Re Morenita Proprietary Limited v Agc (Advances) Limited and Peter Walker [1986] FCA 339 (10 October 1986)

FEDERAL COURT OF AUSTRALIA

Re: MORENITA PROPRIETARY LIMITED
And: AGC (ADVANCES) LIMITED and PETER WALKER
No. G170 of 1986
Trade Practices - Contract

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Davies J.

CATCHWORDS

Trade Practices - s.52 - misleading or deceptive conduct - mortgage over hotel/motel as security for finance loan - alleged misrepresentation that plant and equipment could be subject to alternate lease finance

Contract - collateral contract - written loan contract - alleged oral collateral contract - inconsistent with terms of written agreement

Trade Practices Act 1974 (Cth) s.52

Companies Act 1981 (Cth) s.129

Heilbut, Symons & Co v Buckleton (1913) AC 30

Hoyt's Pty Limited v Spencer [1919] HCA 64; (1919) 27 CLR 133

Cutts v Buckley [1933] HCA 21; (1933) 49 CLR 189

Maybury v Atlantic Union Oil Company Limited [1953] HCA 89; (1953) 89 CLR 507

Gates v City Mutual Life Assurance Society Limited (1985) 63 ALR 600

HEARING

CANBERRA
10:10:1986

ORDER

There be judgment for the respondents with costs.

The interlocutory injunction be discharged.

Liberty be reserved to the parties to apply for any further or other order as may seem meet.

Note : Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

In this action, the applicant, Morenita Proprietary Limited, places reliance upon s.52 of the Trade Practices Act 1974 (Cth), upon principles of collateral contract and upon principles of estoppel. The applicant seeks an order varying security documents entered into between the applicant and the first respondent, an injunction restraining the carrying into effect of the appointment of the second respondent as receiver, an injunction restraining the enforcement of rights under the security documents prior to variation thereof and also damages.

2. The applicant is the proprietor of the Aspen Chalet, a hotel/motel at Jindabyne, New South Wales, which it purchased in 1984 for more than $1m. The Chalet was then in a run-down condition, the accommodation being virtually uninhabitable. Over the next 18 months, substantial renovations and improvements to the Chalet were effected. The Chalet became fully operational towards the end of the financial year ended 30 June 1985.

3. The applicant's net trading loss for the year ended 30 June 1984 was $295,385. Its net trading loss for the year ended 30 June 1985 was $446,030. In addition, it expended considerable money in up-grading the Chalet. As at 30 June 1984, it had non-current liabilities of $3,170,000 and a bank overdraft of $99,033. As at 30 June 1985, it had non-current liabilities of $3,525,000 and a bank overdraft of $540,107. Evidence was given that, of these liabilities, $3.9m was owed to the ANZ Bank Limited, financed principally by revolving bank bills, expensive finance.

4. There are three matters which suggest that, by July 1985, the applicant was anxious to obtain early substitute finance. First, the applicant was being pressured for payment by one of its creditors, Grosvenor Holdings. Secondly, the applicant had commenced banking with the Westpac Banking Corporation at Jindabyne, an indication that its relationship with the ANZ Bank had deteriorated. Thirdly, the applicant's financial arrangements with the ANZ Bank were to come up for re-negotiation in September 1985.

5. Accordingly, by August 1985, the applicant was seeking other finance on the security of the Aspen Chalet and a block of 6 home units at Homebush, New South Wales.

6. What happened thereafter is a matter of dispute. Mr N.H. Heath, Managing Director of the applicant, deposed to one set of facts, and Mr M.J. Wood, a major client manager in the Property Finance Division of the first respondent, AGC (Advances) Limited ("AGC"), deposed to another. Resolution of some of the issues of fact is difficult, as neither Mr P. Howard, who was a finance broker who advised and acted for the applicant, nor Mr A. Vereker, of Vereker and Partners, Solicitors for AGC, who played a part in some of the relevant discussions and correspondence, was called to give evidence. I may add that the absence of neither was explained. However, it is not necessary to resolve every dispute of fact raised by the evidence.

7. On 6 August 1985, Coopers & Lybrand, accountants for the applicant, wrote to Mr Heath enclosing a statement of his personal assets.

8. On 12 August 1985, Coopers & Lybrand wrote to AGC enclosing a balance sheet and accounts for the applicant for the year ended 30 June 1985, a projected cash flow for the applicant for the year ended 30 June 1986, a projected profit and loss statement for the year ended 30 June 1986 and directors' comments on projected trading results.

9. Valuations of the properties were forwarded to AGC on 9 September 1985. The valuation of the strata title townhouses at Homebush was dated 12 August 1985, made as a result of an inspection on 6 August 1985. Mr B.A. Shaw, valuer, assessed the return from that property at $41,400, capitalised this at the rate of 7.2% and arrived at a value of $575,000. The valuation of Aspen Chalet was based upon a capitalisation at the rate of 17.5% of a net income estimate for Aspen Chalet of $1,600,500. This estimate took into account both the projected cash flow prepared by Coopers & Lybrand and actual trading figures. The resultant value arrived at for the Aspen Chalet was $5,750,000. The valuation of the Aspen Chalet was dated 12 August 1985, made as a result of an inspection on 7 August 1985.

10. There are in evidence five documents, Exhibit No.5, which were produced from the custody of the applicant. The first two of these documents are documents written out by Mr Wood. The first document lists matters to be required in support of an application, namely,

bankers

description of both securities
resume of borrowers
directors
A & L from all directors
directors' personal details.

The document notes in respect of valuations "Coopers & Lybrand - all available". The second document is another document setting out details required of the Aspen Chalet and of the borrowing company. The other three documents are printed forms to be filled in presumably by the directors of the applicant. Mr Heath did not recall how all these documents had come into the applicant's hands. Mr Wood, on the other hand, said that he had had a short interview with Mr Heath in the offices of AGC and, in that conversation, he had informed Mr Heath of the information AGC would require. Nothing appears to turn on these documents.

11. Mr Heath gave evidence that, early in August 1985, he telephoned Mr Howard, the finance broker whom he had known for some years. Mr Heath said that he provided Mr Howard with information. Mr Heath gave this evidence:

"What did you provide to him?---There were balance
sheets, cash flow projections from the
accountants. Also a valuation was done."

Mr Heath said that subsequently Mr Howard telephoned him and arranged a luncheon at a restaurant in Pitt Street which took place late in August. He said that Mr Howard and Mr Wood attended the luncheon and that he had not previously met Mr Wood. Mr Heath said that he did not receive Mr Shaw's valuations until after the luncheon. He said, however, that Mr Howard had told him what the valuation would be. Mr Heath gave this evidence as to some of the conversation:

"I said to Mr Wood, 'I understand that you will
only lend to 65 per cent of valuation and that
would not be - on the valuation figures that would
not be enough for me to get by till the next
season'. That amount, 65 per cent, was
approximately 4.1 million.

.....

To whom did you say that, that it would not be
enough?--To Michael Wood.

What response to that did he make?---I asked him -
before he responded I asked him whether I could
have a second mortgage. He said, 'If you want to
go offshore you cannot have a second mortgage'.

Had you discussed whether you would borrow onshore
or offshore before that?---I had discussed that
with Howard.

.....

What did you say to that?---I said to him that I
wanted the option to go offshore because when I
felt the time was right, I did not want to get
involved in re-mortgage costs, which are quite
expensive, that this be part of the documentation.
That is when he mentioned that I could not have a
second mortgage if I wanted to go offshore.

What did you say?---I then asked, 'How about
leasing the plant and equipment?'. And he said,
'That would be the way to go about it'.

.....

On the topic of why you required additional
finance what was said, if anything, and by whom,
that is, by you or Mr Wood or both of you or by Mr
Howard, in your presence, or by Mr Wood, in your
presence, of course?---When I said to Mr Wood that
4.1 would not be enough, and after we discussed
the leasing, I did mention that I would probably
want about 350,000 on leasing.

Did Mr Wood make any response to that?---Not
really - not that I can recall."

12. This conversation was denied by Mr Wood in his evidence. Mr Wood said that a luncheon occurred after the loan was granted by AGC to the applicant and occurred by way of celebration of the event. He denied both lunching in a restaurant with Mr Heath prior to the granting of the loan, that Mr Heath had made it clear to him that he would need additional finance to get by until the next season and that he, Mr Wood, had agreed that that could be achieved by means of lease finance on the plant and equipment.

13. This is an important conversation for it is the basis for the allegation that AGC, by its employee, Mr Wood, misled the applicant with respect to the applicant's ability after obtaining the loan from AGC to subject its plant and equipment to lease finance, the allegation that there was a collateral contract between the applicant and AGC that the applicant could subject its plant and equipment to lease finance after obtaining a loan from AGC, and the allegation that AGC was thereby estopped from exercising its security over the Aspen Chalet.

14. No written application for a loan was lodged by the applicant but, on 3 September 1985, Mr Wood sent to his superiors a five-page proposal for a loan of $4.25m. The purpose of the loan was said to be as to $4m to repay the ANZ bills and overdraft and as to $.25m to purchase Mr Heath's mother's shareholding in the applicant company. In fact, it was the 50% shareholding of Mr Heath's aunt, Mrs Griffiths, who was co-director of the applicant, that Mr Heath intended to purchase. The proposal went on to say, "We have an excellent overall margin against two prime readily saleable securities". The proposal did not analyse the applicant's past results but said, "Trading results for the Aspen Chalet prior to 30/6/85 have no relationship to the current trading performance as the complex was only completed in April 1985." The proposal referred to Coopers & Lybrand's cash flow analysis and stated that the valuer estimated turnover/profit figures substantially above those of Coopers & Lybrand. The proposal referred to the estimated annual interest of $723,000 and said, "This figure will be adequately covered by the net trading profit of the Aspen Lodge for the year ended June 86". The proposal said the security was to be a registered first mortgage over the Aspen Chalet, a registered first mortgage over the Homebush property, a Bill of Sale and Charge over the licence, goodwill, fixtures, fittings and stock of the Aspen Chalet and a guarantee by Mr Heath. The proposal stated Mr Heath's net worth at $1.517m and did not disclose that, apart from his interest in the applicant company, Mr Heath's net worth was only $17,000.

15. On 16 September 1985, Mr Wood wrote on the letterhead of AGC to the applicant company confirming approval for a loan of $4,250,000 to be used to repay $4m to the ANZ Bank and as to $250,000 to purchase the shareholding in the applicant company. The security required was stated to be a registered mortgage over the Aspen Chalet, a registered mortgage over the Homebush property, a Bill of Sale and Charge over the licence, goodwill, fixtures, fittings and stock of the Aspen Chalet and a guarantee from the directors, including Mr Heath. The term of the loan was to be 36 months and the interest rate was 17.5% per annum. I need not detail other matters set out in the letter. At the foot of the letter was the line reading "We accept the above terms and conditions". There were lines for two signatures underneath that statement. Mr Heath and his aunt, Mrs Griffiths, both signed their approval on these lines and the letter containing their acceptance of the terms and conditions was returned to AGC.

16. A resolution of the Board of Directors of the applicant company, said to have been prepared by the applicant's solicitors, Messrs Allen, Allen & Hemsley, with respect to a meeting of the directors, Mr Heath and Mrs Griffiths, on 24 September 1985, records that the chairman had been advised of the loan and of the securities required including "4. A Deed of Charge charging the company's interest in the goodwill, hotelier's licence, fittings, fixtures and stock in trade of the company's business known as the Aspen Chalet Hotel/Motel situate at Jindabyne." The resolution records that the chairman tabled for inspection the security documents. It was resolved that the company enter into each of the security documents and that Mr Heath, as nominee of the applicant, be authorised to execute in favour of AGC a power of attorney enabling AGC to deal with the hotelier's licence in the event of default by the applicant.

17. Mr Heath gave evidence that, on about 25 September, he spoke to Mr P. Taylor, a leasing broker, and thereafter telephoned Mr Wood. Mr Heath gave this evidence as to the telephone conversation:

"Again using direct speech as best you can, and
trying to repeat as precisely as you can, what was
said by each person during that conversation?---I
started the conversation by saying to Wood, 'I
understand that you will not agree to a third
party company leasing. What is required?' Wood
indicated - - -

.....

Just tell us?---Wood said that he wanted
everything in Morenitas name. They did not want
another company involved.

.....

No, were you going to say something that you
remembered Mr Woods saying?---Yes, I remember Mr
Wood saying that he thought it would be the best
idea if, as there were three solicitors involved,
that the solicitors have something to do with it.

.....

Mr Wood had rejected the idea of a third party
company being the lessee. Is that correct? He
told you that?---Yes.

Had you said anything to him regarding what
arrangement, if any, you had been able to make or
you had been trying to make in respect of the
leasing of the plant and equipment?---Yes, I told
him that Peter Taylor was involved.

Did you tell him what Peter Taylor's involvement
was?---As leasing broker, yes.

Did you tell him what the state of the arrangement
was?---Yes, that Taylor was endeavouring to raise
the money.

Still dealing with this telephone conversation
between you and Mr Wood, was anything said
regarding the security that AGC would be
taking?---Yes, I did ask Mr Wood - - -

Just try to tell us what you said in direct
speech?---'What about the lien on the plant and
equipment?' Wood said to me, 'Look, I know you
are anxious to settle this so we can fix all this
up after settlement.'

What response did you make to that?---A positive
response. I said yes."

This conversation was also said to constitute a breach of s.52 of the Trade Practices Act 1974 (Cth), a collateral contract or a ground of estoppel.

18. Mr Wood denied that there was a conversation in these terms or that he was aware of a proposal for leasing finance.

19. Settlement occurred on 27 September 1985. $4.25m was lent to the applicant by AGC and the securities I have mentioned were executed.

20. I need not deal with all the events thereafter. Mr Heath gave evidence that he had the following conversation with Mr Wood about one week after settlement:

"What did you say?---'What about the lien on the
plant and equipment'?

Yes?---And Wood said to me that it would be better
if this was handled through their solicitors,
Verekers, as Vereker knew what their requirements
were and knew the legal implications much more
than he did.

Was anything said regarding leasing?---Yes.

What was said?---Mr Wood said that the leasing
should be handled by the solicitors and that would
save time.

Was there anything else in that conversation or is
that the substance of it?---That is the basis of
it."

Mr Heath also gave the following evidence with respect to a conversation he had with Mr Wood late in November after he had received the depreciation schedule relating to the plant and equipment:

"Did you contact him, call on him, telephone him?
What is the situation?---I telephoned him.

Again remembering the rules tell me what the
conversation was please?---I said to Mr Wood that
we had the printout and we were ready to proceed
and seeing we could not use the third party
company, what was to happen. Mr Wood told me that
it was not his field and to see Mr Vereker."

21. The $250,000 lent for the purpose of enabling Mr Heath to purchase his aunt's half share in the applicant had been put into the trust account of Vereker & Partners while consideration was given as to whether or not a loan for that purpose would breach s.129 of the Companies Act 1981 (Cth). As the cash returns of the applicant were not as large as had been anticipated, the applicant found difficulty in meeting the monthly payments of interest due to AGC. Accordingly, from time to time Mr Heath took monies from the fund standing to the applicant's credit at Vereker & Partners and used such funds to assist payment of the interest due. On 26 November 1985, a letter was typed out in Mr Howard's office and signed by Mr Heath. It read as follows:

"Further to our conversation today, could you
please request AGC Finances Ltd to release to the
company $25,000.00 of the monies held until the
leasing arrangements are complete.

Upon completion of the leases, the amount will be
made up to cover purchase of the shares in the
company."

On that letter was endorsed a note made on the same day by Mr Wood:

"Vereker to arrange release of funds."

22. On 27 November 1985, Mr Heath wrote to AGC as follows:

"I note that your company is currently holding
$200,000.00 on deposit pending my solicitors and
accountants producing evidence satisfactory to you
that the Companies (NSW) Code has been complied
with in respect of the purchase of my aunt's
interest in Morenita Pty Limited.

The purpose of this letter is to seek your consent
to the withdrawal of an amount of $25,000.00 from
the monies so held in order to enable the company
to meet certain commitments not associated with
the purchase of my aunt's share in the company, on
the understanding that I will return the sum of
$25,000.00 to you upon completion of leasing
arrangements which I currently have in hand and
which I expect to finalise within the next four
weeks."

On the same day, Vereker & Partners wrote to Mr Howard as follows:

"We refer to discussions with yourself concerning
the withdrawal of $25,000.00 from monies currently
held by us pending compliance with the Companies
(NSW) Code in respect of the purchase of Noel
Heath's aunt's share in Morenita Pty Limited.

On the basis of the matters set out in a letter
from Noel Heath to our client dated 27th November
1985 concerning the near completion of proposed
leasing arrangements our client has consented to
the payment to your client of $25,000.00 and a
bank cheque for this amount is enclosed herewith."

On 7 January 1986, Vereker & Partners sent to the applicant the balance of the monies retained on its behalf in the trust account.

23. Mr P.J. Taylor, the lease broker, gave evidence that he had been asked to assist in arranging a lease finance package to re-finance the monies owed to ANZ. He had a meeting with Mr Heath and with Coopers & Lybrand in early August 1985. He requested a copy of the depreciation schedule of equipment and fixtures and fittings at the Jindabyne property and also a balance sheet at 30 June 1985. Subsequently, he attended a meeting with Mr Heath and with Coopers & Lybrand on 20 September. Again, he requested a depreciation schedule, the schedule still not having been prepared. He received a depreciation schedule and balance sheet in late November. He submitted an application for leasing finance initially to Broadlands, a leasing company. The application was not successful and he subsequently submitted an application to Borg Warner.

24. Mr Taylor said that, on or about 25 or 26 November, Mr Vereker telephoned him and there was the following conversation:

"What did he say to you, materially what did he say
to you?---He said, 'I understand you are arranging
leasing finance for Mr Heath and Morenita'.

What did you say?---I said, 'Yes. I am awaiting
receipt of accounts for (sic) Mr Health's
accountant and I then will lodge an application'.

What did he say?---He asked me how I proposed to
arrange the leasing.

And you said?---I said, by way of sale, lease back
of plant, equipment and fixtures and fittings,
supported by collateral second mortgages behind
AGC, and it was my understanding that AGC had
consented, would consent to that leasing on that
basis.

What did Mr Vereker say?---He said that the
documentation could be done by way of deed of
postponement of the plant and equipment. I said,
'Yes, I suppose it can be done that way'.

Did you fully understand what he meant when he
said that?---Yes.

What did you say? Did you say anything else or
did he say anything else?---He asked me when the
approval might be forthcoming. I said I did not
have approval as yet and I could not say what
time, and until I received the documents from the
accountant I had to emphasise that I did not have
an approval as yet."

25. Mr Taylor said that approval for the finance was obtained in January 1986 from Borg Warner, that is to say, Borg Warner was prepared to acquire the plant and equipment and to lease it back for a 5-year term. There were to be monthly payments of $9,400 of the 10% residual payment to be made. Borg Warner was to pay $350,000 as the acquisition price of the plant and equipment (valued by Mr Shaw in February 1986 at $437,790). Conditions of the approval were that there be collateral second mortgages on Aspen Lodge and the Homebush properties, that there be a deed of postponement from AGC with respect to the furnishings and fittings and plant and equipment and that the first mortgage debt be limited to $4,250,000.

26. Approaches were made to AGC for its co-operation in this transaction. On 3 March 1986, Vereker & Partners wrote to Messrs Allen, Allen & Hemsley as follows:

"We write to confirm previous telephone advice that
our client is not prepared to consent to the
release from the existing Deed of Change in favour
of A.G.C. (Advances) Limited the chattels
described in the memorandum of Partial Discharge.
Our client is however prepared to allow :-

1. A second mortgage on title over the land
which A.G.C. (Advances) Limited has taken
first mortgage, and

2. A subsequent charge over the chattels owned
by Morenita Pty Limited."

27. Mr Heath gave this evidence of a conversation he had with Mr Wood on 6 March 1986:

"What did you say to him in that conversation on 6
March?---I said to Mr Wood, 'why can't this
leasing be completed? Is there any other
suggestion that you might have?' Mr Wood said to
me that he could not get it through upstairs.

Is that all that was said that you recall?---That
I recall, yes."

28. In his evidence, Mr Wood denied Mr Heath's evidence. He gave this evidence as to a conversation in February:

"Can I then ask you to go to the luncheon which you
think was in February? Was there any discussion
at that luncheon concerning the Morenita finance?
---Yes.

.....

Can you then tell his Honour the conversation?---
Mr Heath told me that - the name Borg-Warner was
mentioned. He told me he had been successful in
arranging a loan through Borg-Warner and he was in
a position to crystallise his earlier request for
our consent to take a charge behind our securities
on the various properties we held; and I told him
to contact Mr Vereker, our company solicitor,
regarding the arranging of the registration of the
second mortgage.

What was his answer to that?---He accepted that."

In cross-examination, Mr Wood gave this evidence:

"What did you understand by the words 'crystallize
his earlier request'?---His request to me to lodge
a second mortgage and a second charge behind our
securities.

Was that your word or his, 'crystallize'?---That
is my word.

That is your word. So he was, according to you,
to use your summary, saying something that led you
to interpret it as the crystallization of an
earlier transaction which had been discussed -
crystallization of a discussion?---I used the word
crystallized in regard to when an informal request
is made earlier. When the formal application is
made later, that is when I term it to be
crystallizing the original informal discussion."

29. As to the March conversation, Mr Wood said that there was a discussion as to the financial problems the applicant was having but no allegation was made that AGC had represented that it would release plant and equipment to allow further finance to be obtained by a sale and lease-back arrangement.

30. The applicant failed to make the interest payment of $66,428.08 due on 1 February 1986, and a payment of $74,578.77 due on 1 March 1986. On 7 March 1986, it was given notice that AGC proposed to exercise its power of sale under the mortgage over the Aspen Chalet unless payment was made.

31. Subsequently, there were discussions between Mr Heath and Mr R.J.M. MacDiarmid, the manager of New South Wales Property Finance for AGC. Mr MacDiarmid's diary note of 13 March 1986 recorded the following points:

"Noel Heath called today to see Marguerite Hewitt
and myself. The following points evolved:

1. Purchase of the building was in January,
1984, from a Receiver. The building was
incomplete at the time;

2. The building was completed June, 1984,
trading commenced July, 1984;

3. Trading through the Summer months was poor,
however, he believes that commencing May,
1986, weekly take will increase to about
$20,000 per week or $80,000 per month;

4. Now advertising on Perfect Match which he
believes will produce high bookings;

5. Easter is booked out;

6. For Winter bookings guests are required to
pay 30 days in advance;

7. Heath sought, to which we agreed, to send
details of our disbursements of settlement
to his Accountant, Coopers & Lybrand,
Liverpool. They are presently preparing
profit and loss statements for the year to
December 31, 1985 of which a copy will be
forwarded to us;

8. We told Heath that we were not prepared to
allow Borg Warner finance to take a
registered charge over the goods of the
building prior to ours, however, they are
welcome to take a subsequent charge;

9. Heath confirmed that the Homebush units had
been placed on the market and were expected
to sell for approximately $500,000 in one
line;

10. Heath believes he will be in a position to
make one payment by the end of April, 1986,
however, no further payments would be made
before May. I told him that we would
reconsider the position once we had received
Coopers & Lybrand's figures and would very
likely then travel to Jindabyne to inspect
the security and discuss the future with
him."

In April, Mr Heath had a further discussion with Mr MacDiarmid at the Aspen Chalet. With respect to these conversations, Mr Heath gave the following evidence:

"And that again was a meeting at which it would
have been entirely appropriate for you to have
said to Mr McDiarmid, 'AGC told us when the loan
was being arranged that the plant, etcetera, would
be released so we could raise additional finance,
but welched on that deal'?---I did tell Mr
McDiarmid that.

What I am suggesting is that you did not tell him
that at all?---I did tell Mr McDiarmid that.

What did you say to him?---I said to Mr McDiarmid.
I was embarrassed by this, because I was always
under the impression that AGC would agree to the
leasing of the equipment, because you only have to
have a look at the figures to see there is not
enough income in the off-season to sustain the
interest payments.

Is that all you said to Mr McDiarmid on that
subject?---Mr McDiarmid - - -

Is that all you said to Mr McDiarmid on that
subject?---Yes.

.....

Now, that was on - that meeting at Jindabyne was
on 17 April, I suggest. Can you agree with
that?---Yes, I believe it was a Wednesday or
Thursday.

But can you agree with that date, though, 17
April?---Yes.

What I suggest to you is that in the whole of that
meeting with Mr McDiarmid again nothing was said
by you to the effect that AGC was welching on what
I may, for shortness, call the lease-back
arrangement?---I cannot recall anything being said
at that meeting about leasing - apart from just
maybe a general reference. It was not discussed
in depth at all.

Might I suggest there was just no mention of
it?---I think I may have mentioned that - the
release of the plant and equipment to him.

You did not complain to Mr McDiarmid at that
meeting in Jindabyne, did you, that there was a
breach of some arrangement for the release of the
plant, etcetera?---As I said, there was no
in-depth discussion in Jindabyne."

In his evidence, Mr McDiarmid denied that there had been any mention of the leasing of the plant.

32. It is not necessary for me to discuss Mr Wood's evidence in detail, or, indeed, the evidence of Mr McDiarmid.

33. Amended points of claim filed on 10 June 1986 set out the following particulars:

(a) In or about August 1985 Mr Wood on behalf of
the first respondent, represented to Mr Noel
Heath on behalf of the applicant, that if
the applicant entered into the transaction
hereinafter referred to with the first
respondent, the first respondent would
release plant and equipment and fixtures and
fittings hereinafter referred to for the
purposes of permitting the applicant to
obtain further finance by way of a sale and
lease-back arrangement.

(b) The transaction in contemplation at the time
of the aforementioned representation was the
lending of 4.25 million dollars from the
first respondent to the applicant upon the
security of certain property of the
applicant located at premises known as Aspen
Chalet, Kosciusko Road, Jindabyne, New South
Wales.

(c) On or about 25 September 1985 Mr Wood on
behalf of the first respondent represented
to Mr Heath on behalf of the applicant that
subsequent to settlement of the
aforementioned transaction, the security
documents with regard thereto, could be
amended to delete reference to the
aforementioned plant and equipment and
fixtures and fittings so as to enable the
applicant to obtain further finance by the
sale or lease-back of the same.

(d) The aforementioned representations were
misleading and deceptive or likely to
mislead and deceive in that, inter alia, Mr
Wood did not intend that the first
respondent would so consent or if he did so
intend his intention lacked any, or any
adequate, foundation.

34. Those particulars were relied upon both in relation to the allegation of contravention of s.52 of the Trade Practices Act 1974 (Cth) and the allegation of breach of collateral contract. By reason of these breaches it was alleged that AGC was estopped from giving effect to its security until it had released the plant, equipment, fixtures and fittings for the purpose of permitting the applicant to obtain further finance.

35. As the applicant seeks to restrain AGC from exercising the rights conferred upon it under the security documents executed between the applicant and AGC, it is necessary that I should approach its claim with caution, whichever basis of claim be relied upon. The words of Lord Moulton in Heilbut, Symons & Co v Buckleton (1913) AC 30 at 47 are apposite. His Lordship said:

"... Such collateral contracts, the sole effect of
which is to vary or add to the terms of the
principal contract, are therefore viewed with
suspicion by the law. They must be proved
strictly. Not only the terms of such contracts
but the existence of an animus contrahendi on the
part of all the parties to them must be clearly
shewn. Any laxity on these points would enable
parties to escape from the full performance of the
obligations of contracts unquestionably entered
into by them and more especially would have the
effect of lessening the authority of written
contracts by making it possible to vary them by
suggesting the existence of verbal collateral
agreements relating to the same subject-matter."

Indeed, in relation to collateral contracts, Justices of the High Court have said that a collateral contract ought not to be relied upon if it is inconsistent with a written contract to which it is collateral. See Hoyt's Pty Limited v Spencer [1919] HCA 64; (1919) 27 CLR 133 at 139, 147-8; Cutts v Buckley [1933] HCA 21; (1933) 49 CLR 189 at 201; Maybury v Atlantic Union Oil Company Limited [1953] HCA 89; (1953) 89 CLR 507 at 518; Gates v City Mutual Life Assurance Society Limited (1985) 63 ALR 600 at 606.

36. The probabilities are strongly against the applicant's case.

37. A crucial question is whether AGC's letter to the applicant, dated 16 September 1985, which set out the terms and conditions upon which the loans would be granted, fairly set out the arrangement and the whole of the arrangement between AGC and the applicant as Mr Wood understood it to be.

38. Support for the view that it did comes from the fact that the letter was a formal letter, it was clear and comprehensive and it required acknowledgement by the two directors of the applicant. Support comes also from the fact that that acknowledgement was given, and that the minutes of the applicant, prepared by Messrs Allen, Allen & Hemsley, fully set out the nature of the transaction into which the applicant resolved to enter. That minute, like the letter of 16 September 1985, made no mention of an arrangement between Mr Heath and Mr Wood that AGC would release or postpone its securities to enable the applicant to obtain leasing finance.

39. I find it difficult to accept that Messrs Allen, Allen & Hemsley would have permitted the transaction to have proceeded in the way that it did had they understood that it had been arranged between Mr Heath and Mr Wood that AGC would release or suspend its securities to permit the applicant to obtain leasing finance. A transaction such as that which was proposed with Borg Warner was inconsistent both with the security documents which the applicant executed and also with the basis upon which the valuation of the property, the valuation by reference to which the loan was calculated, had been made. The valuation proceeded upon the value of Aspen Chalet as an on-going business. Clearly, the sale of the plant and equipment of the Aspen Chalet to a third party would affect this valuation.

40. There is no evidence of any letter sent by the applicant or Messrs Allen, Allen & Hemsley prior to the granting of the loan stating that the letter from AGC of 16 September 1985 did not set out the full arrangement between the parties or that there was an understanding that the applicant would be permitted to assign its plant and equipment to another party to enable the applicant to obtain further finance. I assume that no such letter was written. Nor is there any evidence that a letter complaining of breach by AGC of Mr Wood's undertaking to Mr Heath. Again I assume that if any letter favourable to the applicant had been written, it would have been tendered in evidence.

41. Nor is there any matter in the objective facts which leads me to the view that Mr Wood gave the assurance which is alleged. No such matter was mentioned in the proposal for finance which Mr Wood put to his superior. No such matter was mentioned in the letter of 16 September 1985. And, after the loan was granted, Mr Wood did not take an on-going interest in the affairs of the applicant. When problems of payment arose, they were dealt with by others in AGC, particularly Mr McDiarmid.

42. The lack of discussion between Mr Heath and Mr Wood with respect to the funds that would be necessary to enable the applicant to fund its activities throughout the year is a significant point. That matter does not appear to have been examined in depth nor does it appear that Mr Heath asked AGC itself to lend the additional $350,000. Mr Heath's evidence was that he understood that AGC would lend only a certain proportion of the valuation. If this were so, it seems improbable that he would have understood that AGC would not increase its loan by an additional $350,000 but would permit assets, vital to the security and of a value in excess of $350,000, to be assigned to a third party under a lease financing arrangement.

43. Moreover, the evidence given by Mr Heath does not satisfy me that Mr Wood ever turned his mind to or agreed to a lease finance proposal such as was contemplated with Borg Warner, namely, one which involved the assignment of plant and equipment.

44. The conversation at the restaurant in August, if it took place, did not take place in a business-like context, but over lunch at which, according to Mr Heath, he and Mr Wood first met. Even on Mr Heath's version of the event, the luncheon can have been no more than a means of introducing the two main participants and of enabling them to engage in introductory discussion. No application in writing had been made to AGC for funds and, although Mr Wood might have seen the Coopers & Lybrand material, he had not seen Mr Shaw's valuations. There is nothing in that conversation which leads me to think that either party was binding itself to a course of action or that the other party would have understood it to have done so.

45. Mr Heath's evidence as to the conversation on 25 September is clearly against the applicant's claim that Mr Wood undertook that AGC would release its securities so as to permit the implementation of a lease finance transaction having priority over AGC. As already set out, Mr Heath's evidence was that Mr Wood said that he wanted everything in Morenita's name, that he did not want another company involved and that he rejected the idea of a third party being the lessee (owner). Even if Mr Heath's evidence that the obtaining of lease finance was discussed in this conversation is accepted, I cannot draw from the evidence the conclusion that Mr Wood undertook that AGC would release its securities to enable the plant and equipment to be assigned to a lease financier. It appears to me that Mr Heath's evidence demonstrates the contrary, namely, that Mr Wood rejected that proposition and suggested that, if further finance was required, the three solicitors should get together to discuss how it ought to be obtained.

46. I have not discussed Mr Wood's evidence at length. Mr I.D.F. Callinan, QC, senior counsel for the applicant, properly criticised certain aspects of it. But even so, I am not left with the impression that Mr Wood was other than straightforward in his dealings with Mr Heath. Mr Wood's evidence does not assist the applicant to establish its case.

47. For the above reasons, I am not satisfied that Mr Wood undertook to Mr Heath that AGC would release its securities to enable leasing finance to be obtained. I am not able to resolve all the issues of fact raised by the evidence and it is not necessary that I do so. It may well be that Mr Heath at all times realised that the applicant would need additional finance but that Mr Wood, who presented an optimistic proposal to his superiors, did not. It may well be that Mr Heath was not fully aware of the technical aspects of the securities into which the applicant entered or the technical aspects of a lease financing arrangement such as that proposed with Borg Warner. And it may well be that Mr Heath and Mr Wood would both have benefitted in their knowledge if they had spent more time together examining the applicant's affairs. But this case does not turn upon observations such as these. The issue is whether AGC had undertaken through Mr Wood that it would release its securities to enable other finance to be obtained. It is sufficient that I am satisfied that it did not do so and that the letter from AGC to the applicant of 16 September 1985 and the security documents set out the whole of the arrangement between the applicant and AGC as Mr Wood understood it to be.

48. In these circumstances, there will be judgment for the respondents with costs. I shall order that the interlocutory injunction be discharged and I shall reserve liberty to the parties to apply for any further or other order as may seem meet.