Mary Patricia Bakarich v Commonwealth Bank of Australia [2011] NSWSC 1559 (15 December 2011)

Last Updated: 11 January 2012

Supreme Court New South Wales

Case Title:	Mary Patricia Bakarich v Commonwealth Bank of Australia
Medium Neutral Citation:	[2011] NSWSC 1559
Hearing Date(s):	21/11/2011 - 23/11/2011
Decision Date:	15 December 2011
Jurisdiction:	Equity Division
Before:	Bryson AJ
Decision:	Question (a) and Question (b) Question (a) as to Allan. The whole sum paid to the respondent by Allan on 3 July 1993 was beneficially owned by him. Question (b) as to Allan: the sum paid by Allan related as to $585,556 to obligations of Demson guaranteed by Allan by his guarantee of 18 August 1989. Question (a) as to Mary. No part of the sums paid to the respondent in October 1993 was beneficially owned by Mary. Question (b) in relation to Mary: $350,322.15, part of proceeds of sale of part of Lot 3 Cowpasture Road which Mary owned and were applied to payment to NMT on 24 June 1994, should count as payments by Mary related to obligations of Demson for which she was liable under her mortgage of 18 September 1989. Question (c): Mary's estate is not insolvent. Allan's estate is insolvent. Question (d) and Question (e) No relief should be granted to Mary's estate or to Allan's estate under the Contracts Review Act. Question (f) CBA has no need for and is not entitled to restitutionary relief as no amount should be required to be repaid to the estate of Mary or to the estate of Allan.
Catchwords:	CONTRACTS - guarantees - Inquiry and report on questions remitted by Court of Appeal on 24 April 2008 in [2007] NSWCA 169 - decision on facts
Legislation Cited:	Contracts Review Act 1980 (NSW) Real Property Act 1900 (NSW)
Cases Cited:
Texts Cited:
Category:	Principal judgment
Parties:	Anthony George Bakarich (Executor of the Estate of the late Mary Patricia Bakarich) (First Plaintiff) Anthony George Bakarich (Executor of the Estate of the late Allan John Bakarich) (Second Plaintiff) Anthony George Bakarich (Third Plaintiff) Vitlern Pty Limited (Fourth Plaintiff) A Bakarich Industries Pty Ltd (Fifth Plaintiff) Commonwealth Bank of Australia (Defendant)
Representation
- Counsel:	Counsel: Dr C Birch SC (First, Second and Third Plaintiffs) Mr D Thomas (Defendant)
- Solicitors:	Solicitors: Craddock Murray Neumann (First, Second and Third Plaintiffs) Commonwealth Bank of Australia (John Lanser)
File number(s):	1992/00025403
Publication Restriction:

JUDGMENT

1. After hearing this appeal the Court of Appeal stated its reasons for disposition on 13 July 2007 [2007] NSWCA 169 but did not make final orders. On 24 April, 2008 the Court of Appeal ordered:

(1) That the proceedings be remitted to a single Judge of the Equity Division of the Court in order to consider the following questions:

(a) To what extent, if any, were the sums paid to the respondent on 3 July and 22 October 1993 beneficially owned by Allan and/or Mary or sums which otherwise count as payments by Allan and/or Mary?

(b) What proportion of the sums paid by Allan and/or Mary related to the obligations of Demson guaranteed by them respectively in the 18 August 1989 guarantee and 12 September 1989 mortgage?

(c) To what extent, if at all, are the estates of Mary and /or Allan insolvent?

(d) What relief, if any, should be granted to Mary's and/or Allan's estates under the Contracts Review Act? If relief is granted, what is the quantum of that relief?

(e) What conditions should be placed on the granting of relief to Allan and/or Mary?

(f) Is the respondent entitled to restitutionary relief from Tony, ABI and Vitlern with respect to any amount required to be repaid to Mary and/or Allan?

2. After extensive preparations for hearing the remitted questions, and after further proceedings in the Court of Appeal [2010] NSWCA 314, I heard the remitted questions on 21, 22 and 23 November 2011. The first plaintiff Mr Anthony George Bakarich, who has been referred to as Tony in earlier judgments, appeared by Senior Counsel. He is the surviving executor under probate granted to him and his brother Allan on 16 January 1998 of the will dated 2 August 1991 of the second plaintiff Mary Patricia Bakarich his late mother who died on 27 October 1997. Tony is also the executor under probate granted on 3 September 2009 of the will dated 7 October 2003 of the third plaintiff Allan John Bakarich, his late brother who died on 16 February 2005. Mary's will appointed Allan and Tony her executors and trustees and gave 40% of her estate to Allan and the rest to Tony. Allan's will gave his entire estate to Tony. Tony is also a plaintiff in his own right. There are ways in which these three interests may differ, but that was for him to consider. The fourth plaintiff Vitlern Pty Ltd no longer exists; it was deregistered on 5 August 2008. The fifth plaintiff A Bakarich Industries Pty Ltd, referred to as ABI, went into liquidation on 30 August 2010 and was not represented before me, although senior counsel and the solicitor who instructed him were for a time under the mistaken belief that they did represent that company.

3. The subject of the Inquiry is hypothetical, and precision in the outcome is not attainable. Expert witnesses offered mathematical supports for their views, but their conclusions are matters of opinion, and to represent the results as precise would be spurious. It is necessary to take broad views and it is necessary to reach conclusions: it is not possible to desist on the ground that less than complete certainty or clarity are available. My conclusions are more a matter of judgment and appraisal than of syllogism.

4. I regard myself as required to rely on evidence admitted at the trial of the proceedings and on findings of fact and other conclusions made by Nicholas J and by the Court of Appeal; and on further evidence before me.

5. My responsibility is limited to dealing with questions (a) to (f) and reporting to the Court of Appeal; the terms of the Court of Appeal's reasons show that what was contemplated was an Inquiry, followed by further consideration by the Court of Appeal, and in no sense has the disposal of the Appeal been remitted to me (if that were possible).

Question (a) and question (b)

6. Hodgson JA said (CA 64):

"Before the primary judge, the appellants contended:

(1) The guarantees were signed, not on 18 August 1989, but in or about the week commencing 18 September 1989, with Mary's mortgage being signed at the same time.
(2) The Bank represented to Tony (and through Tony, to Allan and Mary) that financial accommodation to Demson was given on condition that air conditioners imported with the Bank's financial assistance were imported on terms that all air conditioners were pre-sold prior to the Bank making funds available.
(3) The Bank engaged in misleading conduct.
(4) The letter of 19 September 1989 was a variation by the Bank of the terms on which financial accommodation was provided to Demson, and the guarantors were thereby discharged.
(5) The guarantees and Mary's mortgage were unjust contracts within the meaning of the Contracts Review Act and were unconscionable.

7. Hodgson JA decided (CA126):

"In my opinion, the contracts made with Mary and Allan were unjust in the circumstances in which they were made, to the extent that they impose liability beyond that which the Bank determined to be appropriate limits for Demson."

Those limits appear from a series of CBA documents. On 14 August 1989 two CBA officers prepared an application to be submitted to an authority of CBA called Zone for a Trade Lending Facility for Demson for $2,650,000. The security proposed included guarantees by six persons and companies including Allan, Tony, ABI and Vitlern, and a mortgage by Mary over Lot 3. It was contemplated "Imports will be on a monthly basis with payment 90 days after FOB" and ACMA the supplier in Singapore would accept documentary credits.

"Current orders should be fulfilled by March 1990 with no further orders for air-conditioners expected until later that year... Cash flow budget for the import operation as prepared by the Group's accountant is attached."

8. Hodgson JA said:

[36] The application was received by the Zone on about 17 August, and the following comments on it were prepared by Brad Fowler:

• Demson holds orders (which we have seen evidence of and includes copies of orders from Demson to ACMA and showing consignment of order to distributors) of 3505. Demson claims to have verbal agreement for 550 units with Harvey Norman. The balance he says he has sales in train for. Branch advise that Demson will only import what they have firm orders for. However, as we can see from application Demson has lodged an order for 7635.

• Even if number of orders/sales can be achieved, cash flow forecast is tight. Any problems and Demson would find themselves owing all the money before they achieve sales.

• Clients are going in big, but our fall-back position is not strong.

• Unless we can sight further evidence of additional sales recommend we decline.

9. There was some delay in getting title to Lot 3 into Mary's name in the administration of her late husband's estate (CA 55). The mortgage bears date 12 August 1989, probably earlier than she became registered proprietor. Hodgson JA dealt with the times of execution of guarantees and the course of decisions by CBA and related events. The events included extended consideration by bank officers of the amount and circumstances in which credit was to be given and the security to be obtained. While this was happening CBA issued several, at least two, Letters of Credit for imports which were to take place under the proposed facility. Mary signed the mortgage and gave an acknowledgement to the effect that she knew that CBA might permit Demson to incur liabilities to CBA not exceeding $2,650,000 at any one time against the security of the mortgage. On 18 September 1989 the mortgage was in the hands of the Bank (CA 50). Hodgson JA found [87] that she executed the mortgage on 12 September 1989, and not on 12 August as its terms would show.

10. Hodgson JA said:

[46] It appears that written approval of the accommodation went from the Zone to the Branch for the first time on 28 August 1989, by means of a memorandum bearing that date in the following terms:

We refer to our telephone conversation with Michael Newton and confirm a D/C-B/L/S (Trade Lending) facility of $2,650,000 taking total facilities to $4,188,140 has been approved on the following basis:

• D/C's will only be established (within the maximum level approved) against firm orders in hand (that is, where you have sighted evidence, and not for orders on speculation).

• For Australian wholesalers/retailers a satisfactory bank opinion being obtained to confirm they have the financial ability to meet the commitment.

• Surplus funds from sale of townhouses (ie above our current "on completion" valuation) being retained on term deposit (or similar) as security.

• Completely interlocking security position.

It is also clear from the cashflows provided that a temporary overdraft will be necessary (albeit the combined balance of any overdraft and D/C's outstanding will not exceed the approved limit of $2,650,000). We understand it is your intention to charge an establishment fee of $1,000 for this facility.

We also note that normal fees in terms of C/I 8/1(f) will apply.

11. The outcome was:

[60] The Zone responded to the diary note of 1 September 1989, which had been sent to it under cover of the memorandum of 6 September 1989, by a memorandum dated 18 September 1989 signed by Mr Fowler, in the following terms:

We refer to our telephone conversation with Mr Newton. It is our understanding that Bakarich's (sic) are no longer pursuing court action to contest the will. On this basis they have provided you with certified copy of probate, transmission application and mortgage signed by Mrs Bakarich senior, which you have onforwarded to Branch Securities for lodgement.

In respect to your memorandum under reference, we have no objection to a speculative order limit of $300,000 as proposed (within the overall facility limit). It will, of course, be necessary for you to devise suitable controls to ensure this limit is respected (such as, say, regular visits to warehouse for stock-takes and comparison to orders). The idea always is to ensure that if items aren't being sold that subsequent orders are reduced accordingly.

Our original approval letter of 28 August 1989 also requested satisfactory bank opinions be obtained on wholesalers/retailers. At that time, the smaller dealer situation and the numbers of these involved was not envisaged. We have no objection therefore to foregoing a banker's opinion for orders of less than $100,000.

We note your comments regarding the perceived standing of the larger buyers, Norman Ross, Harvey Norman and Camberwells, but it seems that it would be merely prudent of us (and our customers) to seek such opinions. There could be quite a long period between placing of order and receipt of funds (up to say 90 days), and therefore the banker's opinion should seek specifically whether the company is considered reliable for $? payable in whatever number of days is appropriate.

[61] Mr Irwin then sent a letter of approval dated 19 September 1989 to Stephen, in the following terms:

We are pleased to confirm that a Trade lending Facility of $2,650,000 (Overdraft Limit and Documentary Credit - B/L/S Limit) to assist import air conditioners has been approved on the Bank's usual terms and conditions. Total facilities now current are as follows:

DEMSON PTY LIMITED
Trade lending Facility	$2,650,000.00
RUTISA PTY LIMITED
Bills Discount Facility	$1,084,000.00
Bank Guarantee	$ 5,000.00
BAKARICH S, RM, AJ, AG & A BAKARICH INDUSTRIES PTY LIMITED
Bills Discount Facility	$ 365,000.00
VITLERN PTY LIMITED
Residential Property Investment Loan	$ 209,590.00
	$4,313,590.00

Approval is also subject to the fallowing:

• Establishment Fee of $1,000 (paid 5 September 1989).

OVERDRAFT LIMIT

• An interest rate of 22.5% per annum reducible will apply, it is variable and is subject to change without notice in line with the movement in interest rates generally. Interest is charged in March, June, September and December each year and on repayment of the advance.

• An Overdraft Line Fee will also apply in respect of the Overdraft Limit.

Prior to the issue of each Documentary Credit, we will need to sight the following:

• confirmed orders.

• local letters of credit where applicable

With regards to the larger wholesalers/retailers ie with orders of $100,000 or more, a satisfactory Bank Opinion will be required. In this regard, please contact Mr Newton at this office to arrange.

• Also with your dealer sales imports of no more than $300,000 per month will be permitted.

• Security is to be to the Bank's satisfaction and is to comprise:

A Guarantee (unlimited as to amount) by Stephen, Rosanna Margaret, Allan John and Anthony George Bakarich.

A Guarantee (Unlimited as to amount) by A Bakarich Industries Pty Ltd, Vitlern Pty Limited and Demson Pty Limited.

A registered equitable mortgage by Demson Pty Limited.

A mortgage by Mary Patricia Bakarich over Lot 3 Cowpasture Road, Hoxton Park NSW

• This Trade Finance Facility is to be cleared from sales by the end of June 1990.

We are pleased to have been able to assist you on this occasion. Should you have any enquiries regarding the abovementioned do not hesitate to contact this office.

12. The memorandum by Mr Fowler of Zone of 18 September 1989 came to decision on allowing credits on imports for which firm orders from purchasers in Australia were not held: this had been referred to in earlier internal CBA communications, as is not altogether clearly. When read with earlier documents the Zone approval imposed a limit of $300,000, part of the lending facility of $2,650,000, which could be advanced for speculative orders meaning importations of air-conditioners for which Demson did not hold firm orders from purchasers. The letter which the Branch sent to Stephen Bakarich of ABI on 19 September departed from the Zone authorisation when it said

"....dealer sales imports of no more than $300,000 per month will be permitted."

13. Hodgson JA (CA 62) set out and adopted further history found at paragraphs 54 to 95 of Nicholas J's judgment. I take note of the whole passage, but I particularly mention the following. Demson obtained a further documentary credit on 11 October 1989 for a purchase from ACMA. Tony took some part in Demson's business affairs and in its dealings with ACMA. Stephen complained to ACMA about faulty air-conditioners and the results of the faults on 20 December, 1989. Stephen again complained on 4 January 1990, making lengthy and severely adverse comments about poor quality and the trouble this had caused. He concluded:

"Our existence depends on ACMA, we have at the present no other means of survival, we trusted ACMA's performance, future looks very bleak ."

14. Stephen sent a message to ACMA on 16 January 1998 again complaining very fully and in vivid language about the quality of the air-conditioners which had been delivered. In the mean time there was conflict between Tony and Stephen, resolved in a way on 7 March 1990 when Stephen and his wife agreed with Tony about his taking over Demson and also Rutisa. Stephen resigned as a director of those companies and Stephen and Rosanna transferred their shares to Tony, who took control of the companies. Tony continued dealings by Demson with ACMA and with CBA. The change of control must to some extent have been a destabilising influence on conduct of the business.

15. Hodgson JA decided (CA126) that the contracts made with Mary and Allan were unjust to the extent that they imposed liability beyond that which CBA determined were appropriate limits for Demson, as stated in the Zone's decision of 18 September 1989. That decision and the letter of 19 September 1989 do not expressly say when the Letters of Credit were to be issued or for how long the contemplated imports were to continue, but these can be understood from the contemplation that orders should be fulfilled by March 1990 and from the requirement that the facility was to be cleared by the end of June 1990.

16. The decision of the Court of Appeal appears from these passages:

[127] Prima facie, this would justify an order adjusting the liability of Mary and Allan to what it would have been if their contracts had been limited to guaranteeing repayments of advances made by the Bank to Demson in accordance with the limits determined by the Bank. However, further issues needed to be considered before the question of remedy can be decided....

RELIEF

[144] The appellants sought to be relieved altogether of liability under the guarantees and Mary's mortgage. However, in my view at most Mary and Allan are entitled to no more than an adjustment of their liability down to what it would have been if their contracts had been limited to guaranteeing repayment of advances made by the Bank to Demson complying with the limits determined by the Zone.

[145] On the figures put by the appellants, the Bank financed importation of air conditioners for which orders were not held to the extent of $1,641,480.00, that is, $1,341,480.00 more than would have been the case if the limit specified by the Zone had been adhered to. That would not translate directly to a reduction by that amount of what the guarantors owed to the Bank, because those air conditioners may have been disposed of for some consideration. Prima facie, the enquiry required would be as to what the ultimate indebtedness of Demson to the Bank would have been, but for excess advances of $1,341,480.00; and how much of the difference between that figure and the actual ultimate indebtedness can be regarded as caused by the Bank's breaches of its conditions. Then, there would be a proportionate reduction of the shares of Mary and Allan, to reflect a reduction by this amount.

[146] There are a number of considerations relied on by the Bank that could count against this adjustment.

[147] One general point made is that the failure of Demson was not due to the excess air conditioners imported, but rather other factors such as problems with the quality of the goods and delivery, as shown by the 1990 letters set out in the primary judge's reasons.

[148] That is a factor to be taken into account in deciding questions as to the difference that compliance by the Bank with its own terms would have made, and how much of that difference should be considered as caused by the Bank's breaches of its own terms; but in circumstances where it is not suggested that this is zero, this point is not sufficient to justify refusal of relief.

[149] Next, there is the acknowledgement and the Bank's making further advances. In my opinion, so long as making further advances is not considered as being caused by the Bank's earlier breaches of its own terms, the Bank will not be adversely affected by this in the result.

[150] This leads to a significant question, namely, how should the "share" of Mary and Allan be calculated, and what if anything should be done about the liability of other guarantors to make up to the Bank any deficiency caused by a reduction in their shares.

[151] I am not aware if the evidence discloses whether the guarantors apart from the appellants made any contribution to the discharge of Demson's liabilities. Originally, there were eight guarantors in all, four individuals and three companies in the two guarantees, and Mary by her mortgage. It is not clear to me if that ever changed, or whether the two individuals and one company not included in this appeal have made and/or are capable of making any contribution. If the number of guarantors did not change, and if the other three have not made any contribution and cannot do so, it would appear that the contributions required from each of Mary and Allan would reduce by one-fifth of the amount arrived at as having been caused by the Bank's breaches of its own terms.

[152] The question then would be whether the Bank should bear that loss, or be able to make it up from the other guarantors, and in particular from Tony, AGI and Vitlern. Their guarantees contained terms to the effect that their liability is not affected by discharge of other guarantors, so the question is whether the Court can and should grant ancillary relief to them under Sch 1 of the Contracts Review Act , noting that cl 3 of Sch 1 provides that the limitations of s 6 do not apply to such relief.

[153] Clause 1 of Sch 1 empowers the Court to "make such order as may be just in the circumstances for or with respect to any consequential or related matter", including among other things the compensation of a person whose interest may otherwise be prejudiced. In my opinion, the power would extend to protecting co-guarantors from increased liability, in the event that some guarantors are released from liability or have some limit placed on their liability.

[154] This gives rise to the question whether the Bank on the one hand, or Tony, ABI and Vitlern on the other, should bear the ultimate loss, if Mary and Allan are relieved of part of their liability.

[155] It is clear that Tony did pay an active part in the business during the period August 1989 to December 1989, when the ordering of excess air conditioners occurred. According to the findings of the primary judge, he signed Demson's application for a documentary credit on 11 October 1989, and travelled to Singapore in both October and November 1989. The primary judge did not make any finding favourable to Tony as to his ignorance of Stephen's ordering of air conditioners. As noted earlier, Tony eventually took over the whole business and attempted to continue it for some time.

[156] Having regard to these considerations, I have come to the view that no order should be made limiting Tony's liability on his guarantee. Tony is the person mainly responsible for the control of ABI and Vitlern, and I am of the view that those companies also should not have the benefit of an ancillary order.

CONCLUSION

[157] The question arises whether there is any utility in ordering an enquiry which could result in a refund of money to Mary's estate and Allan's estate, in circumstances where Tony, ABI and Vitlern would have to make up any such amount. Mary and Allan are both deceased, and it would appear likely that Tony has a substantial interest in their estates. It seems quite likely therefore that there would be no point in ordering an enquiry, because there would be no ultimate detriment to the Bank or benefit to the appellants.

[158] However, this point was not directly addressed, so the Court should give the appellants an opportunity of submitting either that material before the Court of Appeal show that there would be utility in such an enquiry, or that there is sufficient in those materials to justify remitting the matter to a single judge to determine whether such an enquiry would have any utility. I would direct that any such submissions be provided within 21 days, in which case submissions in response could be provided within a further 21 days.

17. Then on 24 April 2008 the Court of Appeal made the remittal order which carried out this decision.

18. On 27 June 1990 Tony and ABI provided CBA with security for additional accommodation for ABI. On 15 October 1990 Tony, Allan and Mary gave CBA acknowledgements by letter showing that it was known that CBA was to grant Demson accommodation not exceeding $2,677,249 at any one time against the security already provided. Also on 15 October 1990 Tony and Allan on behalf of Demson, ABI, Vitlern and Rutisa (but not of Mary) by letter requested CBA to provide facilities for Demson for $2,677,249.

19. On 21 February 1991 CBA advised Demson of cancellation of the Trade Finance limit and said that no more documentary credits would be established. CBA began pressing for reduction of Demson's debt to it. Much attention was given to the sale of 34 Cowpasture Road, Hoxton Park for the purpose of reducing Demson's debt to CBA. There were many complications, but sale eventually took place with settlement on 2 July 1993.

20. At times CBA gave Demson further accommodation in connection with imports of air-conditioners. On 7 November 1991, Tony, Allan and Mary gave letters of acknowledgement to CBA for accommodation to Demson up to $2,416,581 against the guarantees and mortgage.

21. CBA served notices on guarantors and on Mary on 28 September, 1992, and Tony had his solicitor draft a letter protesting about this. On 24 November 1992 Tony commenced these proceedings, and on 27 November 1992 CBA made demands on the guarantors and Mary for payment of substantial amounts within 14 days. These demands were later repeated.

22. The limits determined by CBA, (referred to by Hodgson JA at paragraph CA127), non-observance of which is the subject of this inquiry, were imposed only on credit to which Zone agreed on 18 September 1989. According to the terms of the letter of 19 September 1989 the Trade Finance Facility agreed to was to be cleared from sales by the end of June 1990. Banking arrangements were no longer being conducted under the approvals of 18 and 19 September 1989 by 15 October 1990 when Tony, Allan and Mary gave further acknowledgements to CBA (Nicholas J at 71) by which time different arrangements for accommodation were being made and acted on. The adjustment contemplated by Hodgson JA (CA127) does not relate to any consequences for the liability of Mary or of Allan of the grant of accommodation or of trading at times after June 1990.

23. The remitted questions require me to consider how much more Demson's debt to CBA at the end of the period for which the Trade Finance Facility was granted was, than it would have been if the credit granted without confirmed orders had actually conformed to the limit approved by Zone on 18 September, 1989, that is, had not exceeded $300,000.

24. Hodgson JA's view (CA127) contemplates the hypothesis that advances were limited as Zone had actually decided. Those limits were greatly exceeded: Hodgson JA appears to have accepted evidence which established how they were exceeded:

[63] One matter not mentioned in the primary judge's judgment was that there was evidence before him to the effect that the total prices paid for air conditioners imported by Demson for which there were not orders, in each of the months from August 1989 to December 1989 inclusive, were as follows:

August 1989 $164,918.00

September 1989 $406,539.00

October 1989 $121,199.00

November 1989 $533,655.00

December 1989 $415,169.00

These total $1,641,480, an excess of $1,341,480 over Zone approval.

25. I regard it as established by the findings of Hodgson JA (CA63) that the grant of credit for which there were not firm orders in the five months up to and including December 1989 totalled $1,641,840, greatly in excess of the approval by Zone, and even in excess of the $300,000 per month referred to in the Branch's letter of 19 September, 1989. Seasonal influences on sales of air-conditioners make it unlikely that significant accommodation for imports was granted after December 1989. Imports in later years and later bank financing arrangements are not my concern when answering Questions (a) and (b).

26. It is plain on the evidence that there was over-trading and that Demson ordered more air-conditioners than could be sold and cleared by June 1990 as the Zone approval contemplated. However, it is also obvious, from the vivid terms of Stephen's messages to ACMA set out by Nicholas J that the poor quality of the air-conditioners delivered by ACMA and difficulties flowing from poor quality including returns of air-conditioners by retailers, cancellation of orders by retailers and the need to furnish service in the field made large contributions to the failure of the business.

27. There were other factors which contributed to the indebtedness of Demson to CBA in October 1993 and in June 1994. These included that Demson continued to trade in later years to which the Trade Finance Facility of 18 and 19 September 1989 did not relate. Further, Demson's credit was used to support ventures of other companies. Losses, debts and payments related to the debts and trading of other companies or at later times are outside the terms of the inquiry and there is no reason why Allan or Mary should be relieved in respect of them.

28. During the hearing I expressed dissatisfaction with Mr. Rea's having treated all Letters of Credit financed by 30 June, 1990 by CBA without sighting confirmed orders as representing imports for which there were no confirmed orders. This treatment seemed unsatisfactory because it was based solely on records kept by CBA of the issue of Letters of Credit, not on records kept by Demson of the confirmed orders that Demson held a register of orders held or some stock control ledger would have been a better source, but Demson did not have one. If CBA was prepared to issue Letters of Credit without sighting written confirmation it seemed to me unlikely that Demson would go to the trouble of producing them to CBA, or even of obtaining them in writing when orders existed, because Letters of Credit could be obtained without them. I still regard it as poor reasoning to equate written confirmations which CBA actually saw with proof showing exhaustively for which orders written confirmations actually existed, but the huge amount, $1,641,480, for which Letters of Credit actually were issued without seeing written confirmations in five months, taken with the Closing Stock unsold at 30 June 1990 the end of the trading period, $1,380,475.80 as calculated by Mr. Rea, has blunted this concern. These figures suggest that $300,000 or so of stock ordered without written confirmation was actually sold. If the $300,000 limit had been enforced there probably would have been little or no unsold stock and the overdraft at 30 June 1990 would have been $1,000,000 or so less than it was.

29. The Court of Appeal addressed (CA154 to 156) whether Tony (and also ABI and Vitlern) should bear the ultimate loss if Mary or Allan were relieved of part of their liability, and concluded that no order should be made limiting Tony's liability on his guarantee. His liability on his guarantee would increase if Mary or Allan were relieved of part of the liability on their mortgage or guarantee; Tony's liability to CBA is not limited in amount, and the Court of Appeal decided explicitly not to limit it; nor is his liability for contribution to Mary limited. I would depart from determinations which the Court of Appeal has already made if I made some decision by which Mary or Allan were relieved of part of their liability, CBA bore the ultimate loss and Tony was relieved of it.

30. Where question (a) asks to what extent the sums paid by Mary which were not beneficially owned by her "otherwise count as payments" by her, the question refers not to legal entitlement but to what the Court considers it just to do in exercise of the powers in section 7(1) of the Contracts Review Act after deciding, as the Court of Appeal has, that the covenant in the "all moneys" mortgage which in effect made her a surety for Demson's debts to CBA was unjust. In considering question (a), section 8 and Schedule 1 operate and section 9 does not. An adjustment of the liability of Allan or of Mary or of their estates is ancillary relief referred to in Section 8 and in the opening words of Schedule 1:

"...such orders as may be just for or with respect to any consequential or related matter..."

The relevant circumstances include the circumstances which exist at the time the order is to be made, and include the deaths of Allan and of Mary and entitlements of creditors and beneficiaries in their estates.

31. In July 1993 a property at 34 Cowpasture Road, Hoxton Park was co-owned by Allan, Tony and ABI in joint tenancies. ABI was the owner of a one third share, and Allan, Tony and ABI co-owned a two-thirds share, so that in effect Allan had a 2/9 th share. The co-owners had given security to CBA to support guarantees of debts which they had given to CBA, including debts of Demson. The property was sold by its owners and the proceeds of sale were received on 3 July, 1993. On settlement CBA released the property from security. The vendors caused $2,740,000 of the proceeds to be paid to CBA. $2,047,090.95 of this was applied to debts of Demson, and it is agreed that $585,556 of this should be treated as paid by Allan towards the guaranteed debt of Demson to CBA out of money which Allan beneficially owned.

32. Another large payment under guarantee liabilities for debts of Demson and other debts was made to CBA on 22 October, 1993. The source of this payment was money which ABI borrowed from National Mutual Trustees Ltd, sometimes referred to as the Global Funds loan. Before ABI borrowed this money, CBA had taken some steps towards enforcing its securities over various properties; CBA had served notices under section 57 (a) of the Real Property Act and one of these required Mary to give possession of Lot 3 Cowpasture Road, which she owned and over which she had given CBA an "all moneys" mortgage as collateral security for Demson's debt to CBA.

33. Security for the loan to ABI was given to NMT in a number of ways. Tony, Allen, Mary and Vitlern gave guarantees. ABI gave a registered charge. Mary gave a mortgage over Lot 3 Cowpasture Road Hoxton Park. ABI gave mortgages over 23 Burbank Avenue, East Hills and 1 Enterprise Drive Padstow, which ABI owned. Vitlern gave a mortgage over a property in Queensland which Vitlern owned. ABI was contractually bound to NMT to use the money lent for payment to CBA.

34. The NMT loan was advanced on 22 October 1993 when $2,059,536.47 was available, and part of the proceeds of the loan was paid to CBA on account of a number of debts including $1,369,741.94 debts of Demson, and also of debts for which Mary had not given security. The loan money was lent to and became the property of ABI and not of Mary, and of course was immediately paid on settlement to CBA and to others. The loan moneys were in no sense owned or at the disposition of Mary in any way. By giving security for the NMT advance Mary joined in enabling $2,059,536.47 to be borrowed by ABI, and only $1,369,741.94 of that went towards debts of Demson to CBA.

35. On settlement CBA released a number of mortgages and guarantees, including the mortgage from Mary over Lot 3 Cowpasture Road which it held as collateral security. Provision by Mary to NMT of security over Lot 3 Cowpasture Road and discharge by CBA of its security over that property were necessary for the success of the borrowing from NMT. After 22 October 1993 Mary had no obligation to CBA and CBA held no security over any property she owned.

36. On 24 June 1994 $2,997,979.95 was raised by sale of these properties:

(1) Lot 3 Cowpasture Road, which was owned by Mary and most of which was sold to Landcom and realised $1,999,912.52;

(2) Lots 101, 102 and 201 Cowpasture Road, which were owned by other family members and realised $998,067.43.

Of the sums raised, $1,989,508.88 was paid to NMT which discharged various mortgages, not only mortgages over the land sold. The $1,989,508.88 paid to NMT was treated as in some way repaying the $2,059,536.47 available from the NMT loan in October 1993.

37. The balance of the money raised was not paid to NMT and was paid in 15 different payments on various debts not shown to be obligations of Mary. These included $306,523.68 to discharge a mortgage over Lots 101 and 201, not owned by her and not money owed to NMT, and $45,048.09 to EA Langdon to discharge a mortgage over Lot 102. Tony, Allan, Mary and ABI signed or sealed a written authorisation for these payments.

38. In reasoning put forward by Mr Rea all the $1,369,741.94 paid to CBA for debts of Demson in October 1993 is treated as paid by Mary in the form of her contributing Lot 3 Cowpasture Road as security for the borrowing from NMT, and the same amount is treated as borne by Mary when Lot 3 was sold in June 1994 and the proceeds went towards repaying NMT as well as the payments.

39. Mr Rea's reasoning does not produce a just answer to the second part of Question (a) for two reasons. The first reason is that although debts of Demson to CBA totalling $1,369,741.94 were paid out of the moneys borrowed from NMT, only $1,042,701.80 of this was debt of Demson to CBA on account of imports of air-conditioners, the first item in the list of payments in document Exhibit C 1-8, and not the sum of the first three items. The second reason is that much more than Demson's debt to CBA was paid with money raised from NMT in October 1993 and much more than the debt to NMT was paid out of the money raised by sales in June 1994.

40. Mary joined in enabling $2,059,536.47 to be raised in October 1993, and $1,042,701.80 of that was used to pay relevant debt of Demson to CBA. If she is treated as having contributed to raising and paying that $1,042,701.80 on the "otherwise count as payments" basis referred to in Question (a) her contribution to that payment is ascertained by an apportionment of her contribution towards raising the $2,059,536.76: about half of whatever she contributed towards raising $2,059,536.76 went towards paying $1,042,701.80: to be exact 1,042,701.80 2,059,536.47 = 0.5062798.

41. There was no appropriation of the payment attributed to Mary and made in June 1994 to NMT as paid to CBA on any particular account: there could not be, as the payment only occurred notionally and not in reality. The fair and the only rational view is that the payment should be appropriated rateably to all debts which were paid out of the funds raised by the sale of the land.

42. There is no evidence of any appropriation made at the time of these payments. Any appropriation attributed to those who made the payments is fictitious: and in particular, it would be fictitious to appropriate money contributed by one of those who bore the burden of contributing to payment of that person's own debt in full before attributing any of it to payment under a guarantee liability, thereby increasing the payment towards the guarantee liability attributed to a co-surety. Unless some appropriation is shown to have been made at the time, the only course available to the court is to treat each contribution as paid rateably towards each obligation which was paid.

43. Mary contributed $1,999,912.52 of $2,997,979.95 raised by sales in June 1994, ie about two thirds of the total amount raised. $1,989,508.88 of the total money raised was paid to NMT and in some way repaid the $2,059,536.47 borrowed from NMT in October 1993. So about two thirds of the money raised was paid to NMT: to be exact: 1,989,508.88 2,997,979.95 = 0.663616

44. If the debt to NMT is to be thought of as representing the $1,042,701.80 of the funds repaid to CBA out of the advance which NMT made in October 1993, I see no justice in allocating all of it to the part of the NMT repayment which Mary bore. Mary's contribution to the repayment to NMT flowed in part from the characteristics of her mortgage to CBA, which has been held to be unjust. It should at least to some extent be treated as a payment by her to CBA in October 1993. In my opinion, answering Question (a) on the "otherwise count as payments" basis by reference to section 7(1), the part which counts as payment by her is approximately one third, or to be exact $350,322.13, calculated in this way: $1,042,701.80 (0.663616 x 0.5062798) = $350,322.13.

45. Mary was entitled to contribution from co-sureties, bore a disproportionate and excessive part of the total liability and had entitlements to rateable contributions from the other sureties. Her entitlement to contribution should be assessed on the notional basis that her liability was limited in the way the Court of Appeal regarded as appropriate, and that Allan's liability was similarly limited, but the liability of other sureties was unlimited. Nothing in the evidence enables me to calculate what contribution she was entitled to, or enables me to decide whether she could or could not receive all those entitlements, but it seems clear that she had entitlements against Tony, ABI and others. There is no sign that she pursued them. It should not be assumed that none of the sureties was ever able to pay her anything, or was not able to make a larger contribution than was made in October 1993 or in June 1994. In particular, it should not be assumed that Tony was or is unable to indemnify her estate, and he should not get any advantage on the basis that he cannot do so, or has not done so. It should not be assumed against CBA that there were no such entitlements or that they were worthless. The Bank has no practical access to evidence of such matters: if anyone does it is Tony. If Mary made no claims or left entitlements unenforced against her son Tony or others associated with him or with her, CBA should not bear that.

46. I answer Question (a) as to Allan. The whole sum paid to the respondent by Allan on 3 July 1993 was beneficially owned by him. I answer Question (b) as to Allan: the sum paid by Allan related as to $585,556 to obligations of Demson guaranteed by Allan by his guarantee of 18 August 1989.

47. I answer Question (a) as to Mary. No part of the sums paid to the respondent in October 1993 was beneficially owned by Mary. I answer Question (b) as to Mary: $350,322.15, part of proceeds of sale of part of Lot 3 Cowpasture Road which Mary owned and were applied to payment to NMT on 24 June 1994, should count as payments by Mary related to obligations of Demson for which she was liable under her mortgage of 18 September 1989.

Question (c)

48. Information about estate affairs was presented to me in a disordered way. The onus of proof is on Tony as the plaintiff. He has much better access to information about assets and liabilities of these estates than CBA has; in practical terms CBA has no such access. Tony has a duty as a litigant, and a duty as executor to put the information before the court, and he has an interest as executor to see that he is protected against claims against the estates by creditors. On 4 August 2009 I gave him specific directions to provide affidavits showing estate affairs:

(3) Each party is to file a document showing what passages in the trial evidence, what exhibits and what findings in earlier judgments are relied on.

(4) Mr Anthony George Bakarich is to state on affidavit the assets, liabilities and entitlements in the estates of the late Mary Patricia Bakarich and the late Allan John Bakarich; and is to annex a copy of the will in each case and is to show whether probate or letters of administration have been obtained in each case.

49. None of these considerations moved him to put any useful information before the court about estate affairs although several years were available for him to do so. In my view it should be understood that it would not have been to his advantage to put such information before the court. If it were shown that there were unpaid estate creditors that would be a markedly significant consideration when deciding whether to award a remedy under the Contracts Review Act ; observations by Hodgson JA and the terms of Question (c) show that this was considered by the Court of Appeal.

50. It is suggested that expenses were incurred by Mary and by other Bakarich parties for lawyers and accountants, and Mr. Rea gave evidence that he has not been paid accountancy fees. There is no schedule on oath from Tony showing what the estate assets are, or what has become of them and whether there are any outstanding obligations.

51. The Inventory of Property filed by Allan and Tony with their application for Probate of Mary's will was verified by them on 13 January 1998. It showed no liabilities. It showed property owned by Mary as:

Probate Inventory

Lot 2131 in Deposited Plan 854867 being the whole of the land comprised in Certificate of Title Folio Identifier 2131/854867, estimated value	$ 1,300,000.00
Loan to A. Bakarich Industries Pty Ltd	$ 657,300.00
One half interest in Lot 11 in Deposited 555296 being the whole of the land comprised in Certificate of Title Folio Identifier 11/555296 and known as 604A Henry Lawson Drive, East Hills, estimated value	$ 500,000.00
Household Items and jewellery, estimated value	$ 30,000.00
	$ 1,957,300.00

The correct addition of the values shown is $2,487,300.00

52. Evidence of Mr Rea (T90 +) shows that Lot 2131 was the residue of Lot 3 Cowpasture Road Hoxton, which Mary owned until most of it was sold to Landcom in October 1993 in the sale settled in June 1994. A project for Liverpool City Council to resume part of that residue began about 1997 before Mary died on 27 October 1997. Some details of the proposal at that time are recorded in a letter from Messrs. Bowring Stone to Mary of 26 March 1997 (Exhibit B pages 374 to 376). Council required about 5300 square metres of Lot 2131 which was zoned Public Reserve in a draft LEP and became Lot 707 on a proposed plan of subdivision prepared in connection with the resumption. The rest of Lot 2131 was zoned Residential 2(a) and was proposed Lots 606, 701, 702, 703, 704, 705 and 706 with an approximate area of 5840 square metres.

53. Part of another letter, from Messrs Perkes & Stone to Messrs Rhodes Thompson & Associates who were valuers, of 20 December 1999 (Exhibit B page 47), seems to show that by then the seven residential lots had been sold for prices which totalled $1,290,000. Mr Rea produced a letter which related to the acquisition of Lot 2131 by resumption by Liverpool City Council. Although the letter of 23 August 2001 (Exhibit B page 46) from Messrs Bowring Stone, solicitors acting for Mary's estate, is not a complete explanation of the events it seems to show that the resumption money was $980,000, that some of this had been paid on 25 August 2000, that $479,000 was still unpaid on 23 August 2001, there were adjustments for stamp duty, distributions and interest, and that the nett amount then expected to be paid was $563,491.23, and costs were also payable. (Mr Rea appears to have thought that $980,000 and $479,600 should be added to show what was paid under the resumption - see transcript 91 lines 45-50 - but that is not what the letter says).

54. About $230,000 was paid by Tony in legal fees for the resumption matter. Costs were payable by the Resuming Authority. No explanation has been given of the extent to which that $230,000 was covered by this. Otherwise Mr Rea found nothing to indicate how these funds were disposed of. All the proceeds of Lot 2131 which can be seen were received after Mary's death when Allan and Tony were co-executors. Mr Rea states in his report that these proceeds were used to continue the action against CBA (First Report paragraph 33).

55. Mr Rea estimated that there may be Capital Gains Tax of $436,500 on disposal of these properties from 1995 to 1997. Capital Gains Tax was last assessed and paid for the year 1994. Tony said in his affidavit of 24 March 2008 paragraph 7 that Mary's estate owes CGT to the Australian Taxation Office, but gives no detail. He also said:

"I am not aware of any debts owed by the deceased".

56. Exhibit B includes a summary headed "Unsecured Creditors 31/10/07" in which Mr Rea has summarised legal fees described in Exhibit B, paid and outstanding, that have been incurred in relation to litigation with CBA. These costs include $1,223,859 which has been paid, $447,156 which is outstanding, and also $1,650,000 which is outstanding and is stated to be "Commonwealth Bank Costs". Costs are payable to CBA under costs orders but have never been assessed or agreed. The outstanding $447,156 represents: (Rea First Report paragraphs 38 to 40)

Bowring Stone $179,719.15

Brenton Banfield $ 39,775.90

Rea and Associates $247,038.46

57. Mr Rea also produced some documents (Exhibit 3) relating to 604A Henry Lawson Drive East Hills, which appears in the Probate Inventory. Mary is there shown as owner of a half interest which was valued at $500,000 when she died. By Transfer dated 29 July 1994 604A Henry Lawson Drive was transferred by an unrelated vendor to Mary and Allan as tenants-in-common in equal shares for a consideration of $630,000. When Mary died there was one registered mortgage and its discharge was registered on 26 March 1998.

58. Mr Rea stated (First Report paragraph 4) that he has relied on a report of Mr Valuer Neskovski, who valued 604A Henry Lawson Drive East Hills as of 22 October 2007 for mortgage lending purposes at $2,250,000 (Exhibit C document 1-11). The valuation was prepared on Tony's instructions and updated earlier valuations of 14 June 2004 and 1 February 2006. The land is there described as Lot 11 DP555296 and as 2,251 square metres in area. I infer that the value attributable to Mary's half interest in 2006 was $1,125,000.

59. A search paper (Exhibit C document 1-12) shows Allan and Tony as registered proprietors on 26 November 2007. Also in Exhibit 3 are mortgage by Allan and Tony to Permanent Trustee Australia Limited dated 7 October 2003 to secure a loan to ABI for an unstated amount by Challenger Managed Investments Ltd and Transfer under Power of Sale by Perpetual Trustee Company Limited (to which the Mortgage had been transferred) dated 18 June 2008 to an unrelated transferee for $1,526,000.83. I have not been told what money the mortgage raised, or whether any of the debt is still owing or how much. Also in Exhibit 3 page 6 is a Statement dated 13 June 2007 which is far from clear but appears to show that ABI borrowed $2,300,000, presumably from Challenger Managed Investments Ltd, on 7 October 2003 in a loan to mature on 1 December 2005 and that at the date of the Statement $2,325,607.52 principal and $417,026.83 interest were unpaid. Security was held over this land and another property at Padstow.

60. Also in Exhibit 3 are documents which show that Allan and Tony mortgaged the land to lenders surnamed Delle Vergin by puisne mortgages to secure loans to ABI: a mortgage dated 27 January 2004 to secure $100,000, a mortgage dated 7 April 2004 to secure $60,000 and a mortgage dated 27 July 2004 to secure $240,000. These mortgagees claimed that they were owed $786,342.84 on 30 June 2011. Of course they no longer have security over this land as the first mortgagee has sold it off.

61. Also in Exhibit 3 are two Caveats. Caveat lodged on 24 February 2006 by Raynold Pty Ltd claimed an equitable interest under a Mortgage dated 15 February 2006 granted by Tony and Allan (who had died before that date). Caveat lodged on 18 February 2008 by Provident Capital Ltd claimed an equitable interest for "any outstanding fees" under an Offer Letter signed by Tony. These caveats no longer have effect.

62. Whatever these loans and mortgages can all mean, and I have not been given any explanation, none of them are obligations of Mary or her estate and all relate to loans and transactions long after her death. All that I can see is that at her death Mary owned a half interest in 604A Henry Lawson Drive unencumbered, that a half interest was worth $1,125,000 in October 2007 but that the asset was lost when it was sold off in June 2008 to pay a mortgage debt incurred by ABI and secured by Allan and Tony in 2003, six years after she died. There are later mortgages and claimants who have no effective security, but these are not obligations of Mary's estate.

63. In summary, Mary's estate has no creditors, apart from obligations for costs and expenses of this litigation liability for which Tony must share. Her assets have been dissipated. Lot 2131 brought in $2,270,000 or thereabouts, but there were probably costs and expenses of realisation which the evidence does not explain. Mary's loan to ABI of $657,300 is unlikely to have been repaid: the evidence does not say. Her half interest in 604A Henry Lawson Drive has been lost by Tony and Allan who mortgaged it for the benefit of ABI. She may have an unassessed CGT obligation but nothing has happened about this for well over ten years. Far more than enough money and assets have passed into and through her executors' control than would be needed to pay CGT as estimated, and they have dealt with the assets in other ways.

64. The Probate Inventory for Allan's estate, which Tony verified on 14 August 2009 showed no assets of value except for one $1 share in ABI and $30,000 Household Chattels. Allan is shown as having a five-ninth share in 604A Henry Lawson Drive, of no value. (He had a half share with Mary when she died and she left him 40 per cent of her assets, so I would have thought Allan was entitled to seven-tenths, but this is no matter as the asset has been lost). As I showed when dealing with Mary's estate, this property was heavily mortgaged when Allan died on 16 February 2005 and has since been wholly lost through a mortgagee sale. Allan's estate probably has significant creditors under mortgages to secure loans to ABI, but these obligations are also borne by Tony. Evidence does not show a tabulation of what they are. Allan's estate probably also has obligations for expenses of this litigation: these too are also borne by Tony.

65. I conclude that there are no longer any significant assets available in Mary's estate to meet obligations; all have been dispersed by Allan and Tony since she died. Her estate has obligations for costs and expenses of this litigation and Tony is also liable for these. Her estate may be liable for CGT for transactions in which Lot 2131 was disposed of over a number of years before August 2001: there have been no Returns or Assessments, and these have always been Tony's responsibility. Mary's estate is not insolvent but it would be insolvent if an assessment of CGT were made. For over ten years there has been no attention to CGT and no action to recover it. Allan's estate has significant obligations for unpaid mortgage debts and these are also obligations of Tony. Allan's estate is insolvent.

66. I answer Question (c): Mary's estate is not insolvent. Allan's estate is insolvent.

Question (d) and Question (e)

67. Question (d) relates to the passages in the judgment of Hodgson JA at [CA144] to [151] which I set out earlier. As paragraph [145] says, taken with later passages, I am to enquire what the ultimate indebtedness of Demson to CBA would have been but for the excess advances of $1,341,480; and how much of the difference between that figure and the actual ultimate indebtedness can be regarded as caused by the Bank's breaches of its conditions.

68. An effect of Mr Rea's reasoning is that all losses are attributed to excessive credit and excessive purchase of stock. These certainly were very significant contributors to loss but they were not the sole contributors. To attribute all trading losses over the three (or more) years to stock on hand at the end of the first year, although imports and trading continued after the first year, is not supportable.

69. I first look at Mr Rea's views in a broad way. His Business Loss Schedule, Exhibit C document 1-21 shows that at June 1990 Demson had made a net loss of $532,041.33 and had a closing stock at cost $1,380,475.80. The same schedule shows that by March 1995 the business (not carried on by Demson at all times) had losses totalling $2,436,496.96. Mr Rea attributes a loss of $2,273,203 at June 1993 to purchases in excess of Zone's conditions: First Report page 9 table (i). Elsewhere he shows that payments to the Bank which were relevant to the liability of guarantors were payments on 3 July 1993 of which $2,047,090.90 represented debts of Demson to the Bank, and $1,035,681 paid to the Bank on 22 October 1993. He attributes $2,254,000 of this to air-conditioner trading losses including interest (first report paragraph 32).

70. Overall it is plain that there was over-ordering on a large scale. This is reflected in the large stock held at June 1990 whereas the business plan had contemplated complete disposal by then and repayment of the facility. If there were not excessive stock, much the same amount of money as the stock on hand would have been paid off the overdraft. I readily accept that excessive purchases with Bank finance in excess of Zone's conditions of 18 September 1989 contributed largely to the results to 30 June 1990 shown by Mr Rea in his Business Loss Schedule 1-21, that there was a net loss of $532,041.33. It is not difficult to accept either that the closing stock at June 1990 of $1,380,475.80, shown at cost in Mr Rea's document 1-21, exceeded what would have been the closing stock if the conditions of credit had been complied with. I do not accept however that if during the following year the closing stock had been disposed of, the process of disposing of it would not have brought in at the least its cost price and the operating costs of disposing of it, producing no additional loss, and perhaps some profit in the following year to June 1991. Mr Rea's calculations show that in that year a loss of $743,611.82 was incurred, through trading in the course of which additional stock costing at purchase cost and customs $138,672.35, with closing stock of $283,813 at 30 June 1991. Even if no more than the cost of the stock and the operating costs of disposing of it had been realised, nothing like the loss shown by Mr Rea for that year would have been incurred.

71. It is unlikely that all the closing stock at 30 June 1990 was held because there had been excessive purchasing. The size of the stock probably resulted in part from other problems: defective quality of stock, returns of stock after delivery and cancellation or refusal to comply with orders. The trading project had been a failure all-round and fewer air-conditioners had been sold than had been projected: the business was on a smaller scale than projected. The net loss of $532,041.33 should be rated down to exclude the influence of factors like these.

72. If the closing stock is rated down to some degree to allow for contributions by factors such as defective quality and cancellation of orders, it is probable that within the trading year to 30 June 1991 there would have been a complete disposal of excess stock attributed to over-buying.

73. Demson eventually accumulated large losses, said to be $2,436,496.96 (a small part of which may be losses of ABI). A number of causes contributed to this business failure, as is characteristically true of business failures, and a conclusion which attributes all of this loss to CBA allowing more than $300,000 in letters of credit to be issued for unconfirmed orders is very unlikely to be correct.

74. It is plain that there must have been another cause or causes for the accrual of the large debt repaid to CBA on Demson's account in the second half of 1993. The further causes are not difficult to find; according to Mr Rea's document 1-21, Demson's losses in the years to June 1991 were $743,611.82, to June 1992 $507,532.98, and in the year to June 1993 $491,038.00. It is entirely improbable that overtrading and the build up of stock in the year to June 1990 had any significant part in causing these losses in later years. In fact the closing stock of 30 June 1990 must have been disposed of largely or completely within the following year as the closing stock at 30 June 1991 was $283,813 and there had been $136,672.35 of purchases in that year.

75. Further stock purchases continued, and for significant amounts. Mr Rea's calculations are at Exhibit C to document 1-21. In the year to 30 June 1991 the cost of purchases (including customs fees) was $138,702.35 and the closing stock valued at cost was $283,813. In the year to 30 June 1992 the cost of purchases was $283,392.17 and the closing stock was $204,612.00. Sales in that year were $483,423.04. These show that considerable trading continued. Mr Rea's calculations show gross profits but large net losses for those years. The stock on hand at the end of June 1990 is very unlikely to have been one of the causes of these losses.

76. Further causes of loss can be readily seen; Tony who had taken over Demson in March 1990, continued trading in the two following years, incurring further losses, and continued to incur large interest costs in the year to June 1993. To do this he made decisions about obtaining credit, and about purchasing further stock, which were not related to the business contemplated and the credit approval obtained in September 1989. The further credit which he obtained was supported by further authorisations by Allan and Mary among others, which are not the subject of any contemplated relief under the Contracts Review Act ; there is no reason why they should be.

77. Mr Rea gave reasons for concluding that if the Zone's conditions had been complied with the business would have achieved a profit in the year to June 1990. The basis of these forecasts was debated, and there was room for debate. In particular adoption of a 17.5% gross profit margin appeared high in view of the experience of Demson's business overall. He was criticised in respect of use of a forecast prepared before business began, but his evidence showed that he was well aware of its shortcomings and he sought to make appropriate allowances for them, and used the forecast only to indicate a range of likely results. He well understood the shortcomings, imprecise nature and subjective element in the exercise: First Report paragraph 12. Although he gave elaborate processes of reasoning he was engaged in an exercise of informed expert opinion and not of mathematical deduction. Some steps in his reasoning were criticised, with some effect, by Mr Gower. Mr Gower was of the view that the task was impossible: as a matter of mathematics it is, as concrete bases for reasoning are not available. For Mr Rea the process was one of informed assessment where exactitude is not available: and so it is for me.

78. Mr Rea projected the experience of the year to June 1990 forward to the whole of trading until August 1993: First Report paragraph 19. This was not appropriate. He seems to have calculated what the profit overall would have been if imports of air-conditioners had continued until then in the same proportions of confirmed orders and speculative orders as in 1989-1990: and concluded that on that basis there would have been a loss overall of $2,253,957, whereas if the credit conditions had been complied with there would have been a (very small) profit. This was inappropriate, because the credit conditions did not apply to later years: the relevant exercise stops when the excess stock of 30 June 1990 has been disposed of, and later trading losses are not in point. (They would have been in point if later trading profits had overcome Demson's debt, but of course that did not happen).

79. My dissatisfactions with Mr Rea's analysis are principally these.

(1) He did not limit consideration to credit granted and trading under the Trading Finance Facility as approved on 18 September 1989, which was to be resolved by end June 1990.

(2) Mr Rea did not pay appropriate regard to the quality of the air-conditioners or to the cancellation of orders and the impact these must have had on the success and profitability of the business. Stephen's complaints to ACMA were detailed and vivid and show a problem of large dimensions, but Mr Rea for practical purposes brushed quality of air-conditioners aside as a problem relevant to business outcomes, in a way which disregarded the terms and force of Stephen's complaints to ACMA. I regard this as a flaw in his approach and an illustration that views which maximised the loss attributed to breach of Zone conditions tended to influence his interpretations

(3) He did not apportion payments which he attributed to Mary so that only appropriate parts of those payments, appropriate to repaying Demson's debt to CBA, were under consideration.

(4) He adopted a gross profit margin which was not sufficiently supported by reasons and which is unlikely to be correct in view of the problems with cancellations and returns.

(5) He continued his analysis and applied it to periods later those which the decision of the Zone of 18 September, 1989 would have influenced if that decision had been complied with.

(6) Mr Rea attributed the continuing overhead costs to there being stock on hand at the end of June 1990. This is incorrect: Tony continued to carry on the business and to import air-conditioners for several years, and the long run-off was not incurred by holding 1989-1990 stock, but by continuing to deal in imported air-conditioners.

(7) Generally, Mr Rea made maximising assumptions where choices were available.

80. I find it simply impossible to conclude that the debts repaid in the second half of 1993 were all caused by mismanagement of trading and credit in the period to June 1990. The total of $3,082,722 repaid as Demson debts in 1993 is far more than the loss and excess stock shown by Mr Rea for the year to June 1990. No reasonable jury would believe it.

81. I can only address my task in a broad way. If the stock held at 30 June 1990 had been a total loss and worth nothing at all, the loss would have been $1,380,475.80. If Tony had had to throw it all away, I would have heard of it in the evidence. I find it improbable that losses caused by excessive credit and over-buying, trading losses and losses in value of stock, if they could be ascertained, would by 30 June 1991 have been greater than a figure in the order of $1,000,000. A loss I am sure there would have been. It is likely too that that loss would have been directly reflected in the debt which Demson owed to CBA: there is nowhere else Demson could have got funds from. Realisation of the stock should have overcome a debt of that order. Increases in Demson's debt to CBA, and continuation for years of postponement of resolution, have other causes than excessive credit in the year to 30 June 1990.

82. I am not told by evidence what Demson's debt to CBA was at 30 June 1990, so I cannot see what that debt would have been if Demson's losses had been $1,000,000 or so less than they were. I must suppose that by the time large repayments totalling $3,082,772 were made in July and October 1993, remembering that interest rates then were high, and leaving debt to CBA arising from later trading out of account, the repayments required would have been about half $3,082,772, the repayment of 2 July 1993 would have cleared it, Allan's burden would have been about half what it was or in the order of $300,000 and nothing would have been left to be paid in October 1993 and attributed to Mary. She would not have had to pay anything if the Zone conditions had been observed. However because any relief would benefit Tony and no-one else, no relief should be granted to either estate.

83. I answer Question (d) and Question (e): No relief should be granted to Mary's estate or to Allan's estate under the Contracts Review Act.

Question (f)

84. On the views I have already expressed there is no need to consider Question (f). An actual refund to Mary's estate or to Allan's estate would prejudice CBA in that CBA would have to embark on seeking recourse from Tony under his guarantee.

85. Tony's counsel took the position that the terms of Tony's guarantee did not make him liable to repay to CBA any sums which the Court might order CBA to pay to Mary's estate or to Allan's estate by an order under the Contracts Review Act . To accept and act on this would be to depart from the hypothesis required by Hodgson JA's paragraph CA127. Operating within the hypothesis requires that Mary's liability be ascertained as if there had been a limit on her liability under her mortgage: and if there had been such a limit, Tony's liability on his guarantee to CBA would have been increased: a deduction from Mary's liability to CBA to comply with an upper limit is an addition to the liability of other sureties to CBA, including the liability of Tony to CBA. In reasoning about whether a remedy should be awarded to Mary's estate this consequence is relevant to decision whether or not the remedy should be awarded. If the Court decided to award restitution of a sum of money to Mary's estate, enforcement of the terms of Tony's guarantee would not be the source of the court's power to order a corresponding payment to CBA by Tony: its source would be the statutory powers in the Contracts Review Act . In my view there is no need to act in that way. Section 17 (1) (b) of the Contracts Review Act has no operation on this reasoning. The remedies under the Contracts Review Act are to be awarded now and the conditions of the present time are relevant.

86. Hodgson JA considered the effect of circularity and the utility of ordering an inquiry at CA157:

[157] The question arises whether there is any utility in ordering an enquiry which could result in a refund of money to Mary's estate and Allan's estate, in circumstances where Tony, ABI and Vitlern would have to make up any such amount. Mary and Allan are both deceased, and it would appear likely that Tony has a substantial interest in their estates. It seems quite likely therefore that there would be no point in ordering an enquiry, because there would be no ultimate detriment to the Bank or benefit to the appellants.

As it has not been established that anyone other than Tony, such as creditors who are not also creditors of Tony, has anything to gain from awarding a remedy to Mary's estate or to Allan's estate this concern has been realised.

87. I answer Question (f): CBA has no need for and is not entitled to restitutionary relief as no amount should be required to be repaid to the estate of Mary or to the estate of Allan.

Order

88. I respectfully report to the Court of Appeal that I have conducted an Inquiry into the Questions in the Order of 24 April 2008 and for the reasons published [2011] NSWSC 1559, I answer:

(1) Question (a) and Question (b)

(a) Question (a) as to Allan. The whole sum paid to the respondent by Allan on 3 July 1993 was beneficially owned by him.

(b) Question (b) as to Allan: the sum paid by Allan related as to $585,556 to obligations of Demson guaranteed by Allan by his guarantee of 18 August 1989.

(a) Question (a) as to Mary. No part of the sums paid to the respondent in October 1993 was beneficially owned by Mary.

(b) Question (b) as to Mary: $350,322.15, part of proceeds of sale of part of Lot 3 Cowpasture Road which Mary owned and were applied to payment to NMT on 24 June 1994, should count as payments by Mary related to obligations of Demson for which she was liable under her mortgage of 18 September 1989.

(2) Question (c):

Mary's estate is not insolvent. Allan's estate is insolvent.

(3) Question (d) and Question (e)

No relief should be granted to Mary's estate or to Allan's estate under the Contracts Review Act.

(4) Question (f)

CBA has no need for and is not entitled to restitutionary relief as no amount should be required to be repaid to the estate of Mary or to the estate of Allan.

**********