398. It will be recalled that Ms Dinh alleges that the Bank breached cl 25.1 of the Code by failing to exercise the care and skill of a diligent and prudent banker in selecting and applying its credit assessment methods to Mr and Ms Dinh and in forming an opinion about their ability to repay the Loan Amount and any other credit facility.
399. Ms Dinh submitted that this was proved because Mr Pollard had made assumptions about a number of figures, had not checked to confirm sources for other figures, wrongly included grape income, and had made some mistakes.
400. Mr Pollard explained his approach to the Dinhs' application for a loan:[374]

So the application was obviously to look to purchase the plantation. What we had was, they were quite heavily geared, so from a servicing exercise that we did, it was - it was determined that the only way we could do it immediately was to look at some form of bridging finance. Otherwise, what would have had to have happened, we would have had to have waited until a number of properties which they were going to sell were going to be sold and then we would be able to look at the plantation purchase. But obviously, doing that, there's a delay and they run the risk of obviously losing the plantation. So what we did was we did - as I mentioned, we've got in two parts. So we're financing the plantation and then the second component is to ensure the control of the disposal of asset and reduction of debt. So as it was, the borrowing were in other lenders, so we weren't able to control obviously the - the ability to sell those assets or reduce the debt with the proceeds where that went. So what the intention was was to look to provide an interest-only facility to enable them to buy the plantation, still being able to make ends meet, but then also give them 12 months to sell those properties.

Mr Pollard's commentary

401. Mr Pollard included a commentary about the Dinhs and the proposed loan in the application documents.[375] He wrote (formatting errors corrected):

Relationship description



[after describing their property portfolio]



Peter & Anne currently share a property with sister Jenny Lee (whom is looking to purchase a plantation herself) and would desperately like to get on their own plantation. Understanding that they are quite highly geared, Peter and Anne are looking to liquidate 3 of these properties (Aveley, Dianella and Landsdale). From this they will reduce debt down to a far more manageable level.



An opportunity to purchase a good plantation has been presented to Peter and Anne. Unfortunately Peter hasn't had time to sell off property before this opportunity come up.



Application description



...



Initially we are financing the purchase of the Plantation PP $1.1M Walk in walk out, as well as provide some carry on seasonal finance. Actual valuation held is $850K. Given that the Applicants need to sell property to reduce debt the application will be for 12 months interest only, repay/renegotiate. This will enable the bank to exit the business if the properties are not sold within the agreed time frames.



The second component is to ensure control over the disposal of assets and reduction of debt. As it stands now, Peter and Anne have 3 properties mortgaged to other lenders. Therefore,... so that the bank has full control over the settlement proceeds, I have proposed a refinance of the existing home loans.



...



Servicing



Peter's previous property they worked had very little improvements on it and was a smaller property (approx 14 acres/5.66 hectares) in comparison to proposed 8.2515 hectares that has the majority of property under crop net.



For the sake of servicing the loan I have based the projected cash flow from a combination of the new Plantation's 2007 financials in Wainwright and Wainright, the GST Returns for the 9 months ending 31/03/2008 and Peter Dinh's 2008 Financials.



However in order to determine the future servicing capacity of the Client several matters need to be considered.

402. Mr Pollard then set out, among other things, his analysis of the future grape production, the prospective rental income from the Dinhs' other properties and the anticipated increased yield from the superiority of the Plantation compared to the leased land.

The spreadsheet of Projected Performance

403. Mr Pollard created a detailed spreadsheet estimating the income and expenditure of the Dinhs if they farmed at the Plantation (Projected Performance). The spreadsheet included a breakdown of the farming income and expenditure of the Dinhs at their leased property in 2008 (Dinhs' 2008 Performance) and of the existing owner of the Plantation in 2007 (Wainwright's 2007 Performance).[376]
404. Mr Pollard estimated the Projected Performance by making adjustments to the income and expenditure shown in the Dinhs' 2008 Performance or in Wainwright's 2007 Performance (Table 1).[377]
405. For example, there were developing grape vines on the Plantation that had not produced grapes in 2007 (although, as will be seen, there was income from grapes recorded in Wainwright's records for 2008). Therefore, Wainwright's 2007 Performance figures did not show an income from grapes or the additional expenses associated with grapes. Mr Pollard added to the Projected Performance an estimate of the grape income for the first year and the costs that would be caused by the grape production, with a buffer.
406. Mr Pollard added his estimate of grape income to his estimate of income from other crops to estimate the total income. For his estimate of other crops, he used a figure that was slightly less than the Dinhs' 2008 Performance figure.
407. Mr Pollard also included various other buffers in the Projected Performance.
408. Using those Projected Performance figures, Mr Pollard created a second table, comparing the Projected Performance figures with the Dinhs' 2008 Performance and their performance in 2007 (Table 2).[378] Mr Pollard said that Table 2 was 'just a check to make sure that things ... didn't look out of place'.[379]
409. Mr Pollard used the same total of income from produce in Table 2 as he used in the Projected Performance in Table 1. That is, an estimate of non‑grape produce income that was slightly less than the Dinhs' 2008 Performance figure, plus an estimate of grape income. The only difference in the total income figure came from the addition of rental income from the Perth Property.
410. In his commentary, Mr Pollard noted (formatting errors corrected):[380]

As it stands Peter & Anne currently have 3 properties that can be rented out however only 1 is rented (75/996 Hay Street, Perth WA 6000). Aveley Property has recently been completed and could be rented out, however is on the market. The Ballajura Property that is currently tenanted by Peter's son, Andrew, could also be rented out if Andrew moves to Carnarvon to help run the plantation. In addition to this, the Landsdale property is under construction and once complete could also be tenanted if Andrew doesn't purchase it from the family.

411. Despite noting the availability of rental income from properties other than the Perth property, Mr Pollard did not include any rental income from those properties in his calculations. This was because those properties were to be sold.[381]
412. Mr Pollard then applied an EBITDA[382] calculation to determine the figure to use for the purposes of servicing.[383]
413. He then created two more tables setting out what funds would be left after all the commitments had been met. The first of these (Table 3) dealt with the bridging period, the first year. This showed the position before the investment properties had been sold and on the basis that the Bill Facility commitment would be interest only. The other (Table 4) dealt with the year following. This showed the position after the investment properties had been sold and on the basis that the Bill Facility commitment would be principal and interest.[384]

The grape income

414. Ms Dinh criticised Mr Pollard for including income from grapes in the Projected Performance.
415. At the time of the loan application, there were some developing grape vines on the Plantation. The vines had not produced any income in 2007 and had produced $40,000 in 2008. Mr Pollard expected that, as the vines were now fully mature, they would generate much more income.[385] Mr Pollard wrote:[386]
     1. FUTURE GRAPE PRODUCTION:-

The New Subject Property has approx 2400 relatively new Table Grape Vines (1.9 Hectares) under a shade structure (1800 (75% or 1.425 Hectare) Red Globe and 600 (25% or 0.475 hectare) Flame seedless). On Historic 2007 figures while the expenditure for the Vines were factored in, there was no income generated from the grapes due to age on the vines. 2008 produced approx $40,000 from which equated to approx. 4000kg per hectare of income from the Grapes but this is still well under weight for the average yield and income produced from this crop in the region which would be around 25,000kg/hectare between 27,000 kg and 30,000 kg per hectare. Therefore given the Plants are now at maturity to maximise yield, assuming [p]rices were similar to 2008 prices (Approx $3.98/kg Red Globe and $8.01/kg Flame Seedless), it would be safe to assume sales in the vicinity of

Red Globe 1.425Hectares * 25000kg @ 3.98 = $141,800

Flame Seedless 0.475 Hectares * 25000kg @ 8.01 = $95,118.75

Total Sales from Table Grapes = $236,918

If it were sensitised by 10% = $213,226

This income with the exception of some possible additional labour freight will be pure added profit to the plantation as the running costs were already factored into the property. Estimated freight costs would be $1.25 per box (10kg Box) therefore 1.9 Hectares* 25,000/10 @ $1.25 = $5937.

416. From this, it can be seen that Mr Pollard estimated that in 2009 there would be $236,918 of income from grapes. He then 'sensitised' that figure by 10%, reducing it to $213,226.
417. In his evidence, Mr Pollard said that the information as to prices most likely came from the Perth Market Authority website.[387] He said he estimated the income in consultation with Peter Dinh and Andrew Dinh.[388]
418. Mr and Ms Dinh had not previously grown grapes. Ms Dinh submitted that Mr Pollard should not have included an estimate for grape income on the assumption that they would be able to grow grapes.
419. I do not accept this. The Dinhs presented as people who had been making a living from market gardening for seven years, and, at least in recent years, on smaller land with inferior conditions (no crop netting). It would not be unreasonable to assume that they could turn their hand to a new crop.
420. As it turned out, the Dinhs did grow grapes. Andrew Dinh gave evidence that, when his parents bought the Plantation, his father asked him to come up to Carnarvon for a year to look after the plants. Although Andrew Dinh had not previously grown grapes either, his English was fluent[389] and the Dinhs clearly thought he would be able to grow them. On 4 December 2009, Andrew Dinh reported to the Bank that they had sent off their first lot of grapes to be sold.[390]
421. Ms Dinh also submitted that Mr Pollard should not have included an estimate for grape income because they would not have received such income until 2010.
422. I do not accept Mr Pollard should not have included an estimate for grape income. Mr Pollard said that income from grapes would normally come at the start of a year. In cross‑examination, he accepted that, due to the delay in settlement, the Dinhs would not have received any income from the grapes until the start of 2010. However, Mr Pollard was projecting income over the one year term on a 'year in, year out' basis,[391] and the income from the grapes would still have been received within that period, that is, before March 2010.
423. In addition, Mr Pollard pointed out that, even if the Dinhs did not grow grapes, the Plantation was larger than the land they were then leasing. Accordingly, it would still be expected that their overall income would be higher than the Dinhs' 2008 Performance.[392]

Double-counting land

424. Ms Dinh asserted that Mr Pollard had double‑counted the land taken up by the grape vines.
425. Ms Dinh submitted that Mr Pollard had 'grossed up' the income that would be received on the Plantation by 15% to allow for the fact that the Plantation was 15% larger than the land the Dinhs were then leasing. Ms Dinh asserted that Mr Pollard had admitted this in his evidence.
426. Ms Dinh submitted that, in grossing up the income, Mr Pollard had not allowed for the fact that some of the Plantation area was taken up by grapes. She submitted that, because Mr Pollard had also added $200,000 for grape income, he had double‑counted the land covered by the grapes.[393]
427. Mr Pollard did not double‑count the land. As explained earlier, Mr Pollard did not 'gross up' the income that would be received on the Plantation by 15% to allow for the fact that the Plantation was 15% larger than the leased land. For his estimate of income from crops other than grapes, Mr Pollard used a figure that was slightly less than the Dinhs' 2008 Performance figure, which was the income the Dinhs had received on the leased land. He did not 'gross up' this figure by any amount.
428. Further, he did not 'admit' that he had.[394]
429. Mr Pollard used the same total of income from produce in Table 2 as he used in the Projected Performance in Table 1. The only difference in the total income figure came from the addition of rental income from the Perth property.
430. I therefore reject this submission.

Conclusion on Projected Performance

431. I am not satisfied that Mr Pollard's Projected Performance was inadequate or insufficiently supported by what he had regard to. On the contrary, it was a detailed and careful analysis based on, among other things, the Dinhs' historical performance on their leased land and Mr Wainwright's performance on the Plantation. To the extent Mr Pollard relied on information from the Perth Market Authority, there is no evidence, or suggestion, that this was an unreliable source.
432. For completeness, I note that there was no evidence, or even a suggestion, that any of Mr Pollard's projected estimates were inaccurate.

The questionnaire

433. Mr Pollard also completed a 'Credit Risk Rating' questionnaire.[395] He explained that it assessed the probability of default. He said it was measuring the Bank's risk.[396]
434. Mr Pollard said that some of the questions were figure driven, and others were driven by judgment.[397]

Criticisms

435. Ms Dinh criticised Mr Pollard's answers to three of the questions on the questionnaire - questions 1, 5 and 11.[398] Questions 1 and 11 were criticised on the same basis and I will deal with them first.

Questions 1 and 11

436. Question 1 on the questionnaire asked for an assessment of sale trends. Mr Pollard assessed this as 'increase', on the basis that 'Increased yield in [grape] production and Efficiencies in production from improved Growing capability from Crop nets will increase sales'.[399]
437. Question 11 asked for an assessment of productivity trends. Mr Pollard assessed this as 'increase', on the basis that 'Clients will be moving into a far more developed Plantation to what they had in the past. Crop Netting and Maturing Vines should improve productivity'.[400]
438. In his commentary, Mr Pollard had noted, under the heading 'Increased Yield from Property improvements':[401]

With the Introduction of Crop Netting, yield is significantly improved as it reduces sun and pest damage thus increases quality fruit and Veg and reduces shrinkage and seconds

439. Mr Pollard gave evidence that, in noting that crop netting should improve productivity, he was comparing the position the Dinhs would be in on the Plantation with their current position on the leased land. It appears that the Dinhs did not have crop netting on the leased land.[402]
440. Ms Dinh criticised Mr Pollard's answers to these questions on three bases. First, that Mr Pollard could not remember where he had obtained the information to support his conclusion that productivity was likely to improve. Second, that the Bank did not produce any 'supporting information'. Third, that Mr Pollard was largely just making assumptions.[403]
441. It is certainly true that Mr Pollard is now unable to remember where he obtained particular pieces of information. He surmised that some information came from the Dinhs and other information from the Perth Market Authority website. He also had the financial records for the Dinhs and Mr Wainwright.
442. It is unsurprising that Mr Pollard cannot now remember where he obtained particular pieces of information. However, there was no suggestion that he fabricated any of the information he recorded in his analysis, or that any of the information was inaccurate. On the face of his loan application documents, it appears that he obtained a great deal of information. This included detailed financial information from the Dinhs and Mr Wainwright, the dimensions of the leased land and the Plantation, the absence of crop netting on the leased land and its presence on the Plantation, and the type, volume and maturation stage of the grapes on the Plantation.
443. Mr Pollard's inability to now recall where he obtained the information is not relevant to an assessment of whether the loan was prudent. Further, in the absence of any suggestion that the information was wrong, it would be difficult to conclude that his reliance on that information caused the Bank to approve the loan when a prudent banker would not have.
444. In relation to Ms Dinh's submission that the Bank did not produce any 'supporting information', it was not entirely clear what Ms Dinh was asserting ought to have been produced and what inference she was asserting should be drawn from the failure to produce it. It appears that Ms Dinh was submitting that the Bank ought to have verified that Mr Wainwright's financial records were accurate and should have produced documents to prove that it had done that.[404]
445. Ms Dinh did not adduce any expert evidence as to what a prudent banker would have done. In particular, there was no evidence that a prudent banker would have verified this information. In the absence of such evidence, I would not conclude that a prudent banker would have verified it.
446. Other information appeared to be based on what the Dinhs told Mr Pollard, his own knowledge and observations, and information from the Perth Market Authority website. At the time of this loan, Mr Pollard was working in Carnarvon, primarily handling clients who operated plantations or provided services to plantations.[405] Again, I am not satisfied that a prudent banker would have further verified this information.
447. It is true that Mr Pollard made some assumptions in his analysis. For example, Mr Pollard said that productivity would increase because the Plantation was a bigger property and because there was some crop netting. Mr Pollard assumed, in effect, that more produce could be grown on a larger area. Mr Pollard said that productivity would also increase because there was crop netting. He said that crop netting improves the yields and reduces the damage caused by pests. He agreed, therefore, that he had assumed that productivity would also increase because there was crop netting.[406]
448. There is no suggestion that the Plantation was not larger than the leased land. It was entirely reasonable for Mr Pollard to assume that a larger area would increase productivity.
449. It appears that Mr Pollard was aware that the Dinhs did not have crop netting on their leased land but that there was crop netting on the Plantation. It appears that Mr Pollard was aware of the benefits of crop netting. There is no suggestion he was wrong about any of that. It was entirely reasonable for Mr Pollard to assume that the crop netting would increase productivity.
450. Further, Ms Dinh did not adduce any expert evidence as to what a prudent banker would assume. In particular, there was no evidence that a prudent banker would not have made any of the assumptions made by Mr Pollard. I am not satisfied that a prudent banker would not have made these assumptions.
451. In addition, the anticipated improved productivity from crop nets, while used for the questionnaire, was not used in the Projected Performance assessment. As noted earlier, Mr Pollard used an income figure for the expected crops (other than the grapes) that was slightly lower than the Dinhs' 2008 Performance figure.
452. I dealt with Mr Pollard's assessment of grape income earlier. His assessment that there would be an increased yield in grape production was obviously based on the detailed information he recorded in his commentary. The information is far too detailed to have been simply assumed. For example, it is inconceivable that he merely assumed that there were approximately 2,400 relatively new table grape vines under a shade structure, 1,800 of which were Red Globe and the rest Flame Seedless. It is also apparent that Mr Pollard had Mr Wainwright's financial records for 2007 and his GST returns for nine months up to 31 March 2008. Mr Pollard fully explained his reasoning, and the basis for it, in the loan application.[407] There is no suggestion that any of the information Mr Pollard recorded was inaccurate.
453. I reject Ms Dinh's criticism of Mr Pollard's answers to questions 1 and 11.

Question 5

454. Question 5 on the questionnaire asked for an assessment of the future repayment capacity of the business. Mr Pollard assessed this as 'good', on the basis that 'Increased Yield in grape Production and improved productivity along with reduction in debt will improve repayment capacity with a healthy surplus to meet incidentals and living expenses'.[408]
455. The yield and productivity components overlapped with question 1. Ms Dinh repeated that there was no real basis for Mr Pollard's conclusion.[409] I have already rejected this.
456. In relation to the debt reduction component, Ms Dinh submitted, in effect, that selling the investment properties was not expressed to be a condition in the Loan Agreement, so debt reduction could not validly be taken into account.[410]
457. It is correct that selling the investment properties was not expressed to be a condition in the Loan Agreement. However, as explained earlier,[411] Ms Dinh knew that the loan was being offered for a period of only one year to enable her to sell the investment properties in that year. The alternative was that she postpone the purchase of the Plantation until the investment properties were sold, at the risk of losing the opportunity to buy it, and being unable to farm on it in the meantime. In those circumstances, it was entirely appropriate to anticipate that property sales would improve the Dinhs' repayment capacity.
458. I therefore reject Ms Dinh's criticism of Mr Pollard's answer to question 5.

Factoring in the high gearing, break-even income and high risks

459. The Bank took into account a number of factors that were less than positive in its calculation of the probability of default.
460. Mr Pollard assessed the business' profit record in question 2 as '3 - Breakeven'.
461. Question 3 on the questionnaire asked for an assessment of 'the equity of the business'. Mr Pollard assessed this as '3 - Low', giving the reason 'Clients are heavily geared as it stands [however] Post Sale of the 3 properties will improve equity'.
462. Question 4 on the questionnaire asked what the 'historic cash flow after distributions has been'. Mr Pollard wrote 'Over past 12 months due to increase in gearing applicants have had marginal funds after meeting commitments'. He assessed this as '3 - Marginal' (from a choice of 'Good', 'Marginal' or 'Poor'[412]).
463. The calculation of the probability of default also automatically factored in a number of high risk factors. Question 10 asked what the 'business' location and physical attributes' were. Mr Pollard recorded that there was a medium risk for plantations in Carnarvon, with a small risk of cyclone and a risk of flooding. Question 12 recorded that the Bank defined the business' industry risk as vegetable growing. Both answers resulted in assessments of '3 - High Risk'.
464. As the Bank pointed out, high gearing and high risk factors do not mean that the Bank does not lend money. Rather, the Bank takes those matters into account in deciding whether to lend money and, if so, how the loan should be structured. This was what the Bank did in this case.

The $50,000

465. Within the application documents, Mr Pollard set out the total funds available to the Dinhs and the funds required for the purchase of the Plantation.
466. In calculating the latter amount, Mr Pollard allowed $53,100 for stamp duty and fees.[413]
467. In calculating the total funds available to the Dinhs, Mr Pollard recorded that the Dinhs had $17,035 in bank accounts and $50,000 in cash. In his closing address, counsel for Ms Dinh submitted that Mr Pollard's evidence was that he had assumed that the Dinhs had $50,000.[414] While I accept that that interpretation of Mr Pollard's evidence is open, Mr Pollard's evidence was a little more nuanced. This exchange occurred in cross‑examination:[415]

$50,000 cash. That's not a bank account, is it, or is it a bank account that's not with the CBA?‑‑‑I'm not sure. Without looking at the - we would have had that in there as - as an assumption for the - for the settlement.



As an assumption?‑‑‑Yes. Look, obviously, I - I can't recall from - initially, but it's - yes. It's in there for a reason. So we've - we've put it in there.

468. In my view, Mr Pollard's evidence was ambiguous. It is more likely that he simply could not recall why the figure was included. It is unlikely he would have included that figure unless the information came from somewhere. Other evidence suggests that the source of the information was the Dinhs.
469. Ms Dinh was asked in evidence‑in‑chief if Mr Pollard had talked about a facility other than an overdraft facility, in what must have been the meeting in Perth. She replied:[416]

We - at that point in time I had about - sold a block of land in Bassendean. We got about 50,000 remaining as well as - yes, and also about $100,000 that we - that - proceeds from our sales in Carnarvon. So, we got about 150, and then we plan to use 60,000 to pay stamp duty for this - the farm that we are going to buy. Yes. And the remaining is to be used as cash flow in our business.

470. The block of land in Bassendean was not actually sold until December 2009,[417] well after the purchase of the Plantation. However, on two further occasions, Ms Dinh repeated her claim that she had $50,000 from the Bassendean property prior to the purchase of the Plantation.[418]
471. Her evidence in relation to the Bassendean property was very difficult to follow.[419] The only parts that were consistent were that she had only paid $50,000 of the $250,000 purchase price, that her family had been involved in the purchase, that she had received $50,000 from the sale and that this was before she purchased the Plantation. Given that Ms Dinh acted as the family banker, it is quite possible that she did get back her contribution of $50,000 before the property was sold from the other family members involved in the purchase and that this money was available to her prior to the purchase of the Plantation.
472. In any event, on Ms Dinh's own evidence, the Dinhs had about $100,000 in savings from their existing farming business.
473. In light of all of the evidence, I am not satisfied that Mr Pollard simply assumed that the Dinhs had $50,000. It is far more likely that this is what the Dinhs told him.

Conditional on valuations

474. In the application documents, Mr Pollard created a table showing the Dinhs' asset position. This included his estimates of the value of the Dinhs' properties.[420] At that time, he did not have valuations.[421]
475. The application documents included a section titled 'Credit Analysis'.[422] This set out that valuations had to be obtained on the Dinhs' properties as a condition prior to funding.
476. The loan was conditionally approved on 2 January 2009.
477. After conditional approval had been given, Mr Pollard obtained the valuations. The valuations were lower than his estimates. He said that, as a result, he had to resubmit the application.[423]
478. The amended application reflected the valuations, showing the Bank's position would not be entirely secured.[424] There was no impact on the Projected Performance. Mr Pollard used the same figures, including the same buffers, as he had used previously.[425]
479. Mr Pollard said that the lower valuations changed the Bank's risk perspective.[426] As a result, on 16 January 2009, in a revised credit analysis, a credit officer determined that the investment home loans would need to be for 12 months and interest only.[427]

A revised surplus of $10,000

480. In that revised credit analysis, the credit officer recorded that the estimated surplus available to the Dinhs would be only $10,698. It is not obvious to me why the surplus estimate was reduced following the reduced valuations. Nevertheless, the Bank appeared to accept that it had been reduced.[428]
481. Mr Pollard agreed that, during the one year bridging period, the servicing position was 'tight'.[429]
482. Although all of the farm expenses had been allowed for, a surplus of less than $11,000 was, on its face, a very small allowance for living expenses.
483. However, the Bank points out that this was a bridging loan, with the intention that the other properties would be sold. When each was sold, the Dinhs' outgoing commitments would be reduced and the surplus proceeds would provide an additional injection of funds. In the meantime, there was an overdraft to cater for short‑term cash flow issues.
484. Further, as the Dinhs had taken early possession, it could be expected that they would begin receiving income from the farm soon after settlement. They were also receiving rental income from the Perth property (and had two other properties that could have been rented).
485. Although the loan was tight, I am not satisfied that it was imprudent. I will say more about this shortly.

The unmentioned buffers

486. For completeness, I note one further matter. In Mr Pollard's spreadsheet of Projected Performance, he recorded a number of cost figures that were said to include a buffer or, in one instance, was entirely a buffer.
487. In the estimate for the cost of 'freight, grading, cartage and packaging', Mr Pollard used a figure that was more than $20,000 higher than the figures in the Dinhs' 2008 Performance and Wainwright's 2007 Performance to allow for the '[i]ncreased cost due to the Grapes being fully productive with Buffer'.
488. In the estimate for 'Fertiliser', Mr Pollard used a figure that was about $5,000 more than the Dinhs' 2008 Performance figure, and about $10,000 more than Wainwright's 2007 Performance figure to allow for 'increased cost in fertiliser prices'.
489. For the item 'Sundry', the Dinhs' 2008 Performance figure was less than $500 (and there was no entry for this item in Wainwright's 2007 Performance figures). Mr Pollard used a figure of $20,000, describing this as 'Buffer'.
490. For the item 'Wages', there was no entry for this item in the Dinhs' 2008 Performance figures. In Wainwright's 2007 Performance figures, there was an entry of just under $30,000. Mr Pollard used a figure of $40,000, writing 'whilst a large portion of the labour will be family, we will include a buffer'.
491. Each of these buffers were repeated in the amended application.[430]
492. Surprisingly, Mr Pollard was not asked any questions about these entries and neither counsel mentioned them in written or oral submissions. If the evidence could have affected my final conclusions, it would have been necessary to have given counsel an opportunity to be heard. However, without having regard to this evidence, I am not satisfied that the Bank acted imprudently or that the Dinhs did not have the capacity to meet the repayment obligations. Therefore, it is unnecessary to give counsel an opportunity to be heard. I will simply ignore this evidence.

Was Mr Pollard 'pushing for' the loan?

493. It was put to Mr Pollard that he was 'pushing for' the loan. Mr Pollard said that the Dinhs wanted the Plantation, so he was doing his best to try and get the loan approved. He agreed that he himself wanted the transaction to go through. He was asked 'Because it would add to your figures, wouldn't it?' He replied '- Well, it - it does. Yes'.[431]
494. Mr Pollard gave evidence that he did not receive a commission for the loan. He said that there was a bonus structure based on various KPIs, one of which was growth. However, another component was risk.[432]
495. I accept Mr Pollard wanted the loan to be approved. I do not accept that it influenced him to take an improper or imprudent approach. Even if I was to accept he was influenced by self‑interest, which I do not, it was not in his interest overall to grant a risky loan.
496. I am satisfied that Mr Pollard acted in good faith.

Prudence of the loan

497. In evaluating the prudence of the loan, it must be considered in the context of all of the relevant circumstances.
498. First, it was a bridging loan. It was intended to be for a period of only 12 months, to give the Dinhs time to sell their other properties. It included an overdraft facility to cater for cash flow issues. Given the number of other properties the Dinhs had, it was reasonable to assume that at least some would be sold relatively quickly, reducing the obligations and increasing the available funds.
499. Second, the Dinhs had an established track record as successful market gardeners.
500. Third, the Plantation was larger and superior to their leased land, and a higher net profit could be expected.
501. Fourth, the Dinhs took early possession on 4 January 2009, giving them time to work on the Plantation before settlement occurred and their payment obligations began. It was reasonable to expect that it would not take them long to begin generating income. (As events transpired, it appears that the Dinhs had watermelons ready to be picked before settlement.[433])
502. Finally, the Bank had no inkling that the Dinhs would say that they could not pay the stamp duty until 16 March 2009, well after the loan had been approved.
503. Ms Dinh submitted that the focus of the Bank was on its security rather than the Dinhs' ability to service the loan.[434] The two are not mutually exclusive. The Bank was clearly concerned to ensure its position was protected. It would be surprising if it was not. However, it is equally clear that the Bank sought to calculate whether the Dinhs would be able to service the loan. Mr Pollard concluded that they would be able to service the loan.[435]
504. Mr Pollard did a great deal of work on the Dinhs' application. He obtained the financial records of the Dinhs and Mr Wainwright. He did not factor in rental income for the properties that were to be sold. He carefully analysed and explained why he predicted increased income. I have explained why I reject the various criticisms of his analysis.
505. Taking all of the circumstances into account, I am not satisfied that the Bank was imprudent in offering the loan. In particular, to pick up the words of cl 25.1 of the Code,[436] I am not satisfied that the Bank failed to exercise the care and skill of a diligent and prudent banker in forming its opinion about the Dinhs' ability to repay the loan. I am also not satisfied that a diligent and prudent banker would have formed the view that the Dinhs could not meet their repayment obligations or even that it was unlikely that they would be unable to meet them.
506. Indeed, I am also not satisfied, as a matter of fact, that the Dinhs could not have serviced the loan. As I will explain, I consider that the failure of the loan was due to the way in which the Dinhs approached their obligations, rather than a lack of capacity.
507. The loan was undoubtedly 'tight'. However, as events transpired, it appears that Ms Dinh's assessment that the business could make the repayments was correct.
508. During the one year term of the loan, the overdraft never exceeded $115,000.[437] This is despite the fact that none of the investment properties were sold during the one year term.
509. Further, within that one year period, there were periods when the overdraft was under or close to its limit. From 1 October 2009 to 23 December 2009, the balance remained under $60,000 and was under $50,000 at times.[438] As previously noted, this was before any of the investment properties were sold.
510. In the two months following the first year, the overdraft increased, peaking at about $142,000. It was then virtually paid off by the proceeds from the sale of the Aveley property. Part of the reason for the increase was because the Bank permitted further funds to be drawn in light of the pending sale.[439]
511. Between 14 May 2010 and 18 January 2011, the overdraft then went up and down, peaking at about $72,000, and was often under $50,000.[440] The Dinhs made their last deposit into the overdraft, with one exception, on 18 January 2011.
512. Further, there were a number of things that the Dinhs did and did not do that impacted the state of the overdraft.
513. First, Ms Dinh did not recover money owed to her by family members (and which Mr Pollard had been told would be recovered) and it appears she continued to lend money to family members. She bought her son a car around the end of 2009 (on the basis that he would repay her by instalments).[441]
514. Second, the Dinhs opened an account at the ANZ bank toward the end of 2009 and income from the farm was deposited there.[442]
515. Third, the Dinhs did not sell any of the properties within the one year term.
516. Fourth, it appears that Ms Dinh gave her son over $20,000 so that he could buy the Landsdale property in November 2010. In addition, it appears that she may have sold it for less than it was worth, admitting that she sold it to him for the amount that the bank was willing to lend him.[443]
517. Fifth, it seems that the Dinhs stopped depositing any money into the overdraft account in early 2011, apart from a single deposit on 23 February 2012. When the third last deposit was made, on 15 December 2010, the overdraft was drawn to $50,217.04.
518. The floods occurred in late 2010 and early 2011, disrupting their farming for approximately six months. By this point, there was no money going into the overdraft (apart from the single deposit in February 2012). It is not surprising that the overdraft blew out of control.
519. For completeness, I note that it is possible that Ms Dinh was making mortgage repayments throughout 2009 in relation to the Bassendean property. If the repayments were interest only, it is likely they would have been about $14,000 annually.[444] However, the evidence in relation to the Bassendean property was unclear, and so I have disregarded this possibility.