Supreme Court New South Wales

• Medium Neutral Citation: Bank of Western Australia v Lance Vincent Hodgkinson and Justin John Brown [2011] NSWSC 96
• Hearing dates: 21 and 22 February 2011
• Decision date: 01 March 2011
• Before: Einstein J

Decision

Verdict for the plaintiff

• Catchwords: Banking; Customer
• Legislation Cited: Bankruptcy Act 1966 (Cth); Fair Trading Act 1987 (NSW); Trade Practices Act 1974 (Cth)
• Cases Cited: Aneve Pty Ltd v Bank of Western Australia Ltd [2005] NSWCA 441; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] 162 CLR 549; Buckeridge v Mercantile Credits Ltd [1981] HCA 62; (1981) 147 CLR 654; Commonwealth of Australia v Verwayen (1990) 170 CLR 394; GE Capital Australia v Davis [2002] NSWSC 1146; (2002) 11 BPR 20,529; Hancock v Williams (1942) 42 SR (NSW) 252; Helton v Allen (1940) 63 CLR 691; [1940] ALR 298; Holme v Brunskill (1877) 3 QBD 495; Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (No.6) (2007) 63 ACSR 1; Moschi v Lep Air Services Ltd [1973] AC 331; Moukhayber v Camden Timber and Hardware Co Pty Ltd [2002] NSWCA 58; Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540; St George Bank Limited v Field [2007] NSWSC 902; State Bank of NSW v Vincent (unreported, Supreme Court of New South Wales, Giles J, 7 April 1995); State Bank of Victoria v Parry (1989) 7 ACLC 226; Watson v Foxman (1995) 49 NSWLR 315; Westpac Banking Corporation v Prelea (1992) 28 NSWLR 481
• Category: Procedural and other rulings
• Parties: Bank of Western Australia (plaintiff); Lance Vincent Hodgkinson (first defendant); Justin John Brown (second defendant)
• Representation: Counsel: Mr P Dowdy (plaintiff); Mr B Levet (second defendant); Solicitors: Henry Davis York (plaintiff); F Guitterez (second defendant)
• File Number(s): 2010/0067017

Judgment

The proceedings

1 The proceedings before the Court are brought by the Bank of Western Australia against Mr Justin John Brown.

2 The Bank's claim against Mr Brown is on his Guarantee dated on or about 4 February 2004 [being a guarantee of the indebtedness to the Bank of a property developing company, namely 282 Oxford Street Pty Limited (the Oxford Company)].

3 The first defendant, Mr Hodgkinson, has entered into a Part X arrangement under the Bankruptcy Act 1966 (Cth) and the Bank's claim is now only against Mr Brown.

4 Since the commencement of the proceeding the Oxford Company's relevant security property has been sold by the Bank and the debt reduced and the amount currently claimed against Mr Brown is the sum of $1,050,408.77.

The admissions by the defendant

5 All of the Bank's allegations and case have been admitted subject to the Statement of Cross-Claim.

The banks contentions

6 The Bank contends that the Statement of Cross-Claim raises no matters either factually or legally which would have the effect of denying to the Bank its rights and entitlement under Mr Brown's Guarantee.

The operative pleadings

7 The operative pleadings are following:-

(1) Summons filed 16 March 2010;

(2) Amended Commercial List Statement filed 29 March 2010;

(3) Further Amended Commercial List Response filed 1 September 2010;

(4) Statement of Cross-Claim filed 1 July 2010;

(5) Commercial List Cross-Claim Response filed 13 February 2010.

The nature of the second defendant's case

8 The second defendant's case was that he and the first cross claimant were at all material times guarantors pursuant to a loan agreement executed on 13 February 2004 and varied on four occasions between 13th February 2004 up to and including 26 July 2006.

9 He deposed to the essential case on which he based his cross-claim in the following terms :

(1) In October 2006 I was ready to start a new project (Orlando Project) and I went in search of funding. I approached Paul Smith of Balmain Commercial (the "Broker") who prepared my loan application.

(2) In October 2006, I met with Mr Mario Caleite of BankWest. At the meeting was Mario, Paul Smith and myself. The meeting was about the new loan and we discussed other BankWest matters.

(3) We met at the coffee shop in Gloucester Street, Sydney, next to the Cove apartment development. We had a general discussion regarding the market and mutual acquaintances.

Mario Caleite: So you and Paul have known each other for some time?

Justin Brown: Yes, his wife and I went to the same school and flatted in Cammeray for a number of years.

Paul Smith: Sam has some funny stories about you guys growing up.

Justin Brown: Yes, on that note I think we should discuss Orlando Avenue.

Mario Caleite: Paul has explained the development generally which in principal if you have the deposits for the presales and building contract in place it should be fine, when do you think you will settle?

Justin Brown: Targeting December.

Mario Caleite: You will be able to get everything in place?

Paul Smith: Browny is well on top of it with this project manager David Edelstein.

Justin Brown: David is ex-Walkers and Australand.

Mario Caleite: Yes, I know of him - that's fine. The other thing is what is the exposure you have with BankWest?

Justin Brown: I have a property down in Hawthorne which is an investment and my superannuation is also with you guys. I have had a few other things over the years. We did a building in Oxford Street which I sold my interests in to my partner, he operates his business in there called Hamptons.

Mario Caleite: That's Lance!!

Justin Brown: Hodgkinson.

Mario Caleite: Yes, I know that. He and Daniel have some other properties.

Justin Brown: Anyway, I'm out of it now and I don't have any guarantees to BankWest as far as I'm aware.

Mario Caleite: No worries, we do a check anyway and we'll let you know if there are any.

Paul Smith: Mario, are we able to issue indicative terms sheets?

Mario Caleite: Subject to everything we discussed being in order, that's fine. We then exchanged business cards.

Justin Brown: Could you ensure all correspondence gets through to this address? I've left Colliers and mail seems to go everywhere.

Mario Caleite: No worries. I will get our records changed.

(4) On or around 19 October 2006, I received an indicative funding proposal through BankWest. Exhibited hereto and marked with the letter 'E11' is a copy of that proposal.

(5) In late October 2006, I called Mario and had the following conversation:

Justin Brown: Hi Mario, it's Justin Brown.

Mario Caleite: Hi, did Paul pass on our indicative offer?

Justin Brown: Yes, that's fine, we will proceed. I just want to confirm my exposure to 282 Oxford Street is finished and guarantee's are extinguished? I am concerned that Lance hasn't paid me for handing over my share of the project and I want to make sure that you will be refinancing him.

Mario Caleite: That's my understanding.

Justin Brown: I want to make sure this is all wrapped up; I understand that Lance has put a second mortgage on the properties and I only want to be certain that BankWest have taken me off as guarantor.

Mario Caleite: That will be the bank's position as well, and will be checked before the formal offer is provided for Orlando. I'm working on that now.

Justin Brown: Thank you, I look forward to receiving it.

10 In short his essential case was that Mario Caleite on or about October of 2006 represented on the half of the bank that it was his understanding that the second defendant had been removed as guarantor in respect of the facility granted to 282 Oxford Street Pty Ltd and that the second defendant had no further involvement with that company or with Mr Hodgkinson as their businesses had separated.

11 Mr Levet, counsel appearing for the second defendant, accepted during final address that the second defendant's position ultimately depended wholly the Court's determination as between the version of events put forward by his client on the one hand and the version of events put by Mario Caleite on the other hand .

12 At the same time Mr Levet acknowledged that his client bore an onus in respect of the critical conversation. Mr Levet also readily acknowledged that if the Court was not satisfied that the assertion made by his client was responded to by Mario Caleite saying that he would do a check, the second defendant must fail and that section 52 of the Act could have no application.

13 Before going further it is convenient to set out some of the provisions of the relevant guarantee as well as some of the principles upon which the bank relies.

Guarantee Provisions

14 The Bank in its Amended Commercial List Statement refers to and pleads the terms of the Guarantee as if fully set forth therein (paragraph 7).

In particular, the Bank contends that Mr Brown has bargained away his rights pursuant to the terms of the Guarantee to make the complaints which he does in his Statement of Cross-Claim and further that in any event by the terms of the Guarantee he is precluded from raising any cross-claim against the Bank impeaching his liability under the Guarantee until he first pays the debt owing.

15 The bank then contends as follows :

(1) It is clear law, established by a long line of authorities, that a guarantor may bargain away his or her rights to complain about the conduct of the creditor having the benefit of the guarantee.

(2) The Bank in this connection relies on at least clauses 2.5, 8.1 (a), 12, 15.1, 16.4 and 16.14.

(3) A guarantee is but a species of contract and in Moschi v Lep Air Services Ltd [1973] AC 331 at 344 and 349 respectively Lords Reid and Diplock warned against the simple categorisation of a document as a guarantee and stated that the real question is the construction of the relevant agreement. Lord Diplock stated in that case at p. 349:

"Whether any particular contractual promise is to be classified as a guarantee so as to attract all or any of the legal consequences to which I have referred depends upon the words in which the parties have expressed the promise. Even the use of the word "guarantee" is not in itself conclusive. It is often used loosely in commercial dealings to mean an ordinary warranty. It is sometimes used to mis-describe what is in law a contract of indemnity and not of guarantee. Where the contractual promise can be correctly classified as a guarantee it is open to the parties expressly to exclude or vary any of their mutual rights or obligations which would otherwise result from its being classifiable as a guarantee. Every case must depend upon the true construction of the actual words in which the promise is expressed." (emphasis added.)

(4) In particular, by clauses 3.1 and 3.2 the Defendant has waived any right of set-off, combination or counter-claim as a defence to payment under the Guarantee. This is the type of waiver described by Mason CJ in Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 407:-

"Another category of waiver is one in which a person is prevented from asserting, in response to a claim against him, a particular defence or objection which would otherwise have been available. Here waiver is said to arise when the person agrees not to raise the particular defence or so conducts himself so as to be estopped from raising it. Kammins [1971 A.C. 850 at 883.]"

(5) Lord Diplock in Kammins in the passage above cited by Mason CJ had said:-

"The second type of waiver which debars a person from raising a particular defence to a claim against him, arises when he either agrees with the claimant not to raise that particular defence or so conducts himself as to be estopped from raising it."

(6) In Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654 the High Court considered and held valid a clause in a guarantee which precluded the guarantor from complaining of a deficiency in the realisation of secured assets due to failures or neglect or laches or mistakes of the creditor. Brennan J stated at 675:-

"The surety's entitlement is lost, however, if he bargains away his right to complain of the act which occasions the deficiency."

(7) In State Bank of Victoria v Parry (1989) 7 ACLC 226 Malcolm CJ followed the cases of O'Day and Buckeridge in concluding that the contents of duties of creditors to guarantors, whether at law or in equity, may be modified or circumscribed by the terms of the relevant guarantee. To likewise effect see the decision of Cole J in Westpac Banking Corporation v Prelea (1992) 28 NSWLR 481. In Westpac Banking Corporation v Matich (Giles CJ - Commercial Division - Unreported 21 November, 1997) it was held that a clause identical to that considered by Cole J in Westpac Banking Corporation v Prelea precluded the guarantor from raising a defence of estoppel by reason of the creditors alleged conduct.

(8) In State Bank of NSW v Vincent (No. 50283 of 1993, Commercial Division, 7 April 1995) Giles J (as he then was) having considered a number of authorities considering the issue of whether a guarantor had bargained away his right to complain that the creditor's conduct exacerbated, or prevented the lessening, of his liability, said as follows:-

"The principle is beyond doubt, the terms of the provisions vary and it is sufficient to remain with Buckeridge v Mercantile Credits Ltd . If there was a provision in Mr Vincent's guarantee similar to cl. 2 then even if the receiver wrongly paid costs in excess of the scale of party and party costs, and thus less money was paid to State Bank to reduce the indebtedness of Jeans One, Mr Vincent's liability was not thereby diminished."

(9) Jordan CJ in Hancock v Williams (1942) 42 SR (NSW) 252 at 256 said:

"The rights of the obligee and the liabilities of the guarantor are, however, not destroyed or reduced by anything which, according to the terms of the suretyship agreement, leaves the obligation still one which the guarantor has agreed to guarantee. Hence, if that agreement provides that the obligee may release co-guarantors, or may release securities taken for the guaranteed obligation, or may vary the terms of the obligation, the exercise by him of these rights does not affect the liability of the guarantor... And if the guarantor agrees that his liability is not to be diminished by negligence or default on the part of the obligee, he can claim no allowance in respect of any such neglect or default."

(10) Finally, McDougall J in another guarantee case said in St George Bank Limited v Field [2007] NSWSC 902 (8 August 2007) at paras 13 to 17 as follows:

"13 St George moved for summary judgment. Mr Rundle submitted that Mr Field should have a further opportunity to articulate a defence.

14 A consideration of this issue requires some reference to the terms of the deed of loan and guarantee. It is expressed to be an unconditional and irrevocable guarantee, payable on demand (cl 2.1). The guarantor must not delay payment for any reason (again, cl 2.1). Payment is required to be made in full (cl 3.1). The inference available from those provisions is made explicit by cl 3.2 which reads as follows:

3.2 Payment without deduction or set-off

Guaranteed Money must be paid in full without any deduction. The Guarantor waives all rights of set-off, combination or counterclaim in relation to payment of Guaranteed Money.

15 Clause 5.2.1 is also relevant. It makes it plain that the guarantor's liabilities and the rights of St George are not affected by a number of matters, including the granting of time, laches, acts omissions or mistakes, and anything else which might at law or in equity have the effect of breaching or discharging the guarantor's liability.

16 Further, there is a certification clause: cl 9.4. That is in the usual form, making a written statement conclusive evidence, except in the case of manifest error, of the amounts stated in it. Such a statement is in evidence. It certifies the liability of Mr Field to St George as at the date it was signed. There is no doubt that it was signed by someone authorised to do so under cl 9.2.

17 Against that background, it is therefore necessary to consider the issues that might be raised. I have set them out above. A number of those issues refer to conduct of St George, by its servants and agents, which has the effect of discharging the guarantee, or of relieving Mr Field of liability under it, or of making it unjust for St George to seek to enforce the guarantee. On the face of things, they are all rights that Mr Field has bargained away by the clauses of the guarantee to which I have referred. It is clear that the Courts will give effect to such a bargain: see Mason CJ in The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 407. In the particular context of a guarantee, see the decision of Brennan J in Buckeridge v Mercantile Credits Limited [1981] HCA 62; (1981) 147 CLR 654 at 675. To the extent that Mr Field wishes to raise those issues, they are issues that are foreclosed by the terms to which I have referred."

(11) Here Mr Brown has agreed to unconditionally and irrevocably pay the amount due under the Guarantee without delay for any reason and time being of the essence.

(12) Further, by clause 12.6 (e) Mr Brown has agreed to pay the debt owing under the Guarantee before he can raise any defence, set off or counter-claim against the Bank and the Court enforces such an agreement and provision. As Davies J said of almost identical provisions in Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540 (1 June 2010):-

"55 Those provisions of the present guarantee have the effect that the guarantors are obliged to pay the whole of the shortfall to the plaintiff and may not set off any claim or amount that they have or may have against the plaintiff. Clause 2.2 gives the guarantors ( sic : read "plaintiff's creditor") the right to release any security held for the debt but leaves unaffected the obligations of the guarantors in that regard. That would seem to me to embrace a sale at an undervalue.

56 Similarly, cl 2.5 refers to the plaintiff's rights under the guarantee even if the guarantors did not obtain an appropriate price for the sale of the land ("anything the lender does"). The plaintiff's liability in that regard would have to be determined at a later time. Similarly, cl 6.6 prevents any set off even if what the guarantors now claim can be regarded as a set off."

(13) Davies J in paras 52 and 53 of his said judgment in particular relied on the statement of the law of Bryson J in GE Capital Australia v Davis [2002] NSWSC 1146; (2002) 11 BPR 20,529 as follows:-

"52 Bryson J said at [19] that these clauses appeared to deal wholly or partly with the same subject and should be read together and complement each other. In considering the effect of those clauses on any rights the guarantors might have to cross-claim or set off, Bryson J said this:

[93] The effect of the obligations in cl.8.1 is that the guarantors were contractually bound to pay the amount of money owing by the debtor when it was demanded. It was a contract to make an amount of money available when it was demanded. It was not an element of the obligation that it was subject to or limited by any process of ascertaining whether the debtor should be allowed any credits or set-offs, in respect of the security or of any other matter. Irrespective of the existence of security, and irrespective of the state of progress of any attempt at realising the security, it was and remains the obligation of the guarantors to provide to GE Capital the money amount of the debtors' obligation. The provisions relating to suspension of the guarantor's rights including cl.8.1 give effect to the amplitude of this obligation, and remove the possibility that the guarantors might in any way compete with GE Capital in attempts to recover from the debtors. Clause 8.1 does not bar the guarantors from making any claims or enforcing any rights against either GE Capital or the debtors; it suspends those rights so long as the guaranteed money remains unpaid, and the suspension can be ended at once if the guarantors meet their contractual obligation and pay the amount of the guaranteed money. Once they do that, they can bring any proceedings they wish against GE Capital or against the debtors, notwithstanding cl.8.1; but the effect of cl.8.1, and of cl.8 generally, is that until they make that payment they are contractually bound to the proposition that they are not entitled to bring any claims or proceedings or to act in any of the manners referred to. The jurisdiction of the Court is not ousted in any respect, the rights of the guarantors are suspended but otherwise not impaired, and they can pursue their rights as they wish if they first comply with what the Guarantee and Indemnity makes their primary obligation.

[94] The guarantors' counsel contended and the plaintiff's counsel accepted that provisions of this kind are to be construed strictly against the interest of the plaintiff. Adopting this approach is significant if the language used yields an ambiguity, but not otherwise. ... The guarantors have unequivocally agreed to the effect that they will not make such claims as they now make in their cross-claim unless and until they have paid the whole of the guaranteed moneys, which they have not done.

(14) He then dealt with the submission that such clauses were against public policy and unenforceable or invalid because they created a negative restriction upon the right of a person to invoke the jurisdiction of the Court to determine a dispute. He considered a number of cases, noting that provisions in building and engineering contracts relating to progress payments can if appropriately expressed make progress payments payable without deduction for cross-claims and set-offs, and said that those provisions are enforced. He then said:

[97] The jurisdiction of Courts and the rights of parties to make claims before Courts are not conferred by contract and cannot be ousted by contract. However there is in my opinion no infringement of this principle where parties agree that in stated circumstances a particular sum of money will change hands without the opportunity at the same time to obtain judicial disposition of any other claim between them. In the contract of guarantee there is no infringement of the principle where parties agree to ensure that the guaranteed sum will be paid, and make this the more certain by postponing litigation raising any cross-claim or set-off.

[98] The effect in substance of the provisions of the guarantee including cl 8.1(a) is that there is no limit on the right to resort to the Courts if the guarantor first meets the obligation the protection of which is the primary purpose of the guarantee and indemnity, and pays the amount of the debt. It is well established in this area of the law that the guarantor can have recourse to securities given by a principal debtor to indemnify himself, but that he cannot do so until he has paid the whole debt. The validity of modifications of what would under the general law be the rights of guarantors is well established. These contractual provisions extend the ways in which the guarantors' remedies are postponed, and extend the creditor's freedom from competition in enforcement of its rights. The condition which must be fulfilled is directly related to the purposes of the agreement.

[99] In my opinion the operation of cl 8.1 and cll 9.1 and 9.2 of the Guarantee according to their terms is not contrary to any principle of law."

(15) To like effect McDougall J said in para 19 of the St George Bank (supra) case:-

"Again, the terms of the guarantee make it clear that matters of cross-claim are not to be relied upon by way of defence."

(16) In all these circumstances the alleged rule in Holme v Brunskill (1877) 3 Q.B.D. 495 is irrelevant and inapplicable. That case upheld the surety's defence to an action on an guarantee that he was discharged by a material variation of the contract between creditor and debtor. However, in Holme v Brunskill there were no clauses protecting the creditor as there are in Mr Brown's Guarantee. As Jordan CJ said in Hancock v Williams (supra) at 259, after having referred to the allegations in that case which were said to release the guarantor:

"In the latter event it might discharge the sureties: Holme v Brunskill . In either event, however, he had protected himself by the clause in the memorandum permitting him to do the acts which might affect or discharge the sureties...."

(17) As Deane J to the same effect points out in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] 162 CLR 549 at 570, a significant departure by the creditor from the terms of the contract of suretyship can only operate to preclude the existence or continued existence of the guarantor's liability:-

"...in the absence of agreement to the contrary".

(18) As noted above in paragraph 15 Giles J in Westpac Banking Corporation v Matich (21 November 1997) specifically held that the provisions of a guarantee such as are found in Mr Brown's Guarantee defeated Mrs Matich's attempt to raise an estoppel.

(19) Further, in considering and evaluating alleged misleading and deceptive conduct or conduct said to raise an estoppel it is important to remember the well known passage from the judgment of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318 - 319 which was cited with approval by McDougall J in Ingot v Macquarie (No.6) (2007) 63 ACSR 1 at 107 - 108 in the following terms:-

" The plaintiffs' case is that the Macquarie parties made representations at that meeting which were misleading or deceptive. It is in my view plain that, where representations are said to have been made orally, it is necessary to prove with some precision the words used. In Watson v Foxman (1995) 49 NSWLR 315, McLelland CJ in Eq said (at 318-19):

Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as "misleading") within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act ), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the Court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the Court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

Each element of the cause of action must be proved to the reasonable satisfaction of the Court, which means that the Court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not ... attained or established independently of the nature and consequence of the fact or facts to be proved" including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding": Helton v Allen (1940) 63 CLR 691 at 712 ; [1940] ALR 298.

Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act ), in the absence of some reliable contemporaneous record or other satisfactory corroboration.

16 His Honour's observations have received appellate approval: see Moukhayber v Camden Timber and Hardware Co Pty Ltd [2002] NSWCA 58 at [28] (Heydon JA, with whom Beazley and Santow JJA agreed), and Aneve Pty Ltd v Bank of Western Australia Ltd [2005] NSWCA 441 at [49] (Hodgson JA, with whom Santow and Bryson JJA agreed)."

17 Ultimately it has not been necessary for the Court to venture into a close examination of the relevant law for the reason that the factual dispute results in a finding rejecting the critical evidence put by the second defendant as the forefront of his case.

Factual Dispute

The credit of the material witnesses

The evidence given by the second defendant

18 The second defendant was exhaustively cross-examined. Much of that cross-examination concentrated upon aspects of his commercial dealings, commencing with his accepting that he regards himself as a commercially competent and experienced man of business.

19 He was then taken in detail to a number of commercial dealings in which he had participated whether by himself or in association with others including his wife. He accepted that his habit as a property developer when he wanted to do a development, involved his utilising a special purpose vehicle most or a considerable part of his approach.

20 He accepted that as at October 2006 he was an experienced developer in his own right. On being shown the Guarantee upon which he is being presently sued and being asked whether he had signed that guarantee in front of a solicitor, his answer was "look I presume I did yes".

21 He was also shown the schedule to declaration dated for February and the similar declaration dated 29 April these guarantees being before the Court.

22 Somewhat curiously the second defendant gave evidence that although he knew that Mr Caleite had put on an affidavit in response to his affidavit he had never seen fit to read the affidavit. His explanation was simply that he had not been given a copy and that he believed that his own version of the conversation was correct. Even worse he accepted that he had given no instructions to his lawyers that Mr Caleite's version of events was untrue because he had not read that version of events.

23 His evidence was that he had said at the critical meeting that as far as he was aware he did not have any guarantees to Bank West in relation to Oxford Street.

24 He conceded that at this meeting on October 2006, no one from the Bank had given him any indication that he was no longer a guarantor for the Oxford Street Company.

25 One of the critical questions put to him suggested that he had never said to Mr Caleite that he wanted to confirm that his exposure to Oxford Street was finished. His answer was at first "I think I did" immediately following a further question asking him what he meant by saying he thought he did , the answer to that next question being "I did".

26 He accepted that he was unable to point to one single piece of paper where the Bank had said to him "you are released from the Oxford Street Company Guarantee'.

27 The cross-examination elicited that he was unable to point to one single, sensible commercial reason why the bank would release him from a guarantee for a maximum of up to $15 million otherwise than to state that he was no longer involved and that his understanding was that he was released.

The evidence of Ms Patrice McInerney

28 The cross-examination further treated with a number of e-mails forwarded by Ms Patrice McInerney, an employee of the Bank in December and November 2007 which reached the second defendant, making plain that under existing documentation the facility for Oxford Street was currently in arrears for interest and fees totalling approximately $40,000.

29 Her evidence included the following :

(1) I am currently a manager, Credit and Asset Management with the plaintiff (Bank) and I have held this position since in or about 2008 and have been employed with the Bank since 2006.

(2) I hold the degree of Bachelor of Business majoring in Accounting and Economics from the Queensland University of Technology.

(3) I commenced working in the finance industry in or about 17 years ago and have held positions with State Bank NSW, Colonial and Commonwealth Bank of Australia prior to joining the Bank.

(4) During 2007 I was in the Commercial Banking Department of the Bank which primarily dealt with commercial lending transactions between $2 million and $20 million.

(5) In November 2007 I took over carriage of the Bank's loan facilities in connection with 282 Oxford Street Pty Ltd (Oxford Street) from Mark Germyn. I have held carriage of the matter since that time. At the same time I also took over the carriage of the Crown Street Development Pty Ltd (Crown Street) file.

(6) I say that when I take over the conduct of one of the Bank's loans from another bank officer that I have a practice of familiarising myself with the history of the loan, the amount of the loan, whether it is in arrears and the security the bank has for the loan including the guarantees and the parties connected to the facilities because I regard this as a necessity for me to do first before I start to manage the loan on behalf of the Bank.

(7) I recall that I did this when I took over the Oxford Street and Crown Street loan and I say that I saw that there were 2 guarantors for the Oxford Street loan being Lance Hodgkinson (Mr Hodgkinson) and Justin Brown (Mr Brown).

(8) I say that during the whole period since November 2007 I have always regarded Mr Hodgkinson and Mr Brown as continuing to be guarantors of the Oxford Street loan.

(9) At the time I took over the Oxford Street file in November 2007 it was out of order in that the interest and fees for November 2007 had not been paid and I sent an email concerning this to Paul Smith of Balmain Commercial. At pages 1to 2 of the Bundle is a copy of that email. I believe I probably spoke to Paul Smith on the phone before I sent the email but I cannot remember definitely whether I did or the substance of the conversation. Also at this time the loan to Crown Street was out of order and I sought that the arrears on that account also be bought up to date.

(10) I believe that Paul Smith gave me Justin Brown's email address and in any event I sent an email to Mr Brown on 3 December 2007. At pages 3 to 4 of the Bundle is a copy of that email.

(11) Mr Brown replied to me on the same date and copied his response to Mr Hodgkinson who also then sent an email to me on that date.

(12) The loan account for Oxford Street was brought into order the next day, being 4 December 2007 and remained in order until approximately November 2008.

(13) Between 3 December 2007 and 4 December 2007 a series of emails were exchanged between Mr Hodgkinson and me which were copied to Mr Brown.

(14) I refer to paragraph 34 of Mr Brown's affidavit of 2 December 2010 and deny that in November or early December 2007 I ever spoke to a gentlemen by the name of Slavko Visevic and nobody told me or suggested to me at that time that Mr Brown's guarantee of Oxford Street had been removed.

(15) I refer to paragraph 37 of Mr Brown's affidavit and say that I only ever had one telephone conversation with him. I cannot now recall whether the conversation was on 3 December 2007 but it may have been and the subject matter of the call was the arrears the subject of the emails at pages 1 to 35 of the Bundle. I deny that I had the conversation with Mr Brown asserted in paragraph 37. I recall that he rang me and words to the following effect were said:

JB: "I have received your email, I am ringing to say that Lance Hodgkinson has agreed to be responsible for maintaining the Oxford Street account."

PM: "Well, that's fine as long as the arrears are brought up to date."

(16) I say that at no time did Mr Brown ever assert to me words to the effect that he had been removed or released as a guarantor of Oxford Street. I would have regarded it as a very serious matter if Mr Brown being a guarantor of Oxford Street had asserted that he had been released from his guarantee and I would have enquired of Mario Caliete if he was aware of any such release but I did not do so as it was not suggested to me that there had been any such release or that Mr Caliete knew.

30 There is real substance in the fact that although asking some limited questions of Ms Patrice McInerney in cross-examination, counsel appearing for the second defendant did not challenge the salient sections of her evidence. The Courts finding is that Ms Patrice McInerney was a witness of truth. She categorically denied having the extensive conversation with the second defendant to which he had deposed in paragraphs 37 of his affidavit. According to the second defendants affidavit the conversation had gone as follows :

Second defendant : my name is Justin Brown. I have just received an e-mail from you regarding 282 Oxford St.

Ms McInerney : yes, the account is in arrears as well as the Crown Street loan.

Second defendant : Firstly I have nothing to do with Crown Street. That's Lance and Daniel. Secondly, I sold out of 282 Oxford St over a year ago. Part of the agreement in the sale, and then confirmed by Mr Caleite, is that I was to be removed as a guarantor.

Ms McInerney : I see. There must be some misunderstanding. I will speak with Mr Caleite.

Second defendant : Please let me know if there is a problem. My understanding is that you established a new facility at the time the old one came to an end in February this year.

Ms McInerney : Yes, we have been working with land.

Second defendant : I'm really annoyed with Lance as he promised this was all sorted and I bought my shares, occupied the building and now I am told I have these issues.

Ms McInerney : No, there is obviously a misunderstanding.

Second defendant : Please fix it as I do not want to affect my relationship with bank West, nor the funding on Orlando Avenue.

Ms McInerney : I would look into it and speak with Mario. I will come back to you if there is a problem.

Second defendant : Okay. Please contact me here as I have moved homes.

Ms McInerney : Okay.

31 One of the telling answers given by the second defendant in his cross-examination is found in the transcript at page 52, the cross-examiner asking the following questions:

(1) What I am putting to you is that based on and assumed truth to your case and assertion that he had been released an e-mail message to Brown which you had had passed on to you and the direct e-mail from Ms McInerney cried out for you to assert to the bank that you were not a guarantor.

(2) The second defendants relevant answer was I responded in the way I thought I should thought in the e-mail.

(3) The next question was and why didn't you, if it was the case that you thought you had been released, why didn't you so assert that.

(4) The second defendants answer was "I can't answer that question".

The evidence given by Mr Caleite

32 The affidavit evidence of Mr Caleite included the following :

(5) I was employed by the Bank in or about January 2006 until April 2010.

(6) In July 2010 I became a partner in Balmain Commercial which is the largest non-bank originator and manager of commercial property loans in Australia.

(7) I hold the degree of Master of Property Development from the University of Technology Sydney and an Associate Diploma in Accounting from TAFE NSW. I started working in the Finance Industry with Commonwealth Bank of Australia ACN 123 123 123 (CBA) in 1995. I finished with CBA in May 1999. I then commenced employment with Suncorp-Metway Ltd ABN 66 010 831 722 (Suncorp) and became a Business Development Manager at Suncorp until December 2005. Whilst at Suncorp I became acquainted with Mr Paul Smith (Mr Smith) who I refer to below.

(8) On or about 12 October 2006, Mr Smith who by this time was a partner of Balmain Commercial sent me directly a credit submission (Credit Submission) in relation to an application by Kimped Pty Ltd ACN 121 475 590 (Kimped) for a loan for $2,415,000 to assist with the purchase and development of a property known as 26 Orlando Ave Mosman NSW (Orlando Avenue). At pages 1 to 12 of the Bundle is a copy of the Credit Submission obtained from the electronic records of the Bank. I say that, as it is likely, the hard copy file of the Bank in relation to this loan application has been destroyed because the loan was never proceeded with and in or about late 2009 or early 2010 there was a general clean out of non-proceeded with loan applications and they were put out in the blue bins for removal. However an electronic file in the name of Kimped remains on the Bank's computer file.

(9) I read the Credit Submission and saw that Mr Justin Brown (Mr Brown) who was said to be the sole director of Kimped had net assets of $31 million. I was aware at this time that Mr Smith was regularly Mr Brown's finance broker, although I had never met or had dealings with Mr Brown.

(10) I have a practice of always attempting to have a face to face meeting with a proposed borrower before coming to a conclusion of whether to recommend the loan. Accordingly, I rang Mr Smith probably sometime between 12 October 2006 and 19 October 2006 to arrange a meeting with Mr Brown and Mr Smith.

(11) I refer to paragraph 25 of Mr Brown's affidavit of 2 December 2010. I recall meeting Mr Brown and Mr Smith at the Bluestone Caf at the corner of Hunter Street and O'Connell Street, Sydney. I did not meet them at the Gloucester Caf supposedly next to the Cove Apartments development. I do not know where Gloucester Street is situated.

(12) The meeting commenced with some pleasantries and I recall some reference to Mr Brown and Mr Smith having known each other for some time. I recall general discussion about the Orlando Avenue proposed development and I recall Mr Brown saying words to the effect of:

"There's 100% presales - both dwellings are already sold."

(13) I then said words to Mr Brown to the effect of:

"I have noticed from the Credit Submission that your Group has exposure to the Bank at Hawthorne in Victoria and at 282 Oxford Street Bondi Junction. What are those loans for?"

He replied in words to the effect of:

"The Hawthorne property is an investment property of mine and that loan is with private banking. There is also the development at 282 Oxford Street which is being carried out by a special purpose vehicle, 282 Oxford Street Pty Ltd, in which I have a 50% shareholding but no guarantees."

(14) I deny that in this meeting there was any reference to or mention of Lance Hodgkinson or to a "Daniel". If that was meant to be a reference to Daniel Hausman I do not know that person and had never heard him spoken of. I deny saying anything at this meeting to the effect of checking to see if Mr Brown was a guarantor to the Bank. My recollection is that Mr Brown and I exchanged business cards.

(1) By letter dated 19 October 2006 I gave indicative terms for a proposed loan to Kimped via Mr Smith. At pages 13 to 23 of the Bundle is a copy of such letter. My recollection is that I received back a signed Mandate Agreement.

(2) Having considered the Credit Submission from Balmain Commercial I decided to recommend it and at pages 24 to 37 of the Bundle is a copy of my Credit Risk Submission dated 30 October 2006. My recommendation to accept the loan was approved by the Banks Credit Manager, Mr Martin Lee.

(3) I refer to paragraph 27 of Mr Brown's said affidavit and deny that the conversation or any part of it ever took place. I was not the Bank's manager in relation to the 282 Oxford Street development and it was not my role and I had no authority to make any statements concerning it nor did I have any authority or power to extinguish or release guarantees. Further I had no knowledge concerning the 282 Oxford Street development other than as set out in the Credit Submission and what I had been told by Mr Brown as stated in paragraph 10 above. At pages 38 to 51 of the Bundle is a copy of a formal letter of employment dated 1 December 2005 and my contract of employment with the Bank. I deny ever saying that it was my understanding that Mr Brown's guarantee was extinguished and that such was the Bank's position and that it would be checked before any formal offer for the proposed Orlando Avenue development was made. Rather, I accepted what Mr Brown had told me, namely, that he had not given any guarantee and was solely a 50% shareholder for the 282 Oxford Street development.

(4) At pages 52 to 103 of the Bundle is a copy of the original loan offer dated 1 November 2006 signed by Mr Brown and obtained by the Bank's solicitors on 20 December 2010.

(5) This loan did not proceed and was not drawn down because settlement as proposed for Orlando Avenue did not proceed.

(6) I refer to paragraph 37 of Mr Brown's said affidavit and say that neither in December 2007 or at any other time did I confirm or say to Mr Brown that he was removed as guarantor not at any time did Ms McInerney make any enquiry of me in relation to any removal of Mr Brown as a guarantor of the 282 Oxford Street development.

(7) I refer to paragraph 39 of Mr Brown's said affidavit and deny any such discussion with him in January 2008 or at any other time. I do agree that I had a second meeting with Mr Smith and Mr Brown. My best recollection is that it again was held at the Bluestone Caf and the topic of conversation was whether or not the Bank would be interested in assisting with the purchase and the development of the Marrickville RSL Club. I say there was no discussion at that meeting of anything to do with the 282 Oxford Street development.

The Courts credit finding in relation to the conflicting evidence of the second defendant as against that of Mr Caleite

33 I formed the clear view that the evidence given by the second defendant could not be relied upon. In particular this assessment is based upon the following matters :

(8) The e-mails sent by Ms McInerney cried out for the second defendant to ask why those e-mails were still being sent to him and to make clear that Mr Caleite had told him that he was no longer a guarantor as Mr Hodgkinson had bought him out.

(9) He was never able in cross-examination to explain in any fashion that could be accepted, why he had not put it to the bank that he had been released.

(10) It was an extraordinary circumstance in that he never bothered to read the affidavits in reply particularly that of Mr Caleite. I accept that this is a very telling circumstance showing the closing of his eyes. I accept that an honest man knowing that he would be tested in cross-examination would have been extremely interested in knowing what had been said by those who had put on affidavits against his case.

(11) Then there is the simple fact that his case was literally unbelievable when seen against acceptance that he had been a very successful business person over an extended period of time who accepted that through his business activities he knew the importance of writing and documentation in the recording of commercial transactions Indeed in 2008 he had been telling the bank that he had net assets of about $40 million which he accepted was correct.

34 In the cross-examination of Mr Caleite, the cross-examiner put to him that he had had previous dealings with Mr Hodgkinson, with a person called Lanse and with other persons associated with the second defendant. Mr Caleite denied each of these assertions.

35 Mr Caleite made quite clear under close examination that Mr Brown had told him that he was a 50% shareholder in 282 Oxford St. The relevant questions and answers elicited by the cross-examiner from Mr Caleite were as follows :

You have been told that if there was some degree of exposure or had been some degree of exposure as far as to 282 Oxford St was concerned?

Answer : Correct.

Question: Who told you that?

Answer: Mr Brown did.

Question: And what was it that you say he told you?

Answer: He was a 50% shareholder in that company or that exposure but there was no guarantees from him.

Question: Now if that was not a truthful situation, that would be a fairly silly thing to say to a lender wouldn't it?

Answer: I agree yes, correct.

Question: In the ordinary course of events, doing your duty diligence, you would or the bank would establish that he was in fact a guarantor of that property?

Answer: Correct.

Question: And if it had been discovered that he had told you something that was not true, you would not particularly favourably would you?

Answer: Not necessarily, sometimes one could have made a mistake, I would enquire back to the clients and say "Look, our systems tells us otherwise, what is the real situation".

36 The cross-examination of Mr Caleite elicited that there was a discussion between himself, the second defendant and Mr Smith. The cross-examiner suggested to Mr Caleite that Mr Brown had said words to the effect of "Any way I am out of it now and I don't have any guarantees to Bank West as far as I am aware".

37 The further answers given Mr Caleite to the cross-examiner included :

Question : He had told you that he had sold his interests to somebody else, his 50% didn't he?

Answer: I don't recall him saying that he had sold it.

Question: he told you that there weren't any guarantees at that point in time to Bank West from him?

Answer: I recall him saying he had a 50% shareholding and he hadn't provided a guarantee in particular to that loan, correct.

Question: You say you recall him saying that he had a 50% shareholding and that he had to provide a guarantee, is that what you just said?

Answer: No, I didn't say that.

Question: He told you about the shareholding?

Answer: Correct.

Question: I suggest that you were told by him that his guarantee had been extinguished-what do you say about that?

Answer: He didn't use those words. He said he was not guaranteeing that loan, he was only a 50% shareholder in it.

Question: Had there been any discussions about whether there ever had been a guarantee?

Answer: No.

Question: I suggested you in fact told him that you would check that before processing the Orlando Avenue application?

Answer: I deny that.

Question: I suggest there was a discussion by phone in late October 2006?

Answer: I deny that conversation.

38 Mr Caleite denied ever having any conversations with Mr Brown on the telephone.

Decision

39 Having had the benefit of seeing the material witnesses in the witness box I am satisfied on the balance of probabilities that the second defendant's claims that Mr Caleite had said during the important discussion, words to the effect "No worries, we do a check any way and we will let you know if there are any [meaning any extant guarantees to Bank West] was fabricated.

40 In those circumstances the second defendant's case requires to be dismissed.

41 Mr Brown is a very experienced and sophisticated man of commerce. He represented to the Bank in October 2006 that he had net assets of some $30 million. He gave his Guarantee in an exclusively commercial context in connection with a potential loan facility of $15.3 million relating to a 7 storey commercial office and retail building development and he received independent legal advice regarding the loan and security documents and he signed the Guarantee in front of his solicitor on or about 4 February 2004. The development failed and there is a residual debt. For the above reasons his contentions are rejected.

42 Suffice it to say that there is no plausible evidence that the Bank was guilty of any misleading or deceptive conduct or of any circumstances sufficient to ground an estoppel.

43 Nor is there any evidence of damage or detriment.

44 As the second defendant's counsel rightly submitted this ruling means that the mooted question of the application or not of section 78 b does not arise.

45 The plaintiff is directed to bring in short minutes of order on which occasion costs may be argued.

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Decision last updated: 02 March 2011