should be briefly described.

17 The Deloitte Ross Tohmatsu report of 21 November 1990 began by stating that Deloittes had, at the direction of the Artrona group, carried out “a brief investigation into its current financial position and viability”; also that the directors had authorised Deloittes to report their findings to the bank. The report began by looking at the assets and liabilities position, the conclusion being that if trading ceased and realisation on a “distressed sale” basis occurred, there would be $87,695 available to reduce the bank’s debt of $210,073 after allowing for priority creditors of $236,512. The shortfall was estimated at more than one million dollars. Certain particular aspects were highlighted, including arrears of both income tax and sales tax which had become the subject of a reduction program attracting penalties. As to cash flow, the sustainable level of sales was identified as the “critical factor”. It was noted that the group was entering its strongest sales period in the annual cycle. The conclusions expressed by Deloittes were as follows:

“1. It is essential for the group to meet current liabilities in respect of group tax and sales tax, and that the planned reduction programme of the amounts in arrears be strictly adhered to.
2. The secured lender be provided with a monthly summary of a comparison between the actual monthly cash flow and the projected monthly cash flow. All variances should be appropriately explained. We note prior to our visit that the group had already prepared a comparison for the October monthly cash flow.
3. The secured lender be notified if and when any notices in accordance with Section 364 of the Companies (New South Wales) Code are received by companies within the group and the action taken to settle such demands.
4. We recommend a stocktake be conducted and supervised independently at 30 November 1990. Following completion of the stocktake a trading statement for the five months ending 30 November 1990 should then be prepared to independently ascertain the level of profitability of the business.”

18 The extract from the internal bank memorandum of 24 May 1991 began, as I have said, at page 5. There was reference on that page to the history of the loan facilities extended to the Artrona group with reference certain “excesses” having been allowed. There was then reference to cash flow (budgeted and actual) for April 1991 and a statement that “the Group have failed to perform to budgetary expectations”. Drawings by the Wheelers were identified as a problem, but even “if these items are added back, the position is ‘line ball’”. Further analysis followed. The extract contains the following passage:

“As stated and proved by the figures provided above, we would assert that the Artrona Group business is basically sound. The reason that it has suffered is due to a combination of a downturn in sales coupled with the unbearably high level of owner drawings. Indeed, the owner’s drawings have been given priority ahead of the payment of essential creditors, thus creating the arrears positions as outlined above.”

Three options were then discussed – liquidation, receivership and “three month option”, essentially an opportunity for the Wheelers to bring the account back within limits with the position being closely monitored.

19 On 4 November 1991, Mr Hart received further material from the Barrack Street branch by facsimile sent by Ms Saar. This was balance sheets of both companies at 30 June 1988, 1989 and 1990 and profit and loss accounts for the years to those dates. The facsimile began:

“We have received authority from our clients to provide the following information on a confidential basis …”

20 On 7 or 8 November 1991, Mr Hart received from Mr Wheeler a facsimile containing balance sheets for Artrona.

21 Mr and Mrs Timms had a second meeting with Mr Hart at the Five Dock branch on an unidentified date early in November 1991. One of the things that occurred at that meeting was that Mr Timms gave to Mr Hart a statement represented as being “projected consolidated cash flow for period 1/11/91-31/10/92” for “Artrona Group of companies”. Mr Timms explained in evidence how he had compiled that document in conjunction with Mr Wheeler. They worked together at Mr Timms’ home to prepare it. He also gave evidence about the notes and a narrative document of one and a half pages headed “Artrona” that accompanied the cash flow statement. This document is referred to as “the synopsis”.

22 On 11 November 1991, the Five Dock branch forwarded to the bank’s Western Metropolitan Zone Region A (which I shall call “Western Zone”) an application for financing for Mr and Mrs Timms and BDA International in the form of a five year bill facility in the sum of $950,000 and a $20,000 overdraft facility for the purpose of assisting completion of the acquisition of 90% of the shares of the Artrona Group for $900,000 and related legal and stamp duty costs, plus working capital requirements for the operation of the group.

23 On 18 November 1991, there was prepared within the Western Zone a document containing what is probably best described as a short critique of the application of 11 November 1991 received from the Five Dock branch. Endorsed on that are handwritten comments which, having regard to the signature at the foot of those comments and the identified signature on a letter of 3 December 1991 to be mentioned presently, are comments of Mr Havron, deputy regional manager of the relevant region of the Western Zone.

24 On 26 November 1991, there was received at the Five Dock branch a memorandum from Mr Havron referring to a conversation he had had with Mr Walker, manager of that branch, confirming that “we hold some reservations with the proposal as submitted”. The memorandum continued:

“It is obvious that the Group requires an immediate injection of capital from an equity partner, not borrowed capital to replace liabilities which have, to date, been interest free.”

The memorandum also said that the Western Zone would “prefer to allow the business to pass” but, without commitment, would be prepared to consider it further on certain conditions which were then stated. One of the conditions was:

“Presentation of audited financial statements or investigation of proposal by CDB I/A at applicants cost”.

(“CDB I/A” means “Commonwealth Development Bank investigating accountant”.)

25 On the same day, 26 November 1991, Mr Walker wrote a letter to Mr and Mrs Timms informing them of the Western Zone’s decision and repeating, virtually verbatim, what was said in Mr Havron’s memorandum received that day. This letter was handed to Mr and Mrs Timms when they attended the branch at Five Dock on 26 November 1991. There is a record of that meeting (which was attended by Mr Walker and Mr Hart of the bank and Mr and Mrs Timms) in a diary note of Mr Hart of the same date. Accounts of what happened at the meeting differ significantly. Events at the meeting are of central importance to the Timms’ case and will be examined in detail in due course. At this point, however, it is convenient to set out Mr Hart’s diary note in full:

“DIARY NOTE – 26 NOVEMBER 1991
TIMMS B AND A
BDA INTERNATIONAL PTY LIMITED
RE: PURCHASE EQUITY ARTRONA GROUP
Mr and Mrs Timms called today by appointment and were interviewed by Manager in the presence of the writer.
They were provided with a letter which advised the CBA’s preference to allow the writing of the business to pass, mainly in view of the reservations in relation to the introduction of borrowed capital to the venture together with the funding of the buy-back in arrangement of existing Directors over a 5 year period which is to provide principal reduction in facilities sought by applicants.
They were advised also that the Bank would, however, be prepared to reconsider the proposal, without commitment, further in view of:

· P & I servicing of total facility sought demonstrated over a 7 year term.

· Presentation of audited financial statements or investigation of proposal by CBD I/A at applicants’ cost.

· Payment of non-refundable up front fee.

· Full projection of income from applicants from outside consultancy over next 12 months.

· Evidence of contract/buy back agreement.

All points were discussed in detail by Mr. Walker and it is the intention of applicants to pursue the matter further.
They advised that their accountants had received in the past week financial statements for the past 3 years which have been submitted to ATO and copies of these would be provided.
Mr Timms would project consultancy income so that P & I can be further investigated. Additionally, the contract/buy back in agreement together with a service agreement for the existing Directors are in draft form and held by applicants’ solicitors.
Copies will be delivered this coming week.
To reiterate, Mr. Walker clearly discussed the Bank’s current lending criteria and all points raised.
Mr. And Mrs. Timms advised that they would return when the additional information was to hand.
(sgd)
M G HART
Assistant Manager, Loans”

26 On 28 November 1991, Mr Timms wrote a letter to Mr Walker expressing dissatisfaction with the bank’s attitude to the loan application and, after discussing various aspects, requesting a meeting with the area management responsible for the decision so that he might “speedily resolve this matter for once and for all”. The letter should be quoted in full:

“I refer to your letter dated 26 November and our discussions in your office on the same date regarding our application for an advance to assist with the purchase of the businesses “Artrona” and “2001 Interiors”.
In order to cover the first point in your letter, an understanding of some of our personal goals is required. We have always planned our personal affairs, in a macro sense, over both a 5 and 10 year time horizon. Our current plan calls for, among other things, the disposal of our existing residence in about five years time when our youngest son leaves high school and the need for such a large house is diminished. On current values and taking no account of any capital appreciation over the next five years whatsoever, we could reasonably expect to realise around $3 million from the sale, less repayment of the mortgage and an allowance for agent’s fees and marketing costs, leaving a net balance of around $2.6 million. We plan to use $1 million of the available balance to purchase an apartment, leaving an overall balance of around $1.5 million which is more than enough to meet the repayment of the principal of the loan irrespective of whether the Wheelers proceed with their agreed equity re-purchase or not. On top of this, it is quite clear from the projected cash-flow which was provided with our application that sufficient excess funds are generated by the business to cover capital repayments should this be necessary.
The second point in your letter covers the issue of the provision of even more financial data than has already been provided by us or is readily available to the Bank. We are advised by the vendor that in 1990 the Bank commissioned a firm of chartered accountants to undertake a report on the viability of the business and that in 1989 an internal audit was performed by an Investigating Accountant from the Development Bank. We fail to see what more useful information we can add to the Bank’s already not inconsiderable amount of financial data on the affairs of the companies in question.
In the light of our good standing as a long-term customer of the Bank we do not feel that the Bank can reasonably justify the imposition of a non-refundable up-front fee in order to consider the request further.
We expect a minimum consulting revenue of around $100,000 (117 days @ $850 per day) for the calendar year 1992.
For your information we have enclosed copies of the draft service and share purchase agreements.
We feel that the Bank has, once again, procrastinated unduly on this matter. It is timely to remind you of the value of us as customers of the Bank and to also point out the considerable value which a business the size of Artrona represents today and will represent in future as it expands both nationally and internationally. In view of our long relationship with the Bank and, hopefully, our good standing, we have not sought, at this stage, to obtain the funds elsewhere. However, our patience is at an end, and we must have a resolution on this matter within one week.
We believe that we have offered more than ample security and that the business is extremely sound. We also believe that the Bank agrees with both these assertions. We therefore request a meeting with the area management responsible for the decision so that we may speedily resolve this matter for once and for all.
I look forward to your prompt reply.”

27 On 3 December 1991, a memorandum was sent by the Five Dock branch to the Western Zone reporting the meeting with Mr and Mrs Timms and receipt of Mr Timms’ letter of 28 November 1991. A copy of that letter was attached to the memorandum which went on to discuss and analyse various aspects of the matter, concluding with the comment that Mr and Mrs Timms had requested a meeting with appropriate regional personnel.

28 There was apparently a telephone conversation between Mr Havron (Western Zone) and Mr Hart (Five Dock branch) on 3 December 1991. It is referred to in the first paragraph of a memorandum of 3 December sent by Mr Havron to Mr Hart and, in view of the fact that it also refers to Mr Hart’s memorandum of the same date, it may be inferred that the telephone conversation also took place on 3 December 1991. The memorandum from Mr Havron said:

“As discussed, and against the background of additional information provided to us, we have approved accommodation of $970,000 generally on basis submitted and subject to …”

There followed certain conditions. These did not include any equivalent of the foreshadowed condition to the effect that the bank receive audited financial statements or “investigation of proposal by CDB I/A”.

29 By letter dated 10 December 1991 sent under the signature of Mr Walker, the Five Dock branch informed Mr and Mrs Timms that the bank had approved a finance package consisting of an overdraft facility of $20,000 to assist with working capital and a bill discount facility of $950,000 to assist purchase of 90% equity in the Artrona Group. Several conditions of approval were stated, including:

“Certification by Accountants Rosenfeld Kant & Company that financial statements provided for the Artrona Group for the years ended 30 June 1989, 30 June 1990 and 30 June 1991 provide a true and accurate account of the Group’s performance. Copies of the financial statements will be provided direct to Accountants.”

30 This condition was not referred to in any memorandum or instruction received by the Five Dock branch from the Western Zone. It did, however, reflect in substance a representation made by Mr Hart to the Western Zone in his memorandum of 3 December 1991:

“Accountant’s [sic] acting for Timms’ have stated that in their opinion (after their investigation) the statements of affairs represent a true and fair view of the Group’s performance.”

It may be inferred that this statement by Mr Hart to the Western Zone caused the zone to omit from the 3 December 1991 memorandum the foreshadowed condition (referred to in Mr Havron’s earlier memorandum) requiring presentation of audited financial statements or investigation by the Commonwealth Development Bank.

31 When the memorandum of 3 December 1991 was written by Mr Hart and sent to the Western Zone, the Timms’ accountant had not made to the bank any statement of the kind attributed to him by Mr Hart. Imposition by the bank’s letter to the Timms dated 10 December 1991 of a condition of approval in terms virtually identical with those of the representation previously made by Mr Hart to Western Zone therefore represented a means whereby Mr Hart sought to ensure that the position represented to Western Zone on 3 December 1991 would come to accord with the facts – or, in other words, to preserve the bank’s ability to ensure that the funds were not made available unless and until the bank had received from the Timms’ accountant the assurance that had been falsely represented by him in the branch’s memorandum of 3 December 1991 to be already in hand.

32 The bank’s letter of 10 December 1991 was given to Mr Timms and Mrs Timms at the Five Dock branch on or about 12 December 1991 by Mr Hart. On the same day Mr Hart telephoned Mr Rosenfeld to alert him to the need for certification of the kind described in the letter. On 12 December 1991, Mr Hart sent Mr Rosenfeld a fax as follows:

“We advise that the Commonwealth Bank has approved total facilities of $970,020 to the abovenamed to assist complete the purchase in the Artrona Group.
A condition of approval is the seeking of clarification from yourself that the Financial Data provided with the application represents a true & accurate account based on your own investigations of the Group’s performance over the period 30/6/89 to 30/6/91.
To assist we fax copies of Financial Statements provided in support of the Application.
Should you have an inquiries please contact Michael Hart on 712 1933.”

33 On 16 December 1991, Mr Rosenfeld sent a fax addressed to the Manager of the Five Dock branch and marked for Mr Hart’s attention in the following terms:

“ re Brian and Anastasia Timms
We refer to your facsimile of 12 December, 1991 regarding funds being borrowed by the abovenamed in order to complete the purchase of the Artrona Group. We would like to confirm that the initial financial information for Artrona Group covering period 30 June, 1989 to 30 June, 1991, upon which we advised our clients, is the same as the information attached to your facsimile. Please note that we have not carried out an audit of these accounts.”

34 Completion under the purchase contract dated 16 December 1991 took place on 12 March 1992. BDA International (owned by Mr Timms and Mrs Timms) borrowed $950,000 from the bank and on-lent some $760,000 to TW Holdings (owned 90% by Timms interests and 10% by the Wheelers) to enable it to complete the purchase. After completion, Mr Timms and Mrs Timms became the principal managers of the business. Within a short time, they developed concerns about its performance. They say that the first three weeks of operation under their ownership resulted in a cash deficit of more than $55,000. The Wheelers did not devote to the business the time and effort expected of them. Suppliers did not wish to deal with Mr Wheeler and would not extend credit to the business. In May 1992, the Timms approached the bank for further funding for working capital. In June, further funding of $650,000 was offered and accepted. The business continued to experience difficulties. Operations ceased in January 1994. TW Holdings subsequently passed into voluntary administration.

The claims of the Timms interests against the bank

35 By the third amended statement of claim, the Timms interests maintain several claims against the bank.

36 The first claim – the “good business claim” – relates to representations the Timms parties say were made by Mr Hart or Mr Walker or both at one or both of the two meetings Mr Timms and Mrs Timms attended at the Five Dock branch in November 1991, the first on an unidentified day early in the month and the second on 26 November. The Timms interests say that, in response to a request for advice made to the bank by Mr Timms and Mrs Timms, the bank made representations as set out in the third amended statement of claim. These were, in general terms, representations that the business was “good” or “profitable” or “viable” or some combination of those descriptions; moreover that the bank had assumed the role of an adviser to the Timms and accordingly owed them fiduciary duties. It is claimed that the making of the alleged representations by the bank entailed breach of fiduciary duty, negligent misstatement and conduct proscribed by s.52 of the Trade Practices Act 1974 (Cth), interpreted in the light of s.51A.

37 The second claim – the “non-disclosure claim” – arises from the bank’s silence in response to the statement in Mr Timms’ letter of 28 November 1991:

“We believe that we have offered more than ample security and that the business is extremely sound. We also believe that the Bank agrees with both these assertions.”

The allegation against the bank under this heading is that, at the relevant time, it knew that the business was not sound and, by failing to disabuse the Timms of their belief that the bank considered the business to be extremely sound, the bank engaged in conduct proscribed by s.52 of the Trade Practices Act .

38 The third claim – the “certification claim” – entails an allegation against the bank that it failed to obtain from Mr Rosenfeld the certification (or “clarification”) described in the bank’s letter of 10 December 1991, that is, a certification in the terms referred to at paragraph [32] above. The bank’s failure to obtain any such certification or “clarification” from Mr Rosenfeld (the content of his fax to the bank dated 16 December 1991 being in no sense of the relevant description) is said by the Timms interests to entail both breach of a duty of care in negligence owed to them by the bank and conduct on the bank’s part prohibited by s.52 of the Trade Practices Act.

39 The Timms interests further say, as part of each of the three complaints, that, if the bank had not made the alleged representations involved in the “good business claim” or had not remained silent in response to the part of Mr Timms’ letter at the centre of the “non-disclosure claim” or had informed the Timms interests that Mr Rosenfeld was not in a position to certify the accounts (or that the certification had not been received by the bank), they would not have purchased the business and consequently would not have taken up the financing facilities made available by the bank upon completion of the purchase on 12 March 1992.

The claims of the Timms interests against the accountants

40 The Timms interests sue the accountants upon causes of action based in contract and negligence. They allege a retainer to advise comprehensively on the proposed purchase of the business, with the accountants aware that the purchasing entity required return, in due course, of the purchase price, servicing of borrowings made to effect the purchase and a reasonable return on funds outlaid in the purchase and conduct of the business.

41 It is alleged against the accountants that they made certain positive representations about the business that were inaccurate and failed to take certain steps that they should have taken that would have caused them to appreciate that the representations were inaccurate. As a result, the Timms interests say, the accountants breached a duty of care owed by them and the terms of their contract of retainer.

The approach taken to the claims against the bank

42 Central to the issues in contention is the state of the bank’s knowledge about the condition of the Artrona business in the period leading up to 16 December 1991 when the Timms interests entered into the purchase contract. That matter will be addressed first since each of the “good business claim” and the “non-disclosure claim” become academic unless the bank is shown to have held a particular opinion as to the state of the business.

43 The next matter for investigation concerns steps taken by Mr and Mrs Timms to assess the business. This is relevant not only to questions of reliance (should those questions ultimately arise for decision) but also because of the light it will throw on the meaning and significance of other elements of the evidence.

44 Against the background provided by findings in relation to these two matters, it will then be appropriate to consider, and make findings in relation to, events at the meeting of 26 November 1991, that being the occasion on which the words at the root of the plaintiffs’ principal contentions in relation to the “good business claim” were allegedly spoken. A corresponding examination of events at the early November 1991 meeting will then be undertaken for the same reason.

45 The next step will be to examine the evidence and make findings relevant to the “non-disclosure claim” and the “certification claim”.

46 With findings complete in relation to all the matters just mentioned, it will be possible to address the claims based on a fiduciary duty allegedly owed by the bank.

The bank’s knowledge of the business

47 The plaintiffs introduced into evidence a number of documents from files kept by the bank at its Barrack Street branch, being the branch at which the accounts of the Wheeler interests (including Artrona and 2001 Interiors) were maintained. It will be recalled that one of the documents that came into the possession of officers at the Five Dock branch in response to their request to Barrack Street for information was a report by Deloitte Ross Tohmatsu dated 21 November 1990 in respect of the Artrona and 2001 Interior businesses. On 5 July 1991, Mr Carmont, manager of the Barrack Street branch, received from Deloitte Ross Tohmatsu a copy of a statutory demand that had been served by that firm on Artrona in respect of $7,410 unpaid professional fees. The fees related to the preparation of that report. The copy of the statutory demand was sent to Mr Carmont under cover of a letter dated 5 July 1991 saying that despite several promises made by Mr Wheeler to Deloitte Ross Tohmatsu, payment had not been forthcoming and the firm therefore had no option but to send the demand.

48 On 22 July 1991, Mr Carmont sent a memorandum to the bank’s Central Metropolitan Zone (which I shall call “Central Zone”) referring to the Artrona connection, the nature of the business, the background of Mr and Mrs Wheeler and the circumstances in which the bank had acquired the connection from the National Australia Bank in November 1987. At the request of the Central Zone, the memorandum provided additional information to enable the zone to consider the branch’s proposal of 31 May 1991 “for continuance and tolerance of position until end August 1991”. The memorandum went on to provide information, including the position in relation to arrangements with the Australian Taxation Office relating to arrears of company tax, sales tax and group tax, the position in relation to arrears on lease commitments to the bank’s finance company, CBFC, the position in relation to indebtedness to an unrelated building society and details of outstanding creditors as at 31 May 1991. The creditor details highlight creditors described as “pressing”, being those in respect of which payments were required within thirty days. The memorandum also detailed the order position and the possibility of the sale of Mrs Wheeler’s car and certain real estate on the Gold Coast with a view to debt reduction. Towards the end of the memorandum appeared the following paragraph:

“Clearly it is evident that both company and Wheeler are heavily committed and technically insolvent. A further aspect is the fact that Wheeler has advised that the months June through to August traditionally provide increased sales with the company accounts through to January proving the most expensive due to holidays and closure of factory provides little comfort for CBA over the longer term.”

49 The recommendation at the end of Mr Carmont’s memorandum was:

“As outlined in our memorandum dated 24 May 1991 i.e. should position not improve by end of August 91 its [sic] our recommendation that an Administrator or Receiver Manager be appointed.”

50 On 13 August 1991, Ms Saar, management assistant at the Barrack Street branch, prepared a diary note which began by reciting the general background set out in Mr Carmont’s memorandum of 22 July 1991 and went on to refer to events at a meeting that took place on 8 August 1991 and was attended by Mr Wheeler, Mrs Wheeler, Mr Carmont, Ms Saar, Mr Kapeleris (described as “assistant manager loans”), plus Mr Dean of Central Zone. According to the diary note, the meeting received information from Mr Wheeler about cash flow of the business and he was asked to prepare a cash flow budget for the financial year to 30 June 1992. The position with respect to creditors was discussed, as were the bank’s concerns about the Wheelers’ private debt levels and the short term operations of the business. The file note contains the following passage:

“The only major trade creditor, ‘E Astley And Sons’, continues to support business by allowing them favourable payment arrangements ie that when Artrona make a reduction by way of Bank Cheque, they are then allowed to redraw this amount to obtain leather for current production. Whilst Richard is confident that suppliers will continue arrangements, it is obvious that should their support be withdrawn it is unlikely business could continue to operate.
Customer believes that he is handling other creditors well, although by his own admission they are met on a cyclic basis – when one creditor becomes pressing, payment to them is made in preference to others.”

51 Ms Saar’s diary note of 13 August 1991 concludes:

“After the meeting, discussions then took place between Manager and Phil Dean, CMZ, regarding client’s request to allow some overdrawings until end of August. Whilst it was obvious that the Bank was reluctant to again allow debt to increase, even if only short term, it was acknowledged that this would allow customers to improve weekly Cash Flow by ensuring materials for week’s production are available earlier. Accordingly, it was agreed to acceded to customer’s request on the understanding that position would be reviewed from week to week and Richard was not to automatically assume that we would allow accounts to overdraw. This decision as relayed to client by telephone on 8/8/91.
In conclusion, until Cash Flow Budget, for current financial year, is received and assessed, no further decisions can be made as to what course of action the bank should take.
In the meantime, we would appear to have little option than to continue to closely monitor account. However, would consider it appropriate that we now request in writing that Cash Flow Budget be provided by 19/8/91 and confirm the above arrangement.”

52 Endorsed on this diary note of 13 August 1991 in handwriting are comments which appear to have been placed there by Mr Carmont. Insofar as presently relevant, they are as follows:

“The situation or arrangement with major creditor E. Astley & Son concerns me as their continued support is essential to ensure on going operations. Change of management/ownership or Bank pressure could easily change Astley’s attitude which would ‘sound the death nell [sic]’ for Artrona. Little we can do however but to assume that Astley’s indulgence will continue to be forthcoming.”

53 On 5 September 1991, Mr Cranston, deputy regional manager, Central Zone, sent a memorandum to the Barrack Street branch headed “Artrona Pty Limited and related accounts”. This apparently followed a telephone conversation between Mr Cranston and Mr Carmont. The memorandum begins:

“As you would be well aware we have been uncomfortable with this connection for some time with the decision to allow the company time to trade out of its difficulties being made following an investigation by Ian Struthers from Deloitte Ross Tohmatsu in November 1990.”

54 After referring to the bank’s disappointment that other creditors appeared to be receiving priority to the bank, Mr Cranston said that the bank should not be allowing overdrawings on the working account as advised in a memorandum from Mr Carmont. Mr Cranston then said:

“Under no circumstances are further cheques to be paid that would increase CBA’s exposure further and every effort is to be made to bring the account into order as proposed. The cash flow that was previously provided by Mr Wheeler is inaccurate as it indicated that the company should be currently cash flow positive which is obviously not the case. This would throw doubts on Mr Wheeler’s management ability.”

55 Mr Cranston went on to say that Central Zone had been contacted by CBFC collections and informed that unless a payment of $4,000 was made in respect of outstanding lease commitments by the end of the then current week, CBFC would be considering recovery action. In apparently rhetorical vein, Mr Cranston added:

“I wonder how many other pressing creditors are considering action?”

56 The memorandum concluded:

“As the position has now become critical and whilst not disagreeing that CBA needs to take some positive action, would you please contact Mr Wheeler and obtain the following information as a matter of urgency:

· Up to date position in respect of Sales/Payroll/Group Tax. Has any formal agreement been reached with the ATO? Copies of relative correspondence would be of assistance;

· Up to date list of creditors/debtors including ageing thereof. Details of any pressing creditors would also be of assistance. Perhaps an updated cash flow which shows the true position could also be sought; and

· The current amount of stock that is held in the Brookvale factory and Crows Nest and Gold Coast retail outlets.

Upon receipt of the above information we will further consider our position which may involve the appointment of an inspector under the provisions of CBA’s R/E/M.”

57 On 18 September 1991, Mr Carmont made a diary note following a conversation he stated to have taken place between him and Mr Cranston concerning payment of a wages cheque of approximately $11,000 on that day. Mr Carmont referred to a conversation he had had with Mr Wheeler in which Mr Carmont had informed Mr Wheeler that the provision of further funds for raw material purchases was “completely out of the question”, as the bank’s exposure was “far too high”. Mr Carmont reports Mr Wheeler as having replied that if he could not purchase raw materials he would not be able to finish essential work in progress and production would have to cease. The diary note continues:

“The situation has now reached an intolerable position and I cannot see the company having sufficient cash flow to pay wages and acquire sufficient raw materials to continue production. The only alternative available to the bank is to appoint an agent as a matter of urgency.”

58 On the same day, 18 September 1991, Mr Carmont signed and issued a number of related documents. They were demands upon Artrona, 2001 Interiors, Mr Wheeler and Mrs Wheeler for the payment of $186,228.24 and notices to Artrona and 2001 Interiors purporting to convert floating charges over assets into fixed charges. These latter documents also stated that the mortgagor was not at liberty to sell or dispose of or encumber any of its assets without the prior consent of the bank. The notices to Mr Wheeler and Mrs Wheeler expressly referred to the bank’s second mortgage over their home at Bayview.

59 On 20 September 1991, Deloitte Ross Tohmatsu sent a letter to the Barrack Street branch in which it reported the result of a further investigation of the affairs of Artrona undertaken at the request of the bank. The report discussed the Artrona group’s financial position in some detail. After referring to assets and liabilities, it stated that there existed an estimated shortfall in shareholders’ funds of $1,032,194. The following conclusions were stated:

“Given the level of current orders in place and the levels of WIP and the average gross margin being achieved on sales, if the bank wished to be substantially paid out then the following should be undertaken.
(i) as the appointment of an Agent for the Mortgagee in Possession is now doubtful as a means of avoiding the payment of group tax, the appointment of a Receiver and Manager over only the stocks and WIP would result in group tax not being paid and through the completion of orders in hand an amount of $138,000 is estimated to be realised after the payment of employee entitlements resulting in an estimated deficiency to the bank of $65,000 subject to the costs of the administration.
The Receiver and Manager would complete current orders on hand and realise finished goods. The appointment of a Receiver and Manager would achieve an estoppel re catch up payment for group tax, sales tax, payroll tax, etc which would maximise the cash available to the bank by 30 November 1991.
As an alternative the following could be considered:
(i) the Directors be given 21 days to organise the pay out of the Commonwealth Bank’s facility. The Directors have indicated that they have approached equity partners with the prospect of a partial sale taking place. If this pay out did not take place or satisfactory arrangements entered into then the Bank should appoint a Receiver Manager over the stocks and WIP. In this 21 day period Deloitte Ross Tohmatsu should review all cheque payments to ensure funds are not diverted i.e. make payments which would be to the Bank’s detriment.”

60 A diary note prepared by Ms Saar on 24 September 1991 refers to a meeting held the previous day at the Wheelers’ request and attended by Mr Wheeler, Mrs Wheeler, Mr Carmont, Ms Saar and Mr Chaston (the bank’s regional manager for Region E of Central Zone). After discussion of the then current position, Mr Chaston is reported as having said:

“… after the investigation of the business recently completed by Deloittes, that the bank feels that there are only three options now available:-
1. Refinancing of the debt by outside party.
2. Injection of capital.
3. Appointment of receiver.
On the information available, at this time Option 3 would seem the only realistic alternative.”

61 The file note says that Mr Wheeler then advised that upon receipt of the letters of demand the Wheelers had “commenced proceedings to sell the business” and were “to hold discussions with a ‘serious’ prospective purchaser on 24/9/91”. There is then a record of what Mr Wheeler is reported to have said about price and the state of negotiations. Mr Wheeler is also reported as saying that, should the forthcoming discussions not be conclusive, he was confident that he could obtain a 50% equity partner who would inject between $400,000 and $500,000 into the business. The file note continues:

“Mr Chaston advised that time was of the essence and whilst the Bank would be prepared to allow a stay of proceedings until after the meeting, we would have to be convinced at that time that a successful sale can be achieved within an acceptable time frame to prevent us from appointing Receiver Manager.”

62 The file note also contains the following paragraph:

“Meeting concluded on the understanding that Mr Wheeler was to contact Mr Carmont immediately after discussions with prospective purchaser and the Bank will make a further decision at that time.”

63 On 24 September 1991, Mr Chaston, the regional manager, prepared a memorandum which it appears was sent to the Barrack Street branch. He referred to the meeting on 23 September 1991 that was the subject of Ms Saar’s file note just mentioned. Among the statements in Mr Chaston’s memorandum are the following:

“CBA’s position was clearly put to the directors and it was emphasised that time for the company was running out quickly.”
“We have agreed to stay our hand for a few days only because the directors are going to meet a prospective purchaser of the business at 10.30 am 24 September 1991. According to director, Richard Wheeler, the prospective purchaser is ‘cashed up’ and the discussion will revolve around a purchase price of $1.25m. Wheeler is however, prepared to negotiate to $800,000!!”
“If this deal evaporates, Wheeler claims to have someone else interested in a 50% acquisition for $400,000/$300,000.”

64 Towards the end of the memorandum Mr Chaston recorded:

“There is no doubt that issue of Demand has had a salutary effect on the directors who seem to be making every possible endeavour to sort out the mess they are in. I have reservations that they can bring off a sale in an acceptable timeframe. We will wait and see what happens over the next five days, say, but I believe we may be delaying the inevitable.”

65 On 25 September 1991, Mr Carmont made a diary note of a telephone call received by him on that morning from Mr Wheeler to report the outcome of discussions held the previous afternoon and evening (24 September 1991) concerning possible sale of the business. In that diary note, the “prospective purchaser” is named as “Brian W Timms and his wife, who is principal shareholder in B.D.A. International Pty Limited a family company, which banks CBA Five Dock”. The diary note continues:

“Enquiries with manager (Greg Walker) and AML (Mike Hart) CBA Five Dock reveals that the connection is well and favourably known at the branch. Brian Timms is a computer consultant who has been engaged by our EDP Department over the past 6 years, and is well known to senior executives of the Bank.
Five Dock branch executive is aware that Timms is looking to buy a business apparently for his wife. Only 3 weeks ago the branch was approached for a loan of $500,000 to set up a new agency for the importation of sports gear. In the absence of historical trading data the application was declined but referred to CDB for their consideration.
Whilst Timms has not broached with the Bank the prospect of buying Artrona, he does have the necessary credibility to be given a serious hearing and would have sufficient freehold security to support borrowings of $1.25M. Naturally the branch would need to establish repayment capacity.
We feel therefore that Wheeler is serious about selling the business and certainly has a credible prospective purchaser. Letter from Wheelers’ solicitor Anthony Sunman & Co, is attached setting out basically what has been reported in this memorandum. He has been informed that agreement on the sale must be reached as a matter of urgency for the Bank not to proceed.
To facilitate orderly and meaningful negotiations it is recommended that a stay of proceeding be granted to say 5 pm Monday 30 September. In the meantime account is being monitored daily and only essential cheques relating to production and distribution are being paid.”

66 On 1 October 1991, Mr Carmont sent to Central Metropolitan Zone, Region E, a memorandum which began by setting out some matters of history relating to the Wheeler/Artrona connection and continued:

“Further to our telephone conversation of 30/9/91 Kapeleris/Cheston. We attach copy of letter received from Mr Wheeler in respect to the proposed sale of his business (copy of letter faxed to your office 30/9/91).
Mr Wheeler called by appointment to discuss content of letter referred to above with Manager, and according to Wheeler negotiations are progressing in a positive light, however under a different scenario than original advised.
During discussions 24/9/91, Wheeler advised that proceedings had commenced to sell the business at a negotiable price of $1.25M (Wheeler was prepared to accept 800k). However, you will note from contents of letter received that a 50% equity sale is now being considered by B.D.A. International Pty Ltd for reasons outlined in the attached letter.
According to Wheeler at this point in time a price has not been mentioned or set but he expects a minimum of 400k which will be utilised to repay CBA debt and condition some creditors.
Wheeler was advised that time was of the essence and we would need solid evidence that sale can be achieved within an acceptable time frame. In this regard Wheeler mentioned that a further meeting is to be held this week with principals of B.D.A International to discuss formalities and sale price and expects to be in a position within 10 days to provide CBA with solid evidence of sale.
It was once again pointed out to Wheeler that the position was critical and whilst hesitant Manager agreed to stay our hand for a maximum of 10 days. However, the latitude allowed on this occasion will not be permitted to continue and the Bank’s recovery action will be reinstated to full effect.
Matter is under constant daily follow-up and you will be kept informed of developments as they occur.”

15. Accordingly, the Bank is precluded from claiming interest in respect of the advances on and from 19 January, 1998.”

232 The bank says that the plaintiffs’ case in this respect misconceives the role of the Dobbs clauses. The bank does not seek to base its case on the statements pursuant to those clauses or to assert any claim by reference to those statements. It bases its case on the entitlements created by the several contracts, the Dobbs clauses and the statements pursuant to them being merely evidentiary aids. Furthermore, the way in which the “shadow ledger issue” is articulated by the plaintiffs rests, as the bank emphasises, upon the common law doctrine of election which has as its basis the notion that someone in whom a choice of inconsistent legal rights is vested is not permitted to proceed first by enforcing one and then by purporting to enforce the other. A relevant statement of principle appears in the judgment of Mason J in Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 656:

“A person confronted with a choice between the exercise of alternative and inconsistent rights is not bound to elect at once. He may keep the question open, so long as he does not affirm the contract or continuance of the estate and so long as the delay does not cause prejudice to the other side. An election takes place when the conduct of the party is such that it would be justifiable only if an election had been made one way or the other ( Tropical Traders Ltd. v. Goonan ). So, words or conduct which do not constitute the exercise of a right conferred by or under a contract and merely involve a recognition of the contract may not amount to an election to affirm the contract.”

233 An example of the working of the principle appears in a passage in the judgment of Meagher JA in the Court of Appeal, referred to by Deane, Toohey, Gaudron and McHugh JJ, in Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 39:

“On 26 June 1989 [Immer] could have taken one of three courses: it could have rescinded the deed, but it did not do that; it could have done nothing at all, in which case its contractual right of rescission would have survived; or it could have taken the course, inconsistent with the first of those courses, of keeping the deed on foot. It chose the third course.”

The bank says that no doctrine of election has operated to its detriment in this case: in the first place, it did not “elect”; and, second, any “election” was not communicated.

234 In my opinion, the bank did not, in any relevant sense, “elect” when it delivered to Mrs Timms, upon request made by her at the Paddington branch, the several statements reflecting write-off of interest and fees (with consequent significant reduction in debit balance on each relevant account) and cessation of interest accrual on each account at a date in late 1997 or early 1998. Such delivery did not, in reality, represent the making of a choice between two different rights each so inconsistent and incompatible with the other that the two could not co-exist. The Timms interests describe the alternative and inconsistent rights as a right to full and faithful performance of the contract and a right to some lesser performance. This is, to my mind, an incorrect characterization. So far as “right” is concerned, the bank only ever had, as against each of its customers, one relevant right, being a right to recover whatever was due and owing by the customer under the applicable contract between them. A person to whom $1.00 is due and owing does not have a right to sue for $1.00, a right to sue for 99 cents, a right to sue for 98 cents and so forth. He or she possesses the first of these rights only. The bank might, if it chose, have agreed upon some proper consideration to accept less than the full amount due and owing under its contracts with the Timms parties, at the same time foregoing its claim to the balance, so that, as a matter of contract, the right to the reduced sum came to replace the right to the original sum. But that is not what the bank did. At the most (and I am not really persuaded that this is the true effect of what it did), the bank represented to the particular customers that the amounts due and owing under the relevant contracts were less than they in reality were. Any such representation had no effect so far as the nature and extent of the bank’s right went.

235 I must say that, even viewing these matters from the perspective most favourable to the Timms interests, I do not see this as a case in which the doctrine of election operates against the bank in the way suggested. As elucidated in the speech by Lord Atkin in United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 29-31, that doctrine precludes the alternative course of action when some conclusive step securing one outcome is taken in a way that is incompatible with attainment of the alternative outcome. An example is where a breach of contract causes to arise in one party a right to terminate for that breach or to continue performance and sue for damages. In such a case, the point of no return comes when the wronged party chooses one fork in the road by terminating or takes the other fork by tendering further performance consistent with the continuation of the contract, seeking in some way to rely on the contract or suing for damages. Once the particular conclusive step is taken, the alternative road becomes barred. A unilateral statement of intention to sue for a sum smaller than that to which there is a contractual entitlement cannot of itself represent a decisive step of this kind.

236 It is, in any event, important to emphasise that where, as here, each of the supposedly available courses entails a right of action, the bar to which I have referred does not arise until one right of action has been pursued to judgment. It is not the bringing of one action rather than the other that operates as an election. It is the judgment in satisfaction of the right asserted in the first action that bars pursuit of the second right. This is made clear by the House of Lords’ decision in United Australia Ltd v Barclays Bank Ltd (above).

237 There will, of course, be occasions on which a creditor’s unilateral statement of intention to sue for a smaller sum than that contracted to be paid by the debtor will preclude action by the creditor inconsistent with the statement. This will be so where principles of estoppel operate. The difficulty for the plaintiffs in seeking to make a case of estoppel consistently with Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 and Commonwealth v Verwayen (1990) 170 CLR 394 is that such a claim will not succeed unless the claimant, relying on the unilateral statement made to him, has acted to his detriment. Here, there is no suggestion that the Timms parties acted in any way on the faith of, or by reference to, the information in the statements Mrs Timms obtained from the bank’s Paddington branch. It is presumably for that reason that no estoppel claim is advanced and the Timms interests confine themselves to the claim based on election.

238 By furnishing to Mrs Timms the three batches of documents she received at the Paddington branch, the bank did not take any step by way of asserting or enforcing a right that was inconsistent with continuation of the course upon which it had embarked by initiating proceedings 3054 of 1997. In those proceedings, it sued to recover sums due and owing in accordance with its contracts with its customers. It had not previously done anything depriving it of the ability, as against those parties, to pursue that course; nor did it do anything at a later time that had the effect of precluding it from continuing upon that course.

Disposition of proceedings

239 In proceedings 2644 of 1994, the claims of the plaintiffs in the third amended statement of claim will be dismissed and there will be judgment for the first defendant and the third defendants. In proceedings 3054 of 1997, there will be judgments and orders against the several defendants as claimed in paragraphs 1 to 5 of the summons filed on 21 May 1997 but with the sums for which money judgments are given being sums reflecting principal, interest and other moneys unpaid up to the date of judgment and with interest at contracted rates after judgment until paid.

240 There is no reason why costs should not follow the event in the usual way. The costs of the first defendant and the third defendants in proceedings 2644 of 1994 will be paid by the plaintiffs in those proceedings. The costs of the plaintiff in proceedings 3054 of 1997 will be paid by the defendants in those proceedings.

241 I direct that short minutes of orders giving effect to the above be filed by delivery to my Associate within 21 days.

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Last Modified: 02/27/2004