Re Ec Capacitors Pty Ltd; Second Wall Pty Ltd; Robert Bruce Auld; Neil Patrick Mccormick; Susanne Esme Auld and Debra Lyn Mccormick v Australia and New Zealand Banking Group Ltd [1993] FCA 16 (4 February 1993)

FEDERAL COURT OF AUSTRALIA

Re: EC CAPACITORS PTY LTD; SECOND WALL PTY LTD; ROBERT BRUCE AULD; NEIL
PATRICK McCORMICK; SUSANNE ESME AULD and DEBRA LYN McCORMICK
And: AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD
No. V G297 of 1991
FED No. 17
Number of pages - 26
Trade Practices - Banking and Financial Institutions

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIAN DISTRICT REGISTRY
GENERAL DIVISION
Heerey J.(1)

CATCHWORDS

Trade Practices - Application to bank for working capital and leasing finance - whether assurance given by bank as to latter.

Banking and Financial Institutions - Application to bank for finance - whether duty of care or implied contractual term to advise generally in relation to applicants' proposed venture or as to availability of leasing finance.

Trade Practices Act 1974 (Cth) s.52

Ryan v Bank of New South Wales (1978) VR 555

Selangor United Rubber Estates Ltd v Cradock (No.3) (1968) 1 WLR 1555

Tai Hing Ltd v Liu Chong Hing Bank (1986) AC 80

HEARING

MELBOURNE
4:2:1993

Counsel for the applicant: Mr J.D. Elliott

Solicitor for the applicant: Baker and McKenzie

Counsel for the respondent: Mr R.C. Macaw QC with Mr D. Hyde

Solicitor for the respondent: Mills Oakley McKay

ORDER

1. The application be dismissed.

2. The applicants pay the respondent's costs of the application including reserved costs.

3. The cross claim be stood over for directions.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

DECISION

HEEREY J.(1) In the middle of 1990 the third and fourth applicants sought from the respondent Australia and New Zealand Banking Group Ltd (the bank) finance for the first applicant EC Capacitors Pty Ltd (the company) in the form of $2 million working capital and a $700,000 leasing facility. The bank provided the former, but not the latter. Subsequently the company failed. The third and fourth applicants say that the bank gave them an assurance that the leasing facility would be supplied, on the faith of which they entered into a commitment to purchase the company and provided security for the bank's advance over their homes. They say that the conduct of the bank constituted a contravention of s.52 of the Trade Practices Act 1974, a breach of a contract for the provision of the leasing finance, a breach of a duty of care owed to the applicants and unconscionable conduct.

2. By an order of Olney J made on 14 August 1992 questions of liability have been tried separately from and before the question of damages.

A Management Buyout
3. Prior to the transactions with which this case is concerned the company was called Ericsson Components Pty Ltd and was a wholly owned subsidiary of L M Ericsson A B of Sweden. The company manufactured capacitors which are devices used for the control of electrical energy in lighting and electric motors. The company also imported various lines of electronic components.

4. In 1985 the third applicant Robert Bruce Auld (Mr Auld) became Finance Controller and Company Secretary. In 1987 the fourth applicant Neil Patrick McCormick (Mr McCormick) was appointed Managing Director. For the first half of the 1980s the company had been running at a loss. L M Ericsson had wound down the manufacturing side of the business and concentrated on importing. However Mr Auld and Mr McCormick decided to reverse that trend and they were able to return the company to profits. By 1990, 60 per cent of the company's business was manufacturing and the remainder importing.

5. In 1990 L M Ericsson decided to withdraw from manufacturing of the type carried on by the company. It offered Mr Auld and Mr McCormick the opportunity to purchase the company for $2 million. This was an attractive price since it was little more than the value of the net tangible assets of the company. Further, L M Ericsson were prepared to accept payment of the purchase price by instalments over three years without interest and would only require a lien over the shares in the company as security. The transaction was to be an amicable one. L M Ericsson would assist and co-operate with the company under its new management and continue distribution and agency agreements.

6. The proposition was, understandably, seen by Mr Auld and Mr McCormick as a good one and they were keen to accept it. However it would appear they had no significant capital reserves of their own. Even though the purchase price was deferred they would need funds for working capital. Moreover, they saw the future of the company as lying primarily in the development of export markets and for this purpose new plant would need to be acquired to increase output and lower unit costs. The most likely means of financing such new plant was by leasing.

7. The company's existing bankers were Westpac and some existing plant was leased through the Westpac subsidiary Partnership Pacific. That leasing facility was for $500,000 but was only drawn down to about $135,000.

The Presentation
8. In about April 1990 Mr Auld and Mr McCormick retained Arthur Andersen and Co to assist in the preparation of a business plan to be used for presentation to potential financiers. A document called a "Business Presentation" (the presentation) was completed in early June. In an "Executive Summary" at the commencement of the presentation, reference was made to the proposed buyout. It was said that a strong working relationship would be maintained with L M Ericsson through distribution and agency agreements. It was said that the market was in excess of 150 million pieces per annum, that the company's products covered several key market segments, that markets were already established and contracts were "in place or under negotiation with key customers in the Asian regions". The executive summary also included the following:

"Market Position
1. Ericsson Components is a leader in quality, pricing
and service nationally and internationally.
2. International clients are serviced by senior
management on a personal basis.
Manufacturing
1. Ericsson Components has multiple sources of supply of
raw materials.
2. Plant and equipment design is superior in volume
output per person and adaptability.
Financial Analysis
1. Facilities required are:
Bank overdraft and bill facility $2 million
Revolving lease facility $700,000
Foreign exchange contract facility
These facilities will be supported by the assets of the
company being accounts receivable, inventories and plant and
machinery."

9. The presentation continued with a brief reference to the history of the company, details of the proposed buyout and new structure and some personal details concerning Messrs Auld and McCormick and other executives.

10. As to the company's manufactured product (capacitors) produced for lighting applications it was said that the company controlled 60 per cent of the Australian and New Zealand market and that "success in negotiations in Asia and keen interest in Europe substantiate sustained growth predictions". As to electric motor applications it was said that the company controlled 40 per cent of the market in Australia and New Zealand with a further 40 per cent "under negotiation". Product design was said to be "State of the Art".

11. Details were given of income analysis for 1988 and 1989 (the company then operated on a calendar year financial accounting) which showed income after tax of $1.4 million (1988) and $97,000 (1989).

12. As to the agency side of the business it was said that the company controlled 40 per cent of the telecommunications capacitor market in Australia and "supplier support and co-operation is excellent". Competition was discussed with some critical comments concerning competitors. It was asserted that the company's "pricing structures make the company extremely attractive as a supply source for international customers".

13. Under the heading "Manufacturing" it was said:

"Current production is 14K units per day. As additional
plant and automation of existing functions progress, the
output will increase to 32K units per day.
To allow for increased production new premises are required.
A shift during the factory annual vacation break in December
1990 is planned."

14. There was a detailed financial analysis which again included reference to the requirement for working capital, specified as $500,000 bank overdraft and $1.5 million commercial bill facility, as well as a "Revolving Lease Facility" of $700,000. It was stated:

"These facilities are required on an ongoing basis to be
used to support the working capital requirements of the
company as well as portion of the purchase price to be paid
to the Ericsson Group."

15. Cash flow predictions month by month were provided which included an item "Lease payment - plant". The figure given for July and August 1990 was $1,097, for September, October and November $7,242 and from December onwards $10,315.

16. Some observations can be made at this stage about the presentation. Containing as it did detailed financial and other information about the company's present position and future prospects, it would be central to the consideration by any bank or other financial institution of an application for finance. All concerned would expect anything of importance to be in the presentation.

17. The presentation contains no indication that the working capital and leasing finance required were necessarily to be provided from the same source. Nor did the evidence suggest any reason why a common source might have been essential, or even particularly desirable. It is a fact of commercial life today that many companies obtain working capital from a bank and leasing finance from other financial institutions, including finance companies owned by banks which operate as separate business entities.

18. Nor does the presentation convey any impression that, unless new plant were obtained by means of the proposed leasing facility, the company's viability would be under threat. Certainly it is stated that the new plant would more than double output; but the picture painted is of a company that was enjoying impressive market share, management expertise, good product quality and reasonable profitability. There is nothing to suggest that the proposed new plant was critical to the company's survival. Indeed no detail is given of the new plant; there is no description of its nature and function, its manufacturer or its price.

Approaches to the Bank
19. Commencing in about early June 1990 application was made to the Commonwealth, National Australia and Westpac Banks without success. Miss Wendy Burge of Arthur Andersen arranged for the proposal to be put to the ANZ.

20. On 12 June 1990 a meeting was held at the offices of Arthur Andersen with Mr Auld, Mr McCormick, Miss Burge and Miss Vineeta Salvi, Manager, Commercial Accounts at the Melbourne office of the bank.

21. Miss Salvi was born and educated in Bombay. She commenced work there for Grindlays Bank and was later sent to Germany. She returned to India in 1986 and spent three years as the manager of a branch in Santa Cruz with a staff of 25 and 6,000 customers. She came to Australia in 1989 and worked for the bank in Melbourne as Manager, Commercial Accounts until 1992 when she spent a year obtaining a master's degree at Boston College in the United States. Since then she has worked for the bank in New York. She was cross-examined for a day. As a witness she was intelligent and frank. Her presentation in the witness box confirmed the impression created by her career to date that she is a competent professional banker. As will appear, her evidence in significant respects differed from that of Mr Auld and Mr McCormick. I prefer her evidence which is more consistent with contemporaneous documents, in particular diary notes and correspondence, and in general is inherently more probable.

22. Prior to the 12 June meeting the bank had been sent a copy of the presentation. At the meeting Mr McCormick spoke for approximately one and a half to two hours. In their evidence Mr Auld and Mr McCormick say that the latter gave a detailed description of the proposed additional plant which consisted of a winding machine, an automatic assembly machine, a zinc sprayer and resin filling equipment. They say the nature of the machines was described and details were given as to their price and the beneficial effect they would have on unit cost. Miss Salvi says that Mr McCormick did not go into the detail claimed. Detailed written notes that she took at the meeting are no longer in existence but on 28 June she submitted to her superior Mr W O'Donnell a very detailed report on the proposal. This contains no description of the new plant and concludes with a recommendation only relating to the working capital requirement.

23. The meeting of 12 June concluded on the basis that Miss Salvi would analyse the figures provided and make further contact through Arthur Andersen. This in fact occurred and on 19 June Miss Salvi visited the company's premises. There was an inspection of the manufacturing process and Mr McCormick says that he explained the manufacturing processes and explained how the new equipment would fit in with the existing production line.

24. On 19 June there was a further meeting at the offices of Arthur Andersen attended by Messrs Auld and McCormick, Miss Burge and Miss Salvi. There was a general discussion concerning the business and Mr Auld and Mr McCormick say that Miss Salvi would put in an application "to her boss" and that "approval would be a mere formality". In their oral evidence Messrs Auld and McCormick attributed to Miss Salvi the statement that approval would be a "rubber stamp".

25. I accept the evidence of Miss Salvi that she did not use the expressions "mere formality" or "rubber stamp" and would never use them in such a context. The fact was that she did not have authority to grant the request sought and it was not until almost the end of the month that she submitted a 13 page analysis and recommendation of the proposal to her superior. That report included an analysis of the security offered by the company for the working capital facilities of $2 million. Not only was there no attempt to consider the security requirements for the granting of the lease facility but the security for the working capital sought barely exceeded the bank's minimum requirements.

26. The only security offered by the company itself consisted of stock and debtors. The bank's practice was not to lend in excess of 60 per cent on such security. In the case of the company that left a shortfall of $95,600 so the proposal was that the difference be made up by a first mortgage over Mr Auld's home and a second mortgage over Mr McCormick's. This left a surplus of security of $172,900 but this would not have met the bank's requirement for a lease facility of $700,000 because very specialised equipment was involved. The significance of this point is that in the event of default a lender might find it very difficult to dispose of the leased goods, as opposed to readily saleable commodities such as motor vehicles. It was only in the course of further discussions in late August that the specialised nature of the equipment became apparent to Miss Salvi. The bank's practice was only to allow 10 per cent of the value for security purposes in the case of specialised equipment so the only available security for leasing finance of $700,000 would be $242,900 ($172,900 plus 10 per cent of $700,000).

27. It seems inherently improbable that someone in Miss Salvi's position would have said anything which could be reasonably construed as a firm commitment on the bank's part to provide leasing finance. Not only did she have no personal authority to do so, but the contemporaneous documents contain no evidence of her acquiring the basic information as to the type of equipment and its cost which would be essential to any decision to grant such a facility. And the unchallenged evidence is that such information when it later emerged showed the proposition was well outside the bank's internal guidelines.

28. Another relevant circumstance is that there was some urgency in obtaining approval for the working capital requirement because without that the purchase from L M Ericsson could not proceed. The purchase was due to be completed on 31 July. Mr Auld said in evidence that the purchasers were under "a little bit of pressure from the Swedish people that we had negotiated with to conclude the agreement quickly". However the new plant was not expected as to part in September and the balance at the end of the year, so there was not the same degree of urgency involved. While there is no doubt that Messrs Auld and McCormick were asking the bank for a leasing facility as well as the working capital, I am unable to find that they put to the bank in June 1990 any stipulation that working capital and leasing facility were sought as one indivisible package. I think it must be taken as being within the contemplation of the parties that there were other potential sources of leasing finance apart from the bank. In fact, as will appear, Messrs Auld and McCormick made enquiries of such sources.

The Bank's Offer
29. On 2 July the bank sent to Messrs Auld and McCormick a letter offering the company a $500,000 overdraft and $1.5 million facility which could be taken as a commercial bill facility with variable or fixed rate, a fully drawn advance or any combination thereof. Detailed terms and conditions as to interest rates, security and other matters were included. Under the heading "Variations" it was stipulated:

"Any increase in these facilities, any extension of the term
of these facilities and any additional facilities granted by
the Bank to the Customer from time to time at the discretion
of the Bank shall be subject to the same terms and
conditions as set out or incorporated in this Letter of
Offer except where expressly agreed otherwise in writing by
the Bank."

30. The letter was signed by Miss Salvi. It contained no mention of a leasing facility. The letter indicated that acceptance was to be by the signing and return of an enclosed duplicate.

Acceptance of Offer
31. On 18 July Messrs Auld and McCormick together with Miss Burge attended a meeting with Miss Salvi at the bank's offices in Collins Street. This is the meeting at which the applicants say the bank gave the commitment to leasing finance on which their case depends.

32. The applicants' evidence was that at this meeting Mr McCormick said in substance that they were pleased with the offer of $2 million but that "the lease finance was critical to the whole proposal". They say that Miss Salvi responded that because of the timing of requirements it would be far easier to put in place the working capital facility now and to arrange for the leasing facility after the Westpac facility had been paid out. The date for this refinancing had been extended to 1 August. Mr McCormick says that he asked "Now, are we going to get it all"? To which Miss Salvi said "Yes".

33. Miss Salvi disputes that there was any indication at this meeting that lease finance was critical to the whole proposal. Her diary note was produced. It commences "Both gentlemen were full of enthusiasm and energy as usual and had the following good news to give". There then follows details of new orders and other business in Taiwan, Hong Kong and Singapore obtained during their recent overseas trip and progress of arrangements with L M Ericsson and the identification of new premises in Preston. The diary note states:

"Our offer has been accepted, although our letter of offer
will be returned duly signed once Robert, Neil and Wendy
have decided the actual limits for commercial bills and/or
FDA's within overall line of $1.5m."

34. There was reference to the applicants obtaining further details about financing and foreign currency products of the bank. The diary note contains no mention of the leasing facility at all, still less of any commitment by the bank to provide it. The diary note is consistent with both sides proceeding on the basis that the $2 million working capital would be provided. But there is no suggestion that this is to be conditional on the bank providing the leasing facility.

35. I accept Miss Salvi's account of this meeting. This is a convenient point to note that Miss Burge was not called as a witness by the applicants and there was no evidence to explain her non appearance.

36. There was no letter from the applicants to the bank confirming the commitment which they now say was given. This was a significant omission since on the applicants' case the position as between them and the bank had substantially changed since the receipt of the letter of offer of 2 July.

37. The conclusion that neither side considered there was any commitment by the bank to provide a leasing facility at this stage is strengthened by a fax which was sent on the following day, 19 July, to Arthur Andersen by a Mr Vas Banschikov who operates a finance company. The fax contained details of leasing finance offered to the company with the comment "Would be pleased to assess the deal closer when the financials become available". Mr Auld's explanation is that an approach was made to Banschikov through Arthur Andersen simply to give "an indicative idea of types of rates that were available in the market so we could better fine tune our cash flow projections". At this stage, on the applicants' own case, they had not received any detailed quote from the bank, but "only the indication that we would be getting the leasing finance". Mr McCormick says that he tried to contact Miss Salvi to get some details about rates but she "was either on a course or in a meeting" so he could not talk to her and as she was the only contact that he had at the bank at the time he asked Miss Burge to obtain the figures from another source. I do not find these explanations persuasive. I think that at this stage the applicants did not regard the obtaining of leasing finance from the bank as a concluded matter, but were actively considering possible alternatives.
Acceptance of Offer

38. On 31 July Messrs Auld and McCormick signed and returned to the bank the letter of offer. On the same day the agreement was entered into with L M Ericsson for the purchase of shares in the company, the purchasing entity being the second applicant Second Wall Pty Ltd. On the following day the Westpac working facility was paid out by funds provided from the new ANZ facility. Also on 31 July a mortgage debenture over the company was executed together with guarantees by Mr and Mrs McCormick and Mr and Mrs Auld. Those documents were signed at the bank, having been collected the previous afternoon. Each guarantor signed an acknowledgement stating that he or she was aware that the guarantee was a "complex and important legal document" and that they had been given the opportunity to seek legal advice before signing it. On 31 August the same parties executed mortgages over their respective homes in support of the guarantee and again signed an acknowledgement in the same terms.

Leasing Facility not Obtained
39. In about the first week of August the company placed an order with an Italian supplier for a winding machine for the price of $200,000 and also orders for the final building and development of an automatic assembly machine which it was anticipated would be ready for delivery by mid September. Messrs Auld and McCormick say that shortly after this they contacted Miss Salvi to enquire as to the progress of arrangments for the lease facility and she said she would contact Mr Auld.

40. Miss Salvi has no recollection of this but what I think is clear is that there was a meeting on 22 August when Messrs Auld and McCormick called at the bank by arrangement. Miss Salvi produced a detailed diary note of this meeting. There was firstly some discussion about foreign currency arrangements and a proposition about the purchase of the property in Preston as opposed to leasing. The diary note continues:

"As per their plans for increased capacity and production
(see D/N 28/6/90 - Pg 4) the company is now in the process
of leasing plant and machinery and would like ANZ to quote
for the business. Requirements are as follows:
Item Approximate Cost
Resin filling line 47,000
Automatic Assembly and
Soldering machine 155,000
Winding Machine 200,000
Zinc Spray Machine 100,000
$502,000
I indicated that the Bank and/or Esanda would be interested
in the business and requested Robert to send us the
orders/invoices for further perusal and processing.
Facility of up to $600K can be granted as necessary, in view
of its profitability as well as perceived ability of the
company to meet its commitment.

41. The diary note also notes "RE (Regional Executive) Mr Coughlin for approval." Esanda Limited is a finance company which is a wholly owned subsidiary of the bank.

42. Miss Salvi says, and I accept, that she had not previously been aware of the specific items of machinery required or their price. This was some three weeks after the purchase from L M Ericsson had been completed. Moreover, the applicants were still pursuing alternative sources. On 24 August Arthur Andersen wrote to Mr Banschikov enclosing a finance proposal for the company and advising that Mr Auld would provide a statement of assets and liabilities for the directors and shareholders directly. In his evidence Mr Auld said that "we were starting to get concerned that all was not as it seemed (so) we thought it prudent that we should, may be, have a look around to see what else we may be able to obtain". I am not persuaded this was the case. Miss Salvi's diary note of the 22 August meeting is not suggestive of any retreat from a previous commitment. Rather it contains encouraging indications of a possible new commitment. It was in such a context that Mr Auld was approaching another possible financier.

43. To return to the processing of the application by the bank, on 23 August Miss Salvi's superior Mr Coughlin noted on her diary note:

"As discussed, I wish to meet with the client before
reaching a final decision on the leasing facility - please
arrange an appointment. If I am satisfied I would prefer
that the lease be provided by Esanda".

44. Miss Salvi then sent a memorandum to Mr Peter Ayton, another officer of the bank, asking him to contact Messrs Auld and McCormick to arrange a meeting between them and Mr Coughlin. From 26 August Miss Salvi was absent from Australia for four weeks.

45. On 30 August Messrs Auld and McCormick called at the bank and discussed leasing finance with Mr Coughlin and Mr Ayton. The latter's diary note includes the following:

"To enable themselves to gain increased market share and be
better situated to deliver quality, quantity and pricing
they require to lease equipment detailed in D/N of 22/8/90.
New equipment will enable them the streamline their
production, free up labour to be utilised elsewhere in the
factory and in general become more efficient and more
attractive to potential purchasers of their product.
After outlining the banks position and perception of the
a/c, R/E understood Ericssons situation however, advised
that the bank were not "experts" in the leasing field and
recommended that Esanda would be better advised to look at
the deal.
Both Neil and Robert were appreciative of R/E's thoughts and
concurred in his decision to meet with representatives of
Esanda."

46. Mr Ayton gave evidence but was not challenged on the accuracy of this diary note. The conversation recorded in it is quite inconsistent with the bank recognising any existing commitment to provide leasing finance or, more importantly, with Messrs Auld and McCormick considering that they had been given any such commitment.

47. After Miss Salvi's return Mr Graham Morgan of Esanda called at the bank on 28 September to discuss with her the company's leasing facility request "forwarded by us to Esanda". Mr Morgan said that he was impressed by the company's operation but since most of the machinery to be leased was of a specialised nature Esanda could only apply security cover on a resale value of ten per cent and therefore would require a second mortgage over the company's assets. Miss Salvi told Mr Morgan that the bank would not approve this until after an analysis of the company's current stocks and debtors position and their financial statements. She subsequently spoke to Mr Auld and asked him for these details which he promised to provide. He said that he and Mr McCormick were going overseas in four days time. He said that "business was doing well and budgets were likely to be exceeded". Miss Salvi told him that neither the bank nor Esanda could take any action regarding their leasing proposal until they had received the information sought. She advised Mr Morgan and Mr Coughlin accordingly.

48. It is not clear from the evidence whether the applicants ever provided the information requested. In any event on 23 October Esanda wrote to the company advising that the request for leasing finance had been declined. The letter stated:

"As discussed at our initial meeting the 'specialised
nature' of the items was always going to be a problem. We
attempted to overcome this by negotiating with the ANZ Bank
for some security comfort but this was not forthcoming."

49. In the following months the applicants were able to obtain limited leasing finance from another source but were never able to acquire all the additional plant they had planned. They say that the resultant lack of productivity led to the decline of the business. Finally the bank appointed an agent in possession.

Lack of Complaint
50. A significant circumstance in this case to my mind is the lack of contemporaneous complaint by the applicants to the bank from October 1990 onwards, by which time it was clear that no leasing facility was forthcoming either from the bank or Esanda, notwithstanding what the applicants now say was a clear commitment as a result of which they entered into the whole venture.

51. Moreover there was a document headed "Significant Events to October 1990" prepared by the company for its own board. The document reviewed sales prospects. Under the heading "Problems" it was stated:

"Our failure to negotiate successfully a lease facility for
the plant and equipment required has and will continue to
hamper this organisation's plans for growth.
All of the previously mentioned export activities are based
on costings from new equipment. Without this equipment we
will find it extremely difficult to grow rapidly and in line
with forecasts. This is already evidenced by the slow sales
growth in export.
This problem not only hampers current sales but delays
future sales growth due to the fact that, while we have
equipment designed we cannot order it until we can finance
it."

52. There is no suggestion in this document that the problem over the lease facility has been due to the bank reneging on a commitment. Since the document was prepared for internal use, there is no question of any fear of provoking the bank as an explanation for this omission. Even more surprisingly, in view of the case the applicants now put, is that on 7 December Mr Auld sent to Miss Salvi a copy of the document under cover of a compliments slip with the cheerful comment:

"Vineeta,
Thought you might be interested in the attached. Exciting
and challenging times?"

Conclusion on Trade Practices Act Claim
53. The case of the applicants as pleaded is that on or about 18 July 1990 the bank represented to the applicants that (i) there was "no impediment" to the bank providing the company with the $2 million working capital and the $700,000 lease facility and that (ii) the bank was "committed to providing the company with the working capital facility and, as soon as practicable thereafter, with the lease facility".

54. I do not think this case is made out. I find that the applicants never stipulated to the bank that the lease facility was an essential element of any financial accommodation sought from the bank and that the bank never gave any commitment to the provision of such a facility. Nothing said or done by any officer of the bank prior to 31 July 1990 gave any indication that there was or was not any "impediment" to the provision of a lease facility. The question of a lease facility was raised in very general terms but not pursued to a stage where the bank could have given any decision one way or the other or have been reasonably expected to do so.

Contract
55. For essentially the same reasons I reject the claim that a binding agreement for the provision of a lease facility was entered into on 18 July 1990.

Duty of Care
56. The applicants also contended that in the circumstances the bank owed them a duty to take reasonable care in making representations to them concerning their financial dealings. They say that in the circumstances of the present case where a "complete package" was put, the bank owed a duty of care to them "in relation to its view of the viability of that package". They say that the bank breached its duty in (i) advising a lease facility would be forthcoming when the contrary was the case or alternatively (ii) failing to advise them that the lease facility would not be forthcoming when the bank knew the facility was an integral part of the business. They say that prior to 31 July it was known to the bank but not to the applicants that the bank would not provide the leasing facility without substantial security and that the bank in breach of its duty did not disclose matters which might have affected the bank's attitude to the proposal.

57. The applicants relied on Ryan v Bank of New South Wales (1978) VR 555, a case where customers complained that the defendant bank had wrongfully paid cheques drawn by them on the bank. In a passage relied on by the applicants, McGarvie J said (at 581):

"In the absence of other circumstances, the defendant was
entitled to comply with the orders of the plaintiffs
contained in their cheques, without incurring any liability.
Knowledge by the defendant of circumstances not known to the
plaintiffs could change its position. I consider that the
defendant would act unreasonably in complying with the
orders of the plaintiffs contained in the cheques, if a
reasonable banker properly applying his mind to the
situation would know that the plaintiffs would not desire
their orders to be carried out if they were aware of the
circumstances known to the bank ..."

58. McGarvie J went on to cite the following passage from the judgment of Ungoed-Thomas J in Selangor United Rubber Estates Ltd v Cradock (No.3) (1968) 1 WLR 1555 at 1609:

"As between the company and the bank, the mandate, in my
view, operates within the normal contractual relationships
of customer and banker and does not exclude them. These
relationships include the normal obligation of using
reasonable skill and care; and that duty, on the part of the
bank, of using reasonable skill and care, is a duty owed to
the other party to the contract, the customer, in this case
the plaintiff company, and not to the authorised
signatories. Moreover, it extends over the whole range of
banking business within that contract. So the duty of skill
and care applies to interpreting, ascertaining and acting in
accordance with the instructions of a customer; and that
must mean his really intended instructions as contrasted
with the instructions to act on signature misused to defeat
the customers real intentions. Of course, omnia
praesumuntur rite esse acta, and a bank should normally act
in accordance with the mandate - but not if reasonable skill
and care indicate a different course."

59. But the Privy Council has recently indicated that where the contractual relationship of banker and customer exists there is little to be gained to the advantage of the law's development in searching for a liability in tort. The Privy Council said:

"Their Lordships do not, therefore, embark on an
investigation as to whether in the relationship of banker
and customer it is possible to identify tort as well as
contract as a source of the obligations owed by the one to
the other. Their Lordships do not, however, accept that the
parties' mutual obligations in tort can be any greater than
those to be found expressly or by necessary implication in
their contract. If therefore, as their Lordships have
concluded, no duty wider than that recognised in MacMillan
(1918) AC 777 and Greenwood (1933) AC 551 can be implied
into the banking contract in the absence of express terms to
that effect, the banks cannot rely on the law of tort to
provide them with greater protection from that for which
they have contracted."

60. Tai Hing Ltd v Liu Chong Hing Bank (1986) AC 80 at 107

61. In the present case, whether looked at as the possible imposition of a duty of care or as an implied term in the contract of banker and customer, the critical circumstance in my opinion is that the applicants never asked the bank to undertake, nor did the bank accept, the role of general financial adviser. The accountants Arthur Andersen already fulfilled that function. As far as the bank was concerned, it was approached by potential customers who sought various forms of finance, some of which the bank agreed to provide and others which it declined. In respect of the latter, for reasons which I have already mentioned, the bank in my opinion never gave any promise, assurance or commitment that the finance would be provided. The bank was never asked to advise the applicants on the viability of their venture in the event that no leasing facility could be obtained from the bank itself or from any other source. Messrs Auld and McCormick were thoroughly familiar with the business they proposed to acquire but the bank was not. Their assessment of the business at the time and their presentation to the bank did not suggest that the acquisition of new plant through the proposed leasing facility was essential to the survival of the business. The bank was not asked to advise on the feasibility of the applicants' obtaining leasing finance from another source. Rather the applicants themselves were making enquires.

62. For those reasons I conclude that no duty of care of the kind alleged was owed by the bank.

Unconscionable Conduct
63. The applicants argued that it was unconscionable of the bank not to disclose to the applicants its material and substantial reservations to providing leasing finance when it was clear that (i) such finance was required from it or alternatively (ii) finance was required from some source.

64. It was accepted, properly, by counsel for the applicants that this case really stood or fell with the Trade Practices Act claim and I say no more about it.

Orders
65. It follows that the applicants' claim will be dismissed with costs. I will stand the matter over for further argument as to directions in relation to the further hearing of the respondent's cross claim.