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Federal Court of Australia |
NEGLIGENCE - Whether bank's conduct negligent - whether bank owed duty of care to customers
Trade Practices Act 1974 (Cth) ss 51A, 52, 82, 87
Contracts Review Act 1980 (NSW) ss 7
SHIRLEY PARTNERS PTY LIMITED (ACN 000 792 370) & ORS v. WESTPAC BANKING CORPORATION (ARBN 007 457 141)
No. 809 of 1994
EMMETT J
SYDNEY
2 MAY 1997
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
(ACN 000 792 370)
First Applicant
EDWINA-LOUISE SECURITIES PTY LIMITED (ACN 001 224 728)
Second Applicant
INTEGRATED SUPPORT SYSTEMS PTY LTD (ACN 003 532 929)
Third Applicant
ANDREW FRANCIS SHIRLEY
Fourth Applicant
DIANNE CHRISTINE SHIRLEY
Fifth Applicant
AND:
(ARBN 007 457 141)
Respondent
CORAM:
) ) NEW SOUTH WALES DISTRICT REGISTRY
)No. NG 809 of 1994
)
GENERAL DIVISION )
MINUTE OF ORDERS SHIRLEY
PARTNERS PTY LIMITED WESTPAC BANKING
CORPORATION EMMETT J
PLACE: SYDNEY
DATED: 2 MAY 1997
THE COURT ORDERS THAT:
1. The application be dismissed.
2. The applicants pay the respondent's costs.
NOTE: Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.
|
IN THE FEDERAL COURT OF AUSTRALIA | ) |
| ) | |
| NEW SOUTH WALES DISTRICT REGISTRY
| )No. NG 809 of 1994
|
| )
| |
| GENERAL DIVISION | ) |
|
BETWEEN: | SHIRLEY
PARTNERS PTY LIMITED (ACN 000 792 370) First Applicant
EDWINA-LOUISE SECURITIES PTY LIMITED (ACN 001 224 728) Second Applicant
INTEGRATED SUPPORT SYSTEMS PTY LTD (ACN 003 532 929) Third Applicant
ANDREW FRANCIS SHIRLEY Fourth Applicant
DIANNE CHRISTINE SHIRLEY
Fifth Applicant |
|
AND: | WESTPAC BANKING
CORPORATION (ARBN 007 457 141)
Respondent |
|
CORAM: | EMMETT J
|
| PLACE: | SYDNEY |
| DATED: | 2 MAY 1997 |
The fourth applicant ("Mr Shirley") is a consulting engineer and is the managing director of Shirley Partners, ELS and ISS and is the directing mind of those companies. The fifth applicant ("Mrs Shirley") is Mr Shirley's wife. She was, during 1988, 1989, and 1990, a director of the three companies.
The applicants claim that, in June and July 1989, certain representations were made on behalf of the respondent ("Westpac") by Mr Peter Wynd, then the manager of the Pymble branch of Westpac. It is alleged that in reliance upon those representations ("the 1989 Representations"), Shirley Partners entered into arrangements with Scotts Developments Pty Limited ("Scotts Developments"). It is said that those arrangements proved detrimental to Shirley Partners, ELS and ISS such that each of them is entitled to recover damages from Westpac.
In addition, there is a completely separate case which relates to representations alleged to have been made by Mr Wynd during 1990 which culminated in the execution by Shirley Partners of a guarantee and equitable charge in respect of the obligations to Westpac of ELS ("the Securities"). Those representations ("the 1990 Representations") are relied upon as a basis for setting aside the Securities. The practical effect of that claim, if successful, would be to remove Shirley Partners as a guarantor of the obligations of ELS to Westpac.
The bases of both claims are contravention of section 52 of the Trade Practices Act 1974 (Cth) and breach of a general law duty of care said to have been owed by Westpac to each of the applicants. Soon after the start of the hearing, it became apparent that the applicants' case as to damages required reformulation to an extent which would jeapardise the hearing. Accordingly, the parties agreed that the quantification of any damages to which the applicants would be entitled should be determined after all other questions in the proceedings had been decided. An order under Order 29 of the Federal Court Rules to that effect was therefore made by consent.
The Background to the 1989 Representations
The relationship which existed between the applicants and Westpac at the time of the 1990 Representations was relied on by the applicants, in part, as giving rise to various duties said to be owed to the applicants by Westpac. In the statement of claim it was alleged, for example, that Westpac was under an obligation and duty to advise the applicants that they should not, and that it would be unreasonable and imprudent to, enter into or continue certain transactions with Scotts Developments. It is necessary, therefore, to set out the background to the events of July 1989 which is common ground.
For some time prior to 1987, Shirley Partners and ELS banked with National Australia Bank. From January 1987 the banking arrangements were altered and from that time Westpac became banker to Shirley Partners and to ELS. During 1988, arrangements were also made between Mr and Mrs Shirley and Westpac whereby a mortgage by Mr and Mrs Shirley to National Australia Bank over their home at Turramurra was discharged and a mortgage was given to Westpac to secure a loan of $47,000. In addition, in September 1988, Mr and Mrs Shirley granted a second mortgage to Westpac as security for a term loan of $135,000 and an overdraft limit of $40,000 to ELS. From that time, Westpac was the sole banker to all of the applicants.
From July 1988 to February 1989 the operations of Shirley Partners proceeded on what was described by Mr Shirley as "a marginal profit basis". During that period, research and development was also undertaken in respect of the Invention. A patent application was lodged on 27 August 1987 and was pending from that time. By November 1988, Shirley Partners was contemplating the prosecution of patent co- operation treaty applications in respect of the patent in other countries.
On 28 July 1988, Mr Shirley approached BHP Engineering Proprietary Limited ("BHP Engineering") with a view to obtaining assistance with the development of the Invention. After a number of meetings, BHP Engineering produced, in December 1988, a detailed evaluation of the Invention and a proposal for further research to be funded by BHP Steel.
At the time of the refinancing transaction in September 1988, Westpac had noted the purpose of the existence of ISS and the need urgently to lodge international patent applications. Mr Fox, the manager of the Pymble branch at the time, recorded that since 30 June 1988, Mr Shirley had expended considerable time and effort in promoting the Invention. Westpac itself arranged a meeting with BLE Corporation as a potential investor. Mr Fox recorded in an internal memorandum that the Invention had "undoubted potential" and that Mr Shirley saw it as being "the future direction for (the) company".
Westpac was aware in December 1988 that BHP Engineering had forwarded a draft collaborative agreement providing for objectives of research and development so as to optimise the Invention for use as a ground support system in the field of mining engineering. Mr Fox took the view that Mr Shirley's confidence in relation to the future development and exploitation of the Invention was "reasonable".
In January 1989, Mr Shirley made an approach to Mr Fox at the Pymble branch for an overall increase of $15,000 in facilities available to the group. At that time, Westpac noted that BHP Engineering had entered into a confidentiality agreement with ISS to investigate the Invention and that, in relation to financial matters, BHP Engineering was to be responsible for all costs including the lodging of international patents.
In January 1989 Mr Fox assessed that the proposed increase in total facilities would result in a loan/security ratio on all borrowings of 76.9%. On 10 January 1989, the new facilities were approved. On 3 February 1989, Westpac notified Mr Shirley of those approvals and the necessary security documents were executed by ELS on 10 February 1989. In the meantime, on 12 August 1988, Westpac had required a revaluation of the Turramurra property owned by Mr and Mrs Shirley. That had been carried out and a market valuation of $386,000 provided.
On 13 March 1989, Mr Shirley wrote to Mr Fox referring to "tightness of our cash flow" enclosing various forecasts and asking for certain temporary increases in the ELS overdraft accommodation. It does not appear that these additional facilities were approved at that stage.
In the meantime, ISS was continuing its efforts to exploit the Invention. On 20 April 1989, Austress PSC Australia Pty Limited ("Austress") wrote to ISS enclosing a confidentiality deed which enabled that company to embark upon an assessment and investigation of the Invention.
In April 1989, a body called Westpac Project & Advisory Services Limited ("WPASL") was making proposals to Scotts Developments concerning funding for a large development at Double Bay. WPASL was a wholly owned subsidiary of Westpac. Messrs Meyer and Robinson and Ms Diplock constituted the team specifically formed to conduct negotiations on behalf of Scotts Developments with Woollahra Municipal Council in relation to the Double Bay project.
By 24 April 1989, WPASL had been appointed as financial adviser to Scotts Developments with respect to the tender for the Double Bay project. The proposed project involved the acquisition by Scotts Developments of a site in Cross Street Double Bay which was being used by Woollahra Municipal Council ("the Council") as a depot and a car park, the relocation of the depot facilities to new premises at O'Dea Avenue, Waterloo and the construction there, at the expense of the developer, of new depot facilities. In addition, as part of the overall project, further car parking facilities were required by the Council to be constructed at the expense of Scotts Developments at Guilfoyle Avenue, Double Bay.
On 8 May 1989, WPASL submitted to the corporate banking division of Westpac a proposal for loan facilities of $20 million. The proposed loan was designed to provide funds of $3.7 million to allow the Council to purchase the site for the new depot facilities in Waterloo and then for progressive payments on a new hotel building at the Cross Street site and on new buildings at the Guilfoyle Avenue site over a one year period. It was envisaged that Scotts Developments would then sell the hotel property at a profit of approximately $10 million after repayment of the Westpac borrowing or alternatively that Scotts Developments might take on a major corporate or institutional investor in the project to provide a basis for the discharge of the Westpac borrowing.
Some time in May 1989, an agreement was concluded between the Council, Scotts Developments and Westpac which provided for the future acquisition by Scotts Developments of the Cross Street site. Westpac was a party to the agreement as mortgagee of that land and consented to the proposed acquisition of the land by Scotts Developments.
On 31 May 1989, Mr G.S. Lee-Archer, who held the position of manager, corporate banking of Westpac, confirmed in writing to Scotts Developments approval for a commercial bill acceptance and discount facility of $24,500,000. The facilities allowed the drawdown of funds in multiples of $100,000 under commercial bills of exchange. Facilities were to be made available under transaction requests from time to time and the loans were secured by a registered third party mortgage granted by the Council over the existing Council depot property. The terms of the facility agreement required that no more than $6,000,000 be advanced by Westpac prior to the issue of development approvals for the Cross Street, O'Dea Avenue and Guilfoyle Avenue sites.
On 29 May 1989, Mr Shirley received a letter from WPASL inviting him to participate in a harbour cruise aboard the Westpac launch "Tarquin". At the time, Mr Shirley knew little of the Double Bay project. It had been mentioned to him by Mr Michael Du Chateau, a director of Scotts Developments, at a meeting on 24 May 1989. Mr Shirley telephoned the offices of WPASL and accepted the invitation for the cruise which was to take place on the evening of Friday 2 June 1989.
On the afternoon of 30 May 1989, Mr Shirley met Mr Peter Wynd who was by then the manager of the Pymble branch and discussed with him a proposal for the rearrangement of facilities to take advantage of tax concessions available to ISS for research and development. The essence of the proposal was that Westpac should provide to ISS a term loan of $70,000 and at the same time ELS's overdraft limit should be reduced from $55,000 to $10,000.
On 1 June 1989, Mr Wynd began to prepare a submission for that proposal. On 2 June 1989, as part of that process, Mr Wynd commenced to prepare a company/small business finance application. As at the date of preparation of those documents, the facilities enjoyed by the Shirley group of companies were as follows:
(a) a term loan to ELS with a limit of $171,208;
(b) a housing loan to Mr and Mrs Shirley which stood at $46,582;
(c) an overdraft facility to ELS of $55,000.
As part of the submission, Mr Wynd included "Manager's Remarks" which were forwarded to Westpac's regional office for consideration. Although this typed document formed part of the submission which Mr Wynd commenced to prepare on 2 June 1989, it is not completely certain when it was actually completed. While Mr Wynd conceded that it was possible that it was completed early in the following week, he said that if the normal practice was followed, the document would have been prepared on the same day, namely 2 June 1989.
In his "Managers Remarks", Mr Wynd recorded that the proposed facilities would result in a loan/security ratio "for this connection" of 82%. This was out of line with Westpac's usual lending policies under which a loan security ratio of 75% was regarded as acceptable. The remarks prepared by Mr Wynd acknowledged that the ratio of 82% "would appear high".
Mr Wynd's recommendation to Westpac's regional office to approve the proposed extended facilities appears to have been founded on what he regarded as "a well documented and researched potential of the new ISS system" and on the ability of "Directors and Related Company" to generate "long term work in existing consultancy area to be able to meet interest". The submission also recorded that Mr Shirley had told Mr Wynd that under an agreement reached between Shirley Partners and BHP (a copy of which was given to Mr Wynd) BHP had agreed to fund all ongoing costs in relation to research and development in respect of the Invention and all costs associated with registration of international patents concerning the Invention. The submission also recorded that recently a new contract had been entered into with Scotts Developments which should be worth several hundred thousand dollars in fees to Shirley Partners over the next two years.
On 8 June 1989, Mr Wynd's recommendations were considered by Mr Withey, the regional credit manager of Westpac. Mr Withey approved the facility, noting his own calculation of the loan/security ratio at 83% stating "this is definitely the limit of our assistance". Mr Withey required that the Pymble branch review the situation with the regional office on 31 December 1989.
Meanwhile on 2 June 1989, Westpac and Scotts Developments had formally executed a bill acceptance and discount facility agreement in relation to the Double Bay project. The first draw down under the facility agreement, for the purchase of the O'Dea Street, Waterloo site, also occurred on that day. In the evening of 2 June 1989, Mr Shirley had attended the cruise aboard the launch "Tarquin". A number of representatives of WPASL attended the cruise as did Mr Lee-Archer. On the cruise, Mr Shirley learned some further details of the project. Earlier in the day, he had attended inspections both of the Guilfoyle Avenue car park site and the Cross Street site.
On Monday 5 June 1989, Mr Shirley wrote to Scotts Developments enclosing preliminary budget estimates for the geotechnical assessment of the Double Bay project. Work was undertaken immediately in connection with the site investigation and the first invoice from Shirley Partners to Scotts Developments in this regard was rendered on 7 June 1989. From about 13 June 1989, Mr Shirley was present at meetings of consultants in relation to the Double Bay project and was reporting upon the geotechnical investigations being undertaken by Shirley Partners. Mr Shirley also told Mr Wynd that Scotts Developments wanted him to be both the project geotechnical engineer and designer of the basement for the proposed hotel to be built on the Cross Street site.
By 16 June 1989, Shirley Partners was committed to the geotechnical investigation of the Double Bay project. Mr Shirley met Mr Wynd at the Pymble branch and provided Mr Wynd with a written memorandum requesting lease finance for certain new office equipment. On the same day, Mr Wynd approved lease finance for the new office equipment through Westpac's finance company subsidiary, Australian Capital Guarantee Corporation ("AGC"), in relation to which Mr Wynd himself had certain approval authority. Mr Wynd also approved on his own authority a personal loan of $10,000 to Mr and Mrs Shirley for the purpose of subscribing for further shares in ISS thereby further capitalising that company. Neither of those transactions was referred by Mr Wynd to the regional office of Westpac.
Later in the day on 16 June 1989, Mr Shirley attended a commercial meeting with Mr Tate of Scotts Developments, to discuss site investigation budgets and the methods of payment to Shirley Partners. At the meeting, Mr Tate raised the proposal that Shirley Partners should also undertake the design of the basement of the Cross Street site.
However, the payment terms offered by Mr Tate on behalf of Scotts Developments to Mr Shirley involved what the latter believed to be a request to "speculate" his fees, which he rejected out of hand. After concluding the meeting with Mr Tate, Mr Shirley spoke with Mr Robert Scotts, the managing director of Scotts Developments, who suggested that he approach Westpac to see whether it would provide support to Mr Shirley and his companies in light of the suggested retainer for the design consulting work in relation to the Double Bay project.
By letter dated 21 June 1989, Westpac confirmed the term loan facility of $70,000 to ISS over a five year period and on 23 June 1989, Mr and Mrs Shirley attended the Pymble branch of Westpac for the purpose of signing the relevant security documents. One of the requirements of that facility was that a third mortgage be granted by Mr and Mrs Shirley over their Turramurra property to secure the debts of ISS. The documents in relation to the personal loan of $10,000 by Westpac to Mr and Mrs Shirley and the third mortgage were executed by them on 23 June 1989. The term loan facility was drawn down on 26 June 1989.
No diary note has been produced on discovery by Westpac in relation to the meeting which was held on 23 June 1989 between Mr Wynd with Mr and Mrs Shirley. However, there is a handwritten note on the history sheet of 1 June 1989 saying:
"Debt may peak to $25,000 prior to 7/7/1989. AGREED. Funds due from Scotts will cover by 20/7/1989."
The lease documents with AGC in relation to the office equipment were executed by ELS and by Mr and Mrs Shirley as guarantors on 10 July 1989. By that time, Shirley Partners was in the midst of providing an initial report on geotechnical and ground engineering factors in relation to the proposed underground car park at Guilfoyle Avenue, Double Bay.
On 14 July 1989, Westpac confirmed to ELS that its approved overdraft limit had been reduced to $10,000. However, the drawings under that account continued to run over that limit during July 1989.
On 17 July 1989 Mr Shirley and Mr Tate of Scotts met to "discuss the various commercial agreements" intended to be entered into between Scotts and Shirley Partners. Mr Shirley prepared a typed note of the discussion to which reference is made below. On 18 July 1989, Mr Shirley commenced to prepare a letter on behalf of Shirley Partners which was despatched to Scotts Developments on 20 July 1989.
It is accepted by Mr Wynd that by 20 July 1989 he had been given by Mr Shirley a good deal of information concerning the Double Bay project. On that date, Mr Shirley delivered to Mr Wynd a written proposal for an extension of the ELS overdraft facility to $50,000 for a period of three months. On the same day, Mr Wynd prepared an advance application putting forward that proposition to the regional office. That submission noted that the existing facilities granted by Westpac to the Shirley group gave rise to a loan/security ratio "on facilities" of 83%. That percentage was calculated, not by reference to the existing ELS overdraft of $35,000, but to the formal overdraft limit of $10,000 which had been continuously exceeded.
In the submission of 20 July 1989, Mr Wynd recorded that the current request was for "true cash flow" borrowings. Mr Wynd stated that he had "no hesitation" in recommending such assistance in line with cash flow under the category of "cash flow lending".
The 1989 Representations
In the statement of claim, the applicants allege that in late May and early June 1989 Mr Shirley had a number of discussions with representatives of Scotts Developments concerning the proposed project which is referred to as "the Project". It is alleged that between 23 June and 10 July 1989 and on 21 July 1989, Mr Wynd, on behalf of Westpac, represented to Mr Shirley that:
"(a) the Project was financed by Westpac;
(b) Shirley Partners was to be a special consultant to the Project;
...................................................................... ..........................
(e) Mr Shirley and his companies could proceed with the contract with Scotts Developments in confidence;
(f) the Project was Westpac's security for loans to Mr Shirley and his associated companies;
(g) it was a Westpac project."
The representations were alleged to have been made during a telephone conversation between Mr Wynd and Mr Shirley between 23 June and 10 July and during a meeting between Mr Wynd and Mr Shirley at the Pymble branch of Westpac on 21 July 1989.
The conversations by telephone were deposed to by Mr Shirley in a written statement which became his evidence in chief. However, the telephone conversations were, on the applicants' case, preparatory to the representations alleged to have been made at the meeting which took place between Mr Shirley and Mr Wynd at the Pymble branch on 21 July 1989.
The critical issue is whether Mr Wynd made misleading or deceptive statements to Mr Shirley on 21 July 1989. If Mr Shirley's version of the conversation on that day is not accepted, the applicants' case must fail in so far as it is based on the 1989 Representations. His evidence as to that conversation is therefore critical. In his written statement which constituted most of his evidence in chief, Mr Shirley set out his version of the conversation as follows:
"At the meeting with PW [defined in the statement as Mr Wynd] on 21 July, 1989, I discussed the various aspects of the agreement with Scotts.
I said:
"You have read my letter, what do you think?"
PW said:
"It looks very thorough, in your usual style."
I said:
"What about The Project, can I go ahead?"
PW said:
"I am now fully aware of the Double Bay project and the related projects at Guilfoyle Avenue, Double Bay and O'Dea Street, Waterloo. I have a lot of information about The Project, but I can't tell you the majority of what I know because of `Bank Confidentiality'. There are however some things I can tell you and these are:
* The project is financed by Westpac.
* You are a special consultant.
* The Bank will consider a proper submission for `cash flow funding'".
I said:
"Is that it?"
PW said:
"I can't tell you more."
I said:
"But I need to know more. I want to know if I can be sure of being paid. What do you mean by the bank listening to a proper submission for cash flow funding?"
PW said:
"You have given me a proper submission; I will now mark up you ELS overdraft account to $50,000 because that is the bottom line of your cash flow isn't it."
I said:
"Yes it is."
"But, are you telling me that everything is OK and that I can go ahead in confidence."
PW said:
"Yes"
PW went on to say:
"It is important that you get paid for your work on a `monthly basis'. Keep Scotts up to the mark."
I say that the only reason that I committed my company to work on The Project was because I was advised by Westpac that they were the financial backer of The Project, in particular the Atrium Hotel, and that I could work on The Project in confidence and surety that I would be paid because The Project was financed by Westpac."
There is no dispute that discussions took place between Messrs Wynd and Shirley. However, Mr Wynd disputed that he said what was attributed to him by Mr Shirley.
There are no contemporaneous documents which record the terms of any of the discussions directly. The only contemporaneous documents which exist are those referred to briefly above which it will be necessary to consider in more detail. Apart from the records already referred to, Westpac did not produce any notes made by Mr Wynd in relation to conversations with Mr Shirley. Nor did Westpac produce by way of discovery the history sheets maintained by the Pymble branch in relation to the accounts of the Shirley group of companies.
The thrust of Mr Shirley's evidence as to the discussions before 21 July 1989 was that Mr Wynd would "check out" the project, in the context of a detailed discussion as to the importance of payments being made to Shirley Partners if the job was taken on. Mr Shirley said in his statement that he asked Mr Wynd at a meeting on 23 June 1989 whether he had heard "anything about the Project from Head Office" and that Mr Wynd said that he had "not had time to check it out" but that he would. Mrs Shirley gave similar evidence in her statement.
Mr Wynd acknowledged that by 10 July 1989 Mr Shirley had requested information from him about the project at Double Bay and that, prior to 20 July 1989, Mr Shirley had asked him specifically what he could tell him about that project. Mr Shirley said that, in a telephone conversation on 3 July 1989, Mr Wynd told him that Westpac was extensively involved in the project at Double Bay but that he did not know the details and was getting further information.
Mr Wynd denied that he said that. The basis for his denial was that he did not believe that he would at that time have been able to make such a comment because he had no knowledge of the project apart from the details given to him by Mr Shirley. The observations which I make below concerning the question as to when Mr Wynd first spoke to Mr Lee Archer about Scotts Developments supports Mr Wynd's evidence in that respect.
Much of Mr Wynd's evidence was based on the contemporaneous documents, indicating that, to the extent that he disputed what was said by Mr Shirley, it was by way of reconstruction rather than by actual recollection. Mr Wynd acknowledged that he had no independent recollection of the detail of any of the discussions about which Mr Shirley gave evidence. He said that he had a recollection of some events but generally had to rely on the file notes. Mr Wynd impressed me as being a reasonably capable bank officer who was doing his best to give his evidence honestly.
Mr Shirley was a more perceptive and intelligent witness than Mr Wynd. While I do not consider that Mr Shirley was guilty of any deliberate falsehood, I was not confident that I could rely upon his evidence as to detailed conversations without any contemporaneous corroboration. There are several matters which point to the unreliability of his evidence.
One particular difficulty arises from the manner in which evidence in chief was given. The parties had, prior to commencement of the trial, filed and served written statements by the principal witnesses. Although the parties were invited to consider an alternative course, they preferred the course of tendering those statements as the evidence in chief of the witnesses. The form of Mr Shirley's statement did not assist the reliability of his evidence. Throughout the statement he effected to give conversations verbatim. That was clearly artificial, as it often is when a witness is called upon to recall conversations which he or she had some years previously.
In the present case however, that artificiality was exacerbated by the way in which Mr Shirley purported to recount conversations verbatim. Thus, Mr Shirley's statement contains the following:
"In the morning of 30 May, 1989 I rang WPAS to enquire as to the purpose of the harbour cruise, I spoke to the lady [whom I believe was one Jackie Metzner] and said:
"This is Andrew Shirley; I have received an invitation to go on a harbour cruise; why have you sent one to me? What is it all about?"
She said:
"Is that the cruise on 2 June, 1989?"
I said:
"Yes"
She said:
"It's for the Scotts Project at Double bay [hereinafter referred to as The Project] and we want to celebrate the commencement of The Project. We are The Project financier and want you to work for us on The Project."
I said:
"I don't know anything about it."
She said:
"You should speak to Scotts."
I said:
"I certainly will"
I also said:
"Where exactly is this wharf you speak of?"
She said:
"Around under the bridge, opposite The Rocks area".
I said:
"I will be there".
Thereafter, whenever reference was made in the statement to the Double Bay project, it was referred to as "The Project". While the technique of using definitions in that way may well be convenient and appropriate in a narrative or a legal instrument, it renders unreliable Mr Shirley's version of conversations as purportedly being verbatim.
Another matter of concern was the evidence relating to conversations said to have taken place on the launch "Tarquin". In his statement, Mr Shirley deposed to several conversations which he said he had in the course of the harbour cruise on the launch "Tarquin". He said that he was not sure of the names of all the Westpac persons he was introduced to, but "remember Ms Jackie Metzner and Mr G.Lee-Archer". In particular, he said that he "discussed the Project extensively with Ms Jackie Metzner and the way the Project was to be financed". He purported to give verbatim conversation on that topic including discussion about payment of invoices from consultants.
A statement was signed by Ms Metzner and became her evidence in chief. In it she said that she was employed by WPASL for a 12 month period during 1988 and 1989. Her duties included typing, filing and copying documents, answering the telephone and taking messages and preparing presentation materials. She was "the secretary" assigned to a particular work group within WPASL which included Messrs Meyer and Robinson. Ms Metzner gave evidence that the statements attributed to her could not have been made by her as she did not have the necessary knowledge of the project or of the roles of the parties involved in it. I believe her.
Sometime after Ms Metzner's statement was filed and served, Mr Shirley made a further statement in which he acknowledged that he did not have any discussion with Ms Metzner on the launch regarding the Double Bay project. He said that his references to Ms Metzner in his earlier statement should have been references to Jane Diplock.
Ms Diplock also gave evidence. She said she that she believed she did not say anything to Mr Shirley on the subject of processing of sub contractors invoices. It is inherently likely that Ms Diplock would have had nothing to do with such a process. That was a matter for Mr Lee-Archer. Ms Diplock struck me as a careful and honest witness. Her evidence renders doubly unreliable the evidence of Mr Shirley in relation to the harbour cruise.
Further, on several occasions, Mr Shirley was prepared to deny in cross examination the use of language which he himself had used in his own documents. For example, he denied that as at 16 June 1989, there had been a "securement" of the Double Bay project notwithstanding that in his own note to Mr Wynd he referred to the project in that way. He also denied that BHP Engineering had "canned me" notwithstanding that that was language he used in a document which he himself had prepared.
Most significant, however, in terms of an assessment of the reliability of Mr Shirley's evidence as to the conversation on 21 July 1989 and his alleged reliance on any statement which may have been made on that occasion, are the two letters bearing date 20 July 1989 which he himself composed. One was addressed to Westpac and the other was addressed to Scotts Developments.
The letter addressed to Westpac was in the following terms:
"Re: Company Report - July, 1989
Temporary Variation in Overdraft to 30/9/89
In anticipation of our meeting on 21st July, 1989, we enclose herewith copies of the following documents for your information and comment:
a) Short term (3 month) cash flow
b) Budget 'Expense Summary' for next 12 months
c) Schedule `A' - July 1989/June 1990 Sales Statement
d) Long term cash flow for the next 18 months
e) Copies of letters in respect of the Scotts Developments agreement and BHP Engineering in respect of the Integrated Support Funding.
In regard to our short term cash flow problem which has been chiefly created by the Scotts projects at Double Bay, we advise:
1. This project is for a major new Hotel/Retail Complex in Cross Street, Double Bay, is funded by Westpac and is on behalf of the Woollahra Municipal Council.
2. Whilst Scotts are unwilling to `commit' themselves to engaging us beyond May 1990 (due to their desire to place the entire contract for `design & construction' under the Builder) we consider there is little doubt that we will continue on the project beyond May 1990 with further design and supervision work later in 1990/91 amounting to Fees in excess of $150,000.
3. The terms of payment for this project are the chief cause of our present severe cash flow problems, and it has not been possible for us to negotiate more favourable terms; in effect we have had to accept a 30 day billing cycle with payment some 40-45 days later. This has effectively increased our level of Debtors from our normal staff level of about $50,000 to $90,000 as with smaller projects we are usually able to average a 21 day bill cycle, and 21 days payment.
4. We accepted these terms because of the overall profitability of the project to us.
In regard to the Integrated Support Projects, we believe that the Austress-PSC & BHP Engineering Agreements will lead to a much broader base to the Firm and consequent reduction in `cyclical down- turns'; potentially therefore enabling us to substantially reduce our long term debts.
In the light of the foregoing, and on the basis of the `short term cash flow', we request that the bank accommodate us in regard to overdraft facility (for Edwina-Louise Securities Pty Ltd) to the extent of $50,000 for the next 3 months (ie. to the end of September 1989) when our chief cash flow problems will be overcome. After September, we believe the presently arranged $10,000 limit will be more than sufficient for our needs.
Finally, we would like to thank the bank for its past support and if any further information is required, please contact the undersigned.
Yours faithfully,
SHIRLEY PARTNERS PTY. LIMITED"
There was also enclosed with that letter a copy of the letter bearing the same date addressed to Scotts Developments. The terms of that letter are set out below. However, the reference in the letter to Westpac to the Double Bay project is hardly consistent with Mr Shirley expecting information from Mr Wynd. The letter does not so much as hint at any inquiry having been made by Mr Shirley of Mr Wynd for details about the Double Bay project. The letter is a request for financial accommodation in circumstances where Mr Shirley was referring to a "short term cash flow problem".
It is quite inconsistent with Mr Shirley relying upon alleged representations made by Mr Wynd on behalf of Westpac for Mr Shirley to say that the terms of payment for the project were the chief cause of "our present severe cash flow problems". The reference to inability to negotiate more favourable terms and acceptance of those terms because of the "overall profitability of the project to us" is simply not the language which a customer would use to its banker in circumstances where the customer had not made up its mind whether to proceed with a transaction with a client of the customer and was proposing to rely upon information furnished by the banker as to the financial reliability of the client.
Mr Wynd prepared an internal memorandum recommending approval to a temporary excess in the overdraft limit. Under the heading "GENERAL", Mr Wynd included the following:
"Director Andrew Shirley called. Future for all three companies looks good however over the next two months cash flow will be a problem. Short and long term forecasts have been prepared (attached) which show a need for assistance from now until Mid September to around $40. Current request is for true "cash flow" borrowings with some $100 and outstanding to support request. We have always been kept fully informed concerning financial position of company and present information supplied supports the Director honesty and reliability. We are confident cash flows are realistic and limit will be adhered to ($10 built into request to cover any slight problems.
We see this connection as having a bright future especially with regard to the new Integrated Support System/BHP deal and have no hesitation in recommending we assist in line with cash flow under the category of "cash flow lending". All available security is held and Director are well aware that their family home is at risk should business fail. All surplus funds from September on will be held by us or used to reduce fixed loans.
Since last report directors have injected $10,000 in the company Integrated Support Systems by way of capital (shares). This shows their faith in the various operations.
Company has been operating now for 15 years and has a proven customer base and track record. Currently they employ 8 staff plus Mr and Mrs Shirley."
Those comments are inconsistent with Mr Wynd having any understanding that Mr Shirley was relying on statements which Mr Wynd might make concerning the ability of Scotts Developments to pay accounts for fees rendered by Shirley Partners.
Considerable reliance was placed by counsel for the applicants on the question of whether or not Mr Wynd had spoken to Mr Lee-Archer concerning the Double Bay project at the time when the discussion between Messrs Wynd and Shirley took place on 21 July 1989. It was said that on the one hand, if Mr Wynd had not had contact with Mr Lee- Archer or anyone else concerned with the Double Bay project, it was untrue and careless of Mr Wynd to make the statements attributed to him by Mr Shirley about the project. On the other hand, if Mr Wynd had contacted Mr Lee-Archer to obtain details of the project, he would have known that the facility of $24,500,000 which had been granted to Scotts Developments had in no sense been earmarked to ensure payment for the design work to be provided by Shirley Partners and the statements attributed to Mr Wynd by Mr Shirley were misleading.
The only relevant evidence of any record of conversations between Messrs Wynd and Lee-Archer concerning the Double Bay project consisted of two internal diary notes. The first is a note made by Mr Wynd on 28 November 1989 which contained the following:
"All details regarding Scotts Development(sic) have been verified with Corporate Banking, (Gregory Lee Arthur(sic)). The Bank has approved funds totalling $24Mil to enable construction of a multi storey car park at Double Bay. The deal was put together by WP and ASL which is part of Corporate Banking. To date some $7.0 Mil has been advanced for preliminary expenses, planning etc."
There is nothing in the note which indicates whether any conversation had occurred between Mr Wynd and Mr Shirley on 28 November 1989. However, the note contains reference to a telephone number which coincides with the telephone number recorded in a note on a file cover produced by Westpac on discovery. That note was made by an unidentified person in the following terms:
"27/11 Greg Liarcher(sic) 276-3750 from Corp is sending copies of file on Scotts".
The second document is a memorandum prepared by Mr Lee-Archer dated 18 January 1990. It contains, inter alia, the following:
"Peter Wind(sic), Manager Pymble rang to enquire about Scotts and its ability to pay claims for work done by its clients - Shirley Partners Pty. Ltd ......
The writer rang Mr Bob Scotts - Managing Director (Scotts) and during discussions was told that it was common for Scotts to "lag" payments by one month and that the November invoices would be paid at the end of January. The writer advised Bob that it was the Bank's intention that consultants be paid immediately after drawdown of each tranche in terms of invoices lodged with the Bank. The writer, knowing that current accounts are not holding credit funds of $0.6 (the amount of the last drawdown) enquired as to where the funds had been placed - the reply was "in the company's accounts with the NAB". Whilst it is difficult to substantiate or refute this claim the writer is a little sceptical of the reply.
Bob is well aware of the availability of further funds under the facility .... and will reach the "moment of truth" in February if the funds aren't with the NAB.
Bob is believed to have substantial personal liquid assets that could be used in need.
Continued careful control needs to be exercised with this credit and any drawdowns closely verified.
Scotts have been made aware that the Bank would not look favourably on any request for additional funds for this project."
The evidence of those two documents is somewhat equivocal as to whether Mr Wynd spoke to Mr Lee-Archer in July of 1989. While the memorandum of 28 November 1989 does not identify the date when the details regarding Scotts Developments had been verified with Mr Lee- Archer, the handwritten reference to Mr Lee-Archer's telephone number with the previous day's date suggest that the conversation took place about that time. The fact that reference is made in that memorandum to communication with Mr Lee-Archer, but no reference of Mr Lee-Archer is made in the memorandum prepared by Mr Wynd on 20 July 1989, referred to above, also suggests that Mr Wynd probably did not verify anything with Mr Lee-Archer until November 1989.
I have referred above to the notes which Mr Shirley prepared of his discussion of 17 July 1989 recording the "various commercial agreements and requirements" which were discussed at a meeting between Mr Shirley and Messrs Tate and Imlay on that day. Mr Shirley's notes included the following:
AS and TT (Andrew Shirley and Tom Tate) agreed that a formal letter of agreement with amended terms of engagement would be forwarded to Scotts for perusal by the 18th July 1989. RI pointed out at this stage of the meeting for the estimate system to work properly, detailed information would be required on a monthly or quarterly basis as to what goals were to be achieved and what work had to be completed in that period and could be estimated upon. Tom Tate agreed and it was decided that RI and TT should discuss this estimate and work out the specific details.
Tom Tate was at length to describe the Shirley Partners relationship with Scotts Developments and emphasised the fact that Scotts developments wanted to work with Shirley Partners on this project. Shirley Partners would be instructed as the "watch dog" engineer should the DMC approach be adopted and otherwise would be involved in any design should Scotts decide to go it alone.
The Shirley Partners commercial agreement was to include Shirleys provision of a performance specification, limited design details and the management of the necessary sub consultants as agreed by Scotts who will invoice directly to Scotts but will tender to Scotts via Shirley Partners.
That discussion is referred to in the preamble to Mr Shirley's letter to Scotts Developments of 20 July 1989. The letter was in the following terms:
"Re: Atrium Hotel, Cross Street, Double Bay
Guilfoyle Avenue Car park, Double Bay
Council Depot, O'Dea Street, Waterloo
ACCEPTANCE OF GROUND ENGINEERING CONSULTING COMMISSION
We refer to our previous discussions in the matter and particularly our discussion on 17th July 1989. We now confirm our acceptance of your instructions to act as your Consulting Engineer for the Ground Engineering Aspects of the subject developments.
1. Terms of Engagement & Payment
In regard to this commission we note that the same has been accepted on the basis of our normal `Notes on Terms of Engagement, Fees & Budget Estimates' (copy attached) noting the following variations:
a) Item 2.d)
Invoices will be rendered on a monthly basis, generally about 20th of each month, and paid by Scotts within 30 days.
Invoices for time basis work will be rendered at 90% of our usual `time basis' Consulting Rates, with the balance of our time basis fees to be invoiced in October 1990.
An Invoice for the `Percentage of Cost' component of Fees to be rendered in October 1990, and to be paid within 30 days.
Subcontractors and/or sub-consultants are to be paid direct by Scotts Developments Pty. Ltd on receipt of appropriate certification from Shirley Partners Pty Ltd.
b) Item 3.a)
i) Budget estimates for individual parts of the work are to be provided on a regular basis, and all work undertaken in accordance with an approved `budget'.
ii) Budget estimates to cover the next 4 months work are normally to be prepared in advance and revised on a `monthly' basis.
iii) The principal purpose of the `regular budgets' is to provide considerable flexibility in the management of this very complex project.
2. Scope of Service & Fees
It is mutually recognised that there may need to be considerable variations in the input required by us, and that the precise scope of our service is difficult to define at this time.
We do however confirm that it is presently anticipated that our work will extend over a considerable period (presently up to May 1990 and probably beyond). Shirley Partners are also to overview specialised subconsultants (eg. groundwater consultants) who would be engaged directly by Scotts, presumably on the recommendation of Shirley Partners.
The agreed basis of our fees is as follows:
a) Geotechnical advices & Site Investigations
- `time & expenses'
b) Investigation of alternate designs, feasibility studies and site supervision
- `time & expenses'
c) Preparations of preliminary designs, concepts, layouts, specifications, etc., to preliminary stage (eg. the writing of performance specifications and drafting of appropriate design details), or complete `detailed design' including all relevant documentation to be a two part fee consisting of:
- a `time & expense' component to cover the physical cost of doing the work specifically authorised by Scotts, plus
- a two (2%) `percent of the cost of the works advised' fee to cover our experience, use of specialised computer programs & systems, responsibility, applied experience, originality of design, interest charges in regard to the `deferred portion' of our time basis fees, and other professional aspects of the project.
In regard to item 2.c) we note that the intention of this arrangement is to permit us to act in a variety of ways for Scotts (eg. by either undertaking the detailed design work [for the Builder] or simply acting in a `watchdog' manner [for Scotts] to check on the quality of the work performed by others) whilst providing us an appropriate return for aur(sic) input to the project.
To assist in the overall project planning, we attach an initial schedule indicating the works to be undertaken up to December 1989, together with a billing schedule to October 1990; we do however note that each of the various work units will be the subject of a separate `budget estimate' and that the billing schedule will need to be revised as the work proceeds.
Finally, we are currently preparing the detailed budgets for the next four months work we would appreciate your formal confirmation (eg. by short letter) of these instructions as soon as possible. Should however, you have any questions please do not hesitate to contact our Mr R.A. Imlay or the undersigned.
Yours faithfully,
SHIRLEY PARTNERS PTY LTD"
The terms of that letter are consistent only with a firm arrangement having been entered into between Scotts Developments and Shirley Partners. There is no suggestion in that letter of conditionality. More importantly, as I have said, a copy of that letter was enclosed with the letter to Westpac. The obvious purpose for doing so was to persuade Mr Wynd that there was a firm arrangement with Scotts Developments. That is quite inconsistent with a desire on the part of Mr Shirley to obtain information from Mr Wynd before he committed Shirley Partners to entering into a firm arrangement with Scotts Developments.
In the course of address, counsel for the applicants put somewhat of a gloss on the representations pleaded. He effectively conceded, as the evidence required him to do, that the first two representations pleaded were true. He confirmed that, in substance, it was the representation that Andrew Shirley and his companies "could proceed with the contract with Scotts in confidence" which was the only relevant representation.
Counsel, however, contended that the statements deposed to by Mr Shirley should be understood as a representation by Mr Wynd that he was satisfied that, if Shirley Partners entered into an engagement with Scotts Developments with respect to the Double Bay project, its money would be safe. It was also contended that the statement that the Double Bay project was indeed a Westpac project and that Westpac had provided finance for it "conveyed a firm assurance by [Westpac] to Mr Shirley that he was safe to undertake an engagement with Scotts Developments in respect of the design element of the project".
In his statement, Mr Shirley said that he committed Shirley Partners because he was advised by Westpac that he could "work on The Project in confidence and surety that [he] would be paid because The Project was financed by Westpac". However, there was no evidence that any statement was made in those terms and that is not the representation which was pleaded. Further, I do not consider that the statements attributed to Mr Wynd by Mr Shirley could be construed as having that meaning. The need for counsel to resort to a representation which was not pleaded highlights the difficulty fof the applicants in establishing that there was a representation by Mr Wynd which was capable of inducing Mr Shirley to enter into arrangements with Scotts Developments.
Added to that is the relationship which existed between Scotts Developments and Shirley Partners. Since the late 1970's Shirley Partners and Scotts Developments had been doing business together. Mr Shirley had met Mr Robert Scotts, the principal of Scotts Developments in professional circumstances where Shirley Partners was doing geotechnical work in relation to a project on which Mr Scotts was builder. Between that time and 1989, Mr Shirley had worked with Mr Scotts on a regular basis. They had worked together on about 30 or 40 projects.
By about 1985 or 1986, Mr Scotts had become a significant customer of Shirley Partners. As recently as March or April of 1989, the two were working together on a project at Mosman. In the light of that long lasting and obviously valuable relationship, it is inherently unlikely that Mr Shirley was going to rely on the unspecific statements which he attributed to Mr Wynd in deciding whether he would enter into an arrangement with a company which had been a significant customer for several years and with which he had been dealing for over 10 years.
All of the above considerations lead me to conclude that I should have doubts about Mr Shirley's version of the conversation of 21 July 1989. More importantly, they also lead me to conclude that I should not accept that Mr Shirley was induced by any misleading or false statement by Westpac to enter into the arrangements which he made with Scotts Developments. I conclude that Mr Wynd did not say anything about Scotts Developments which could fairly be understood as a statement as to the financial standing of Scotts Developments or the likelihood of Scotts Developments' ability to pay fees which might become payable to Shirley Partners.
The most that could be gleaned from Mr Wynd's statements, and it may be that that is all Mr Shirley's evidence goes to, is that Westpac was providing finance to Scotts Developments in connection with the Double Bay project. That was a perfectly true statement. There was evidence before me, in the form of the facility agreement which Westpac entered into with Scotts Developments, which confirmed that Westpac was financing the project to the extent of $24,500,000.
In so far as Mr Shirley believed that, because the Double Bay project was being financed by Westpac, he would be paid by Scotts Developments, that was a conclusion which may have been based upon the true statement by Mr Wynd that Westpac was financing the project. However, in so far as Mr Shirley deduced, from the fact that Westpac was financing the project, that he would necessarily be paid, that was a deduction of his and no more. It was not said by Mr Wynd and Westpac was under no duty to advise Mr Shirley that he should not make such a deduction from the mere fact that Westpac was financing the project.
To the extent that Mr Shirley relied upon statements made by Mr Wynd in deciding to enter into arrangements with Scotts Developments, he deluded himself as to the consequences of any statement by Mr Wynd that Westpac was financing the Double Bay project. Mr Shirley may well have believed that he was assured of payment by Scotts Developments because Westpac was financing the project. However, Mr Wynd did not tell him that. Nor did Mr Wynd's conduct amount to a representation to that effect.
Mr Shirley's difficulties may well have arisen from a misapprehension on his part as to the involvement of Westpac with the project. Mr Shirley acknowledged that he knew that Scotts Developments did not itself have the funds necessary to undertake the project. He knew that Scotts Developments, unless it borrowed money, would not be able to pay fees to Shirley Partners as consultant in relation to the project. He concluded that, because Westpac had agreed to lend money to Scotts Developments to enable Scotts Developments to undertake the project, the fees of Shirley Partners as consultant would necessarily be paid. That is a non sequitur for which Westpac cannot be held responsible.
In any event, even if Mr Wynd said that Mr Shirley and Shirley Partners could proceed with the contract with Scotts Developments "with confidence", that was not misleading or deceptive in the context in which it was made on 21 July 1989. The context was one where Mr Shirley, on behalf of ELS, was asking for additional accommodation because of the short term cash flow problem created by the involvement of Shirley Partners in the Double Bay project. Unless Westpac was prepared to give additional accommodation, it may have been difficult for Shirley Partners to continue with the project and remain solvent.
Mr Shirley needed to know that additional accommodation would be available to ELS. If it was, he could, with confidence, continue with his involvement in the project. Mr Wynd was prepared to tell Mr Shirley that the bank would provide the additional accommodation. Accordingly, Mr Shirley was prepared to undertake involvement in the Double Bay project with confidence that he would have the financial support he needed from Westpac. The context of the letters of 20 July 1989 indicates that anything which was said by Mr Wynd about "confidence" had nothing to do with the financial standing of Scotts Developments and had nothing to do with the question of whether or not Scotts Developments would be able to pay fees due to Shirley Partners.
I consider that the case based upon the 1989 Representations must fail because I am not satisfied that representations were made which were false or misleading.
The Background to the 1990 Representation
The recommendation made by Mr Wynd in his memorandum of 20 July 1989 was not approved by Mr Withey, the regional credit manager. Mr Withey recorded his remarks concerning the application on 9 August 1989 in which he noted "we see `security position' ... is 93%". Mr Withey required clarification of the security position.
Clarification was provided by Mr Wynd in a memorandum dated 14 August 1989. In his response, Mr Wynd calculated the current loan security/ratio at 82% and his own calculation of the "current request/position" at 93%. By memorandum dated 23 August 1989 Mr Withey recorded that "the debt was virtually already at the level of this request" and directed that the excess over the $10,000 ELS overdraft limit should be "carried in Manager's list with a peak of $50,000 not to be exceeded". In evidence, Mr Wynd explained the system which involved the manager of the branch reviewing on each morning the entries for the previous working day, with the manager having to make a decision whether to honour cheques which took the balances over the established overdraft limits.
Notwithstanding that the increased overdraft limit for ELS had not been approved, Mr Wynd wrote a letter dated 24 August 1989 which referred to "Bank's approval to an increase in your overdraft limit". This, Mr Wynd agreed in cross-examination, was not strictly accurate and was "not the correct choice of wording".
On 28 August 1989, following the initiative of Mr Withey, the valuation department of Westpac recommended that a formal re-valuation of the Turramurra property be undertaken. On 30 August 1989, Mr Withey forwarded to Mr Wynd the preliminary views of Westpac's valuation department directing Mr Wynd to arrange for an updated valuation to be carried out in relation to the Turramurra property "as debt/security ratio will be 107%".
By 14 September 1989, Mr Wynd was due to take leave. On that date he prepared a report to the regional office which recorded the reduction which had taken place in the assessment of valuation of the Turramurra property by a sum of $45,000 to $355,000 "due to the general downturn" in house values. That memorandum was prepared by reference to the overdraft balance of ELS on 13 September 1989 which was recorded at $8,000.
This substantial reduction in the ELS overdraft was reflected by a deposit of $43,222.58 on 13 September 1989 and the reduced overdraft balance on that day was a most uncharacteristic occasion when the overdraft balance fell beneath the $10,000 limit. That unusual state of affairs allowed Mr Wynd to report "on present facilities loan/security ratio is 92%". In his report of 14 September 1989, Mr Wynd stated to the regional resources manager "position is considered quiet (sic) safe".
The position was reassessed by Mr Wynd on 18 October 1989 after his return from leave. He reported to the regional office on that date the overall security ratio to be "92% on approved limits". Consistently with his earlier calculations, this assessment took into account the overdraft limit rather than the actual amount to which the account was overdrawn and did not take into account the existence of the personal loan of $10,000 which had been made by Westpac to Mr and Mrs Shirley on 23 June 1989 and which Mr Wynd regarded as "unsecured", notwithstanding the provisions of the mortgage by Mr and Mrs Shirley to Westpac which secured all indebtedness of the mortgagors.
In assessing the report of 18 October 1989, the regional office recalculated the actual loan security ratio at 103% without regard to the personal loan. In the submission prepared by Mr Wynd on 18 October 1989, he had recorded that the Scotts Developments' work then averaged approximately 50% of all income of Shirley Partners. Mr Withey responded on 26 October 1989 that various "peaks" should be enforced and controlled within the manager's list "with no excesses" in the ensuing months up to 15 January 1990. These "peaks" were assessed by reference to cash flow estimates provided by Mr Shirley.
In October and November 1989, Shirley Partners had difficulty in collecting payments due from Scotts Developments in respect of the design work carried out on the Double Bay project. On 28 November 1989, Mr Wynd prepared the diary note to which reference has already been made. In it he recorded the delay which had been experienced by Shirley Partners in the receipt of moneys from Scotts Developments. He also recorded "Scotts only received final approval to their DA from Wollahra (sic) Council last night and now Westpac can begin to release funds to Scotts".
Mrs Shirley gave evidence, which was not disputed by Mr Wynd, that she was contacted by him in December 1989 and January 1990, with regard to the non-payment by Scotts Developments of particular invoices. Mr Wynd was checking the position about particular payments through his ability to speak to the people at Westpac. On 14 December 1989, Mr Shirley had written a memorandum to Mr Wynd referring to the difficulties in recovering fees from Scotts Developments and asking for adjusted overdraft limits.
Shirley Partners continued to undertake work for Scotts Developments in relation to the structural design for the basement area of the hotel proposed for the Cross Street site until April 1990. The last payment of $22,697.70 was made by Scotts Developments to Shirley Partners on 27 April 1990 which left outstanding a balance of consulting fees totalling $104,070.86. An invoice rendered by Shirley Partners to Scotts Developments dated 30 April 1990 in a sum of $13,505.74 took the outstanding debt to $117,576. That was recorded by Mr Shirley in a memorandum sent to Mr Wynd on 9 May 1990. Invoices were rendered monthly thereafter for relatively minor amounts.
In a file note dated 3 May 1990, Mr Wynd recorded the problems with the Scotts Developments debt, adding "the Scotts project is funded by Westpac and payment will eventually come". He also stated:
"long term the ISS project and associated will be the saviour of the Company".
Mr Withey recorded a discussion on 9 May 1990 with Mr Wynd discussing the level of debt. This included a statement that Mr Wynd had advised him that:
"verbal information from account manager had satisfied (Mr Wynd) that Scotts would be in a position to honour arrangements".
Mr Withey had required Mr Wynd to render a detailed report. That was done on 11 May 1990. The report said:
"all details have been confirmed by Greg Le-Archer from our corporate banking division who are Scotts managers and are funding the stage 1 of the project. Involvement of a joint venture partner is "around the corner" and this will mean funds may flow earlier than August .... eventual payments from Scotts are considered safe".
On 18 May 1990 Mr Withey directed that the Shirley accounts should be placed on month report and that the peak debt of $80,000 should not be exceeded. At the date of Mr Wynd's report on 11 May 1990 the ELS overdraft stood at $47,500.
On 21 May 1990, Mr Wynd recorded a request for the regional security centre to prepare "some sort of undertaking" that Shirley Partners should sign an equitable mortgage of assets. A document to that effect was subsequently signed by Mr and Mrs Shirley on behalf of Shirley Partners on 11 June 1990. Mr Wynd made a monthly report to the regional credit manager on 13 June 1990. At that date the ELS overdraft stood in debit at $75,000. On the same day, Mr Wynd recorded the execution of the undertaking by Mr and Mrs Shirley "today", probably explained by a two day lag in the typing pool.
On 3 July 1990, Mr Shirley and his family were on a camping trip in the Northern Territory. Mr Shirley was informed by his office that a payment from Scotts Developments due on 29 June 1990 had not been made. On the morning of 3 July 1990, Mr Shirley telephoned Mr Wynd and asked for further assistance. At that date the ELS overdraft stood at $78,831 with the approved "peak" being $80,000. In this conversation, Mr Wynd declined further assistance after referring the matter to the regional manager, stating that he was "personally sorry" and suggesting that Mr Shirley return to Sydney to deal with the problem.
On 16 July 1990, Mr Wynd reported to the regional credit manager the further failure by Scotts Developments to make payment and enclosed fresh cash flows, which suggested a peak debt of $100,000 stating that $30,000 from Scotts Developments "would be" paid by 31 July 1990 and the balance of $100,000 "should be" paid as promised by 20 August 1990. The regional credit manager asked "how reliable are Scotts?" requiring Mr Wynd to obtain an opinion on Scotts and "revert" immediately if "adverse".
In the meantime, the guarantee and equitable mortgage which Mr Wynd had suggested be provided by Shirley Partners had been drafted by Westpac's solicitors, Messrs Minter Ellison. A memorandum dated 24 July 1990 provided Mr Wynd with instructions as to execution of that document and also a suggested draft or sample of the required attestation which was to be recorded in relation to the execution of the Securities. On 25 July 1990, the regional office confirmed to ELS an increased overdraft limit of $80,000.
On 27 July 1990, Mr Wynd recorded a further conversation with Mr Lee- Archer. Mr Lee-Archer had spoken of his confidence that the project at Double Bay was still viable and it would go ahead and Mr Wynd recorded even at this stage that there was "no reason to doubt" that Scotts would be able to repay the money owed however "when is more the question".
On 3 August 1990, Mr and Mrs Shirley attended the Pymble branch of Westpac and on behalf of Shirley Partners executed the Securities.
The position of the Shirley group of companies continued to deteriorate. No further payment was forthcoming from Scotts Developments and eventually, on 2 November 1990, formal notices were given to the various Shirley customers of Westpac placing their accounts on a "no further drawings" basis.
The 1990 Representations
The statement of claim alleges that, acting on the faith of and induced by further representations said to have been made by Mr Wynd in 1990, Mr and Mrs Shirley, on behalf of Shirley Partners, executed the Securities. It is claimed that Mr and Mrs Shirley would not have executed the Securities on behalf of Shirley Partners but for the continued assertion by Mr Wynd that the moneys owing to Shirley Partners by Scotts Developments would be recovered. The representations were pleaded in the following way:
(a) On 9 May, 1990 Mr Wynd represented that Westpac needed to secure its position and it was not a question of if Shirley Partners would be paid but when and that he wished to ensure that when the money came it would be used to reduce the ELS borrowings.
(b) At the meeting on 27 July 1990 Mr Wynd represented to Mr Shirley that he could advise that Westpac thought that Scotts Developments was "top of the heap" and that it was not a question of if Shirley Partners was going to be paid for work on the Double Bay project but when.
(c) On 3 August Mr Wynd advised Mr and Mrs Shirley that the project was going ahead, Scotts were "top of the heap" or "top builders" and that it was not a matter of Shirley Partners would be paid but when.
(d) On 3 August 1990 Mr Wynd represented to Mr and Mrs Shirley that the equitable mortgage and guarantee was a standard document and that it was not necessary to take them to a lawyer.
The file notes and records made by Mr Wynd between November 1989 and August 1990 demonstrate a view, reinforced by information received from Mr Lee-Archer, that, despite the delays which were being experienced in payment, the debt owed by Scotts Developments was probably safe and recoverable. Some of the notes and records referred to the notion that it was not a question of "if" the Scotts debt would be recoverable by Shirley Partners, but a question of "when". A statement to that effect was recorded by Mr Wynd in his diary note dated 27 July 1990, made on the day he spoke to Mr Lee-Archer.
The initiative for the Securities came from Mr Wynd. It was explained to Mr and Mrs Shirley that it would be necessary for them to sign further security documents so that Westpac could ensure that, when the Scotts debt was recovered by Shirley Partners, it would in fact be applied to reduce the ELS overdraft. Mr Wynd agreed in evidence that he understood that to be the purpose of the Securities. It was contended by the applicants that the only rationale for the execution of the Securities was Mr Shirley's continuing belief in the representations by Mr Wynd that the debt due by Scotts would be recovered.
On 3 August 1990, Mr and Mrs Shirley went to the Pymble branch for the purpose of execution of the Securities. Mr Shirley's account of the conversation which then occurred is as follows:
"On 3 August, 1990 .... my wife & I attended Westpac Pymble Branch to sign the mortgage and guarantee documents as discussed with PW on 12 June, 1990 which had been prepared by Minter Ellison, solicitors.
On being presented with the documents, I said:
"These are pretty extensive documents and I don't know whether they say what we have agreed to".
PW said:
"Andrew, I am told they are really standard documents. I must admit though that I haven't read them fully myself."
I said:
"I think I should have my solicitor look through them and advise me whether I should sign them."
PW said:
"It won't make any difference; the bank has prepared these and wants you to sign them. I am also sure that the bank won't tolerate any changes; so if you don't sign them, the overdraft limit will go immediately."
I looked at my wife and said:
"We are stuffed if we don't sign them, I suppose they are OK, but this seems very strange doesn't it?"
She agreed.
PW was at the time looking through the documents and said:
"Really Andrew, they are a really straightforward mortgage documents, standard documents, I am sure its OK for you to sign them."
Consequently, my wife and I signed the documents. They had yellow tags showing us where and how to sign; PW witnessed our signatures.
At the time of signing these documents, I asked PW:
"Can Westpac provide me some temporary extra overdraft extension to pay staff, on the basis that the extra funds from Alan Muller would be injected into the company?"
PW said:
"Yes, we will cover those pay cheques and other urgent items."
Mrs Shirley corroborated her husband in some respects as to that conversation. Her statement contained the following:
"On 3 August, 1990, I went with my husband to the Pymble branch of Westpac. Mr Wynd was there. We went into his office. He had documents on the table. My understanding and belief as a result of what my husband had told me was that we were there to sign documents so that the Bank would have security when the outstanding money was eventually paid to the firm by Scotts.
During this conversation with Mr Wynd words were said to the following effect:
Myself: "I have spoken to my father and he is prepared to loan me $100,000 until the Scotts money comes in. It will be a couple of weeks because the money is on term deposit."
Wynd: "That's good news."
There was further discussion on this occasion concerning the execution of the documents. I recall words being said to the following effect:
My husband: "Shouldn't we get our solicitors to look through this document?"
Wynd: "Well really Andrew, it is a normal Bank document. Even if you wanted to change something I don't thing the Bank would agree to it."
Words to the following effect were also said:
My husband: "Will you let us have some temporary overdraft extension until the money comes through from my wife's father."
Wynd: "Yes, we will cover your cheques and pay urgent items, but keep it to a minimum."
Mr Wynd does not contradict the substance of what is alleged by Mr and Mrs Shirley except as to any assertion that they were not given the opportunity to consult their solicitors. Mr Wynd's contradiction of the suggestion that Mr Shirley asked that the documents be placed before his solicitors is based upon a memorandum dated 3 August 1990. If that memorandum can be accepted as an accurate record, it throws grave doubts on the reliability of Mr and Mrs Shirley's evidence in relation to the 1990 Representations.
The memorandum of 3 August 1990 was signed by Mr Wynd and by Paul Minto who was at the relevant time managerial assistant at the Pymble branch. The document was in the following terms:
"3/8/90 PW/MGR PYMBLE
EDWINA LOUISE SECURITIES PTY. LTD.
SUBJECT: Execution of Security Documents.
GENERAL: Directors Andrew & Diane Shirley called to execute documents in connection with the overdraft facility to Edwina Louise Securities Pty Ltd.
We Peter Wynd & Paul Minto being Officers of Westpac Banking Corporation on 3/8/90 attended the execution of a Guarantee by Shirley Partners Pty Limited in favour of Edwina Louise Securities Pty Ltd and a Mortgage Debenture charge by Shirley Partners Pty Limited over its assets.
Prior to the Execution of the documents the Directors of both Companies were made aware of the nature and effect of the documents and that should the Debtors default on payment of the debt the Bank can demand payment from the Guarantor and thereafter pursue its rights at law and proceed with liquidation etc.
The Surety Company was advised the extent of its liability was the whole of the debtors liability from time to time notwithstanding any variation in the arrangements.
The surety was advised to monitor the situation and advise us in writing should they wish to discontinue future liability. The offer was made to the directors to obtain independent legal advice prior to executing the documents however they declined the request.
PETER WYND PAUL MINTO"
Mr Minto impressed me as being a careful and honest witness. I am satisfied that he would not have signed a document in such terms unless he was himself satisfied that what it said was correct to his knowledge. Since I accept the evidence of Mr Minto, and there is no other reason to doubt the genuineness of the memorandum, I conclude that it is an accurate record of what it purports to record. It also follows that I cannot accept the evidence of Mr and Mrs Shirley as to the meeting on 3 August 1990.
More importantly, it appears to me to be highly unlikely that, even if Mr Shirley had been told that Scotts Developments may not be able to pay the outstanding debt due to Shirley Partners, he and Mrs Shirley would have declined to give Westpac the additional security which Mr Wynd was seeking. The financial state of the Shirley group of companies had deteriorated considerably by July 1990. The position was so serious that Westpac had dishonoured cheques drawn by ELS, thereby causing the Shirley family to terminate their holiday prematurely and return to Sydney to deal with the crisis.
It was critical for Shirley Partners to obtain and maintain the support of Westpac in order to remain in business. Mr Wynd made it clear that, unless the additional security were given, that support would not be available. The Securities were given to ensure continued support by Westpac. They were not given by reason of any reliance upon a representation by or on behalf of Westpac to the effect that Scotts Developments indebtedness to Shirley Partners would be paid.
There is an artificiality in the case maintained by the applicants in this respect. The debtor to Westpac was ELS. The sole source of income of ELS was management fees charged to Shirley Partners. Shirley Partners, on the other hand, was the recipient of income from outside clients. In substance, the accommodation which had been furnished to ELS by Westpac was to enable Shirley Partners to earn the fees which it derived from the provision of services to outside clients such as Scotts Developments.
It is unrealistic to suggest Mr Shirley would have permitted Westpac to seek the winding up of ELS rather than permit Shirley Partners to enter into the Securities. The balance sheet of ELS as at 30 June 1990 recorded, as a current asset, a loan to a subsidiary in the sum of $231,361. The balance sheet of Shirley Partners as at the same date records a current liability described as "loan from holding company" in the same sum. A liquidator or other administrator of ELS would have been bound to press Shirley Partners for payment of that debt due and payable by Shirley Partners to ELS.
Thus, if Mr and Mrs Shirley had allowed ELS to be wound up as insolvent, it would have brought down Shirley Partners with it. Further, Mr and Mrs Shirley had themselves given a mortgage over their Turramurra home as security for the advances to ELS. They were, therefore themselves personally exposed if ELS went into liquidation. There was, therefore, no reason at all for Mr and Mrs Shirley to refuse to permit Shirley Partners to be answerable for the indebtedness of its holding company and substantial creditor, and thereby keep ELS afloat.
It follows, therefore, that the real rationale for Mr and Mrs Shirley signing the Securities on 3 August 1990 was to secure the continued support of Westpac which Mr Wynd had threatened to withdraw if the Securities were not executed. Even if the conversation alleged by Mr and Mrs Shirley occurred on 3 August 1990, the Securities were not executed in reliance on a representation that the debt due by Scotts Developments would be paid. They were executed because Mr and Mrs Shirley needed and wanted the continued financial support of Westpac and that would not have been available without the Securities.
Accordingly, I conclude that Shirley Partners was not induced to execute the Securities by any misleading or deceptive representation by Mr Wynd.
Other Matters in Issue
There was a claim by ISS for damages on the basis that Westpac owed a duty to ISS not to give negligent advice to Shirley Partners or to engage in conduct which was misleading or deceptive so far as Shirley Partners was concerned. It is said that because Shirley Partners was the source of funding for ISS, ISS suffered damage by reason of Shirley Partners inability to continue funding the development of the Invention. Damages are claimed comprising the expenditure incurred by ISS in the development of the Invention which it was said was thrown away. In the light of the conclusions of fact which I have reached concerning the claim by Shirley Partners, the claim by ISS must fail.
In any event, the material which I have summarised above does not lead to a conclusion that there was any relevant duty on the part of Westpac to ISS not to cause damage to Shirley Partners. Further, the evidence rather suggests that the Invention was not exploited because no one was interested in it. Thus, BHP Engineering wrote to Shirley Partners on 28 November 1989 declining the offer of a commercial arrangement with ISS. Further, the European patent application lapsed because Mr Shirley could not persuade Austress to pay the fee.
There were several other issues raised by Westpac by way of answer to the claims. For example, Westpac also relied upon a limitation defence. The damages claimed in the second further amended statement of claim are as follows:
(a) Shirley Partners lost professional fees which it would have earned in its business as a consulting engineer in the period July 1989 to 30 June 1992.
(b) Shirley Partners lost consulting opportunities.
(c) The applicants' suffered liability for bank fees and charges, accounting costs and staff reduction costs.
(d) ISS lost the benefit of expenditure which it had laid out in the development of the Invention.
The proceedings were commenced in 1994. It may be that some bank fees and charges were incurred by the applicants in respect of borrowings which they incurred. Those bank fees and charges may have been incurred less than three years before the commencement of the proceedings. Some consulting opportunity on the part of Shirley Partners could also have been lost less than three years before the commencement of the proceedings.
For the most part, however, the substantial damage claimed was suffered more than three years before the commencement of the proceedings. In so far as the proceedings are based on the Trade Practices Act, therefore, there could well have been reasons for refusing the claim on that ground. Having regard to the order which was made by consent under Order 29, it is not possible to determine the limitation question with any finality, assuming it otherwise arose. Since the damages are based upon alleged reliance by Mr Shirley on the conduct of Westpac, it is pointless to endeavour to examine precisely when the damage was suffered, having regard to my finding that there was no relevant reliance.
The order which I propose is that the application be dismissed and that the applicants be ordered to pay the costs of the respondent.
I certify that this and the preceding forty eight pages are a true copy of the Reasons for Judgment of his Honour Justice Emmett.
Associate:
Dated: 2 May 1997
Heard: 10, 11, 12, 13, 14, 17, 18, 19, 20, 21 March 1997
Place: Sydney
Decision: 2 May 1997
Appearances:
Counsel for the applicant: J.M. Ireland QC
Solicitor for the applicant: Foulsham & Geddes
Counsel for the respondent: J. Stevenson
Solicitor for the respondent: Mallesons Stephen Jacques
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/1997/307.html