Duke Pacific Finance Ltd (in liq) v Gordon & Anor [1992] QSC 258

I ' \____) IN THE SUPREME COURT OF QUEENSLAND BETWEEN: DUKE PACIFIC FINANCE LIMITED (In Liquidation) NOEL FRANCIS GORDON JALONE PTY. LTD. JUDGMENT - DOWSETT J. No. 525 of 1990 Plaintiff First Defendant Second Defendant Delivered the Twenty-first day of July, 1992 Counsel : R. V. Hanson Q. C. with him J. P. Kimmins for the Plaintiff J.D.M. Muir Q.C. with him J.D. Batch for the Defendants Solicitors: Blake Dawson & Waldron, Solicitors for the Plaintiff Thynne & Macartney, T/A for Primrose Couper Cronin Rudkin, Solicitors for the Defendants. Hearing Dates: 3rd, 4th, 5th, 6th, 7th, 10th, 11th, 12th, 14th February and 16th March, 1992. -- 1 of 47 -- •, ( IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AND: AND: DUKE PACIFIC FINANCE LIMITED (In Liquidation) NOEL FRANCIS GORDON JALONE PTY. LTD. JUDGMENT - DOWSETT J. No. 525 of 1990 Plaintiff First Defendant Second Defendant Delivered the Twenty-first day of July, 1992. The plaintiff ("BPF") was previously known as Burns Philp Finance Limited, but changed its name on 6th August, 1987. At all material times the first defendant was a director of the second defendant. and of another company, Seaquester Quays Pty. Ltd., now in receivership and previously known as Gordon Court \.__j Pty. Ltd. ( "Seaquester Quays" or "Gordon Court"). Prior to December, 1984 BPF financed the operations of Lae Enterprises Pty. Ltd. ( "Lae Enterprises") which company was involved in property development at the Gold Coast and was controlled by a Mr. McCowan, who introduced BPF to the first defendant. That contact was initially with Allan William Court who was in day-to-day control of BPF. At some stag.e, it was proposed that BPF and the first defendant undertake a joint venture to acquire and develop some of the land then owned by Lae Enterprises. -- 2 of 47 -- 2 On 7th December, 1984 BPF wrote to the first defendant confirming that, "approval has been given for Burns Philp Finance Limited to take a half-share in the proposed joint venture development of approximately 4.5 hectares of land at Runaway Bay which is to be acquired from Lae Enterprises Pty. Ltd.". The letter also recorded approval for BPF to, "provide funding and guarantees required to develop the land into an exclusive group title residential sub-division." (ex. 13) Alternative structures for the joint venture were proposed. Clearly, the actual cash investment in the joint venture (as opposed to loan funds) was to be nominal . (See p. 2 . ) The letter also indicated that $2.25 million would be advanced for the purchase of the land, and funds would be avai~able for other "approved development costs" with, "an overall limit of $3.7 5 million which has been set in light of the cash flow projections to allow for reasonable contingencies." (Seep. 5.) There was to be security in a form acceptable to BPF, including:- (a) registered first mortgage over the land; (b) registered first debenture mortgage over the whole of the assets and undertaking of Gordon Court; (c) guarantee and indemnity by Noel Francis Gordon and (if so nominated) the company or trust acting in the joint venture on his behalf. The first defendant signed this letter, indicating his acceptance of the terms. On 22nd January, 1985 BPF and the first defendant entered into a joint venture deed to which the other parties were Breffny () 0 0 0 '' -- 3 of 47 -- ( 3 Finance eo. Pty. Ltd. ("Breffny"), Jalone Pty. Ltd. (the second defendant) and Lae Enterprises. Breffny was the company through which BPF had chosen to participate in the joint venture. The second defendant performed the same function for the first defendant. Gordon Court was nominated as manager of the project and was effectively the joint venture vehicle. The deed provided:- "3. 1 Until otherwise agreed, there shall be an equality of the percentage interest held by each of the joint venturers. 3.2 Subject to the express terms hereof, each joint venturer will contribute out of its own resources its respective percentage interest of the costs, charges, expenses and obligations as and when the same shall be incurred or required and will receive its respective percentage interest of the proceeds thereof to the intent that the profit will be shared between the joint venturers in accordance with their respective percentage interests. 3.3 The parties to this deed acknowledge that it is the intention of BPF to lend moneys and otherwise provide financial accommodation to the venture at the discretion from time to time of BPF and upon terms acceptable from time to time to BPF and upon the securities for the time being generally described inthe Fifth Schedule hereto or in BPF' s letter of approval and as more particularly defined and required from time to time by BPF, and that nothing in this deed or the Schedules to it is a commitment by orobligation upon BPF that all or any part of the moneys described or referred therein will be advanced at any time." (Exhibit 13 was a schedule to the deed.) Security documentation was also executed, including a mortgage debenture and a bill of encumbrance from Gordon Court and a guarantee by the first defendant of Gordon Court's performance under the debenture and the bill of encumbrance. (ex.3) -- 4 of 47 -- ------------- 4 On 11th October, 1985 BPF again wrote to the first defendant communicating the former's "approval ... for Burns Philp Finance Ltd. to provide additional finance to the above joint venture company to enable it to acquire from Lae Enterprises Pty. Ltd. for purposes of development and/or sale the 'Broadwater Estate' and the nearby Commercial Site." (ex. 40) This was land near to that involved in the first joint venture. There was approval for funding up to a total overall limit of $13.6 million, that limit being "the overall limit ... set to cover all 'cash commitments' (as outlined later in this letter) for the Gordon Court estate and the further developments ... ". Probably, this was meant to include all advances in connection with both joint ventures. It was proposed that the existing joint venture deed remain in place and that a further deed in similar terms be entered into for the additional acquisitions and developm~nt. Security was 0 0 to include a registered first mortgage, a registered mortgage debenture over the assets and undertaking of Gordon Court (the 0 existing debenture being sufficient for that purpose), a guarantee and indemnity by the first and second defendants (presumably of Gordon Court's obligations) and the assignment of certain other property by way of security. Again, the letter was endorsed by the first defendant as accepted by him. Gordon Court also endorsed it. On 18th October, 1985 a second joint venture deed was executed, the parties to which were BPF, Breffny and both defendants. The purpose of the joint venture was said to be the acquisition of the commercial site and its subsequent development and/or sale and the acquisition deveiopment and sub-division of 0 -- 5 of 47 -- ( ( 5 the Broadwater estate into lots as residential land. Gordon Court was again appointed to conduct the joint venture. Clause 3 was in identical terms to cl. 3 of the earlier deed, and ex. 40 was included as a schedule. The defendants executed a guarantee dated 18th October, 1985 in respect of the obligations of Gordon Court under the mortgage debenture and other securities.(ex. 4) Each of the two joint venture deeds contained cl. 12 in this form:- "In consideration of (the first defendant) entering into this joint venture deed, and causing (the second defendant) to enter into this joint venture deed (which, by the execution by (the second defendant) of this deed, (the first defendant) is deemed to have done), BPF does hereby guarantee to (the first defendant) the payment of all moneys payable by Breffny pursuant to this joint venture deed and the due and prompt performance and observance by Breffny of all the covenants, conditions and restrictions on the part of Breffny contained or implied in this joint venture deed, and BPF agrees that this guarantee shall be a continuing guarantee and that its liability hereunder shall not be affected or discharged by any time indulgence or concession shown or granted by (the first defendant) or (the second defendant) to Breffnyand that BPF shall be liable as a principal debtor and not as a surety. In consideration of BPF entering into this joint venture deed, and causing Breffny to enter into this joint venture deed (which, by the execution by Breffny of this deed, BPF is deemed to have done), (the first defendant) does hereby guarantee to BPF the payment of all moneys payable by (the second defendant) pursuant to this joint venture deed and the due and prompt performance and observance by (the second defendant) of all the covenants, conditions and restrictions on the part of (the second defendant) contained orimplied in this joint venture deed, and (the first defendant) agrees that this guarantee shall be a continuing guarantee and that his liability hereunder shall not be affected or discharged by any time, indulgence or concession shown or granted by BPF orBreffny to (the second defendant) and that (the first defendant) shall be liable as a principal debtor and not as a surety." -- 6 of 47 -- 6 The physical layout of the overall development is shown by ex. 17. Stage 1 of what was called the "Seaquester Quays" development contained the land the subject of the first joint venture deed. The balance of the development was substantially the subject matter of the second joint venture deed, comprising Seaquester Quays, Stages 2, 3, 4 and 5. Stage 3 was further subdivided into Mariners' Village, Stages I to V. This staging is relevant in considering the subsequent progress of the project and its eventual collapse. BPF's claim is to recover from the defendants the principal and interest advanced for the purposes of the joint ventures, relying upon the guarantees. In response, the defendants asserted firstly, that as a result of its conduct, BPF is estopped from now recovering the outstanding amount pursuant to the guarantees or that it has contractually bound itself so that it cannot now do so. Alternatively, the defendants claimed that the moneys have not yet fallen due for repayment, primarily because any advances are to be repaid (in the absence of default) from the proceeds of the joint ventures. The defendants also 0 0 0 submitted that Gordon Court has a claim for damages against BPF Q which should go in reduction of their indebtedness under the guarantees. Reliance upon the Trade Practices Act was abandoned in the course of argument as was a defence based on rectification. The defendants also deny liability to any extent beyond half of the debt. Throughout the trial, the parties generally treated the two guarantees as operating co-extensively. All representations said to be relevant to liability under one joint venture and I J -- 7 of 47 -- ( i I ~/ 7 associated securities were treated as similarly applicable to the other. Breffny and BPF were treated as identical, as wer·e the defendants and Mr. M.J. Gordon, the first defendant's son. No distinction was drawn between the joint ventures insofar as concerned the applicability of the various defences. These matters were not the subjects of formal admissions. I am merely describing the conduct of the parties at the trial. The factual background of the first basis of defence was in alleged conversations between Mr. Court and the first defendant at or about the time of execution of the first joint venture deed and associated security documents and thereafter. It was asserted that prior to such execution, Mr. Court informed the defendants:- (a) that the bill of encumbrance and the bill of mortgage in the proposed joint venture documentation were regarded by BPF as the principal security in relation to the joint venture; (b) that the proposed guarantee by the first and second defendants was required by BPF as an expression of their confidence in the joint venture project; (c) that BPF would not enforce the proposed guarantee against them, provided that they and the Gordon companies did the right thing by BPF and Seaquester Quays Pty. Ltd. ; (d) that if the f'irst and second defendants did not do the right thing by BPF and Seaquester Quays Pty. Ltd., BPF might enforce its rights under the joint venture -- 8 of 47 -- 8 documentation including under the proposed guarantee. (See para. 7 of the defence and counter-claim.) The first defendant said that McCowan told him that BPF had supported him or Lae Enterprises through difficult periods in the land development business and otherwise recommended BPF to him. Court was aware of this. Mr. Gordon said that when he first saw ex. 13, he was concerned by the requirement for guarantees from himself and his company and raised the matter with Mr. Court. I should say that as far as I know, only the first defendant executed a guarantee at the time of execution of the first joint venture deed, although the second defendant also executed the guarantee executed at the time of execution of the second joint venture deed. Gordon said that Mr. Court responded by saying to him:- "that firstly I should understand that Burns Philp was an old company with a good reputation and the executives of that company jealously regarded their reputation for fair business traders. and that because they had been involved with Lae Enterprises in a joint enterprise at Runaway Bay for about 10 or so years, the directors were familiar with the property itself which we were talking about and that they, in fact, understood that the property would be the primary security, the property that we were looking to acquire, and the assets of that proposed joint venture company. He said that the guarantee was to indicate to Burns Philp finance my confidence firstly in the project and to ensure that I did the right thing in regard to my performance and that, if I didn't do the right thing, then they would look to the guarantee to effect that .... Alan went on to explain to me- Mr. Court went on to explain to me that the company had adopted this attitude on occasions previously where they had rights or remedies under a guarantee against a guarantor and funds of the project wasn't successful and that, while they could have, they didn't because of the conduct of the guarantor." (Seep. 154) Mr. Court also gave him examples of circumstances in which Burns Philp (presumably BPF) had not enforced guarantees against '' l 0 0 0 0 -- 9 of 47 -- , . ( I \ / 9 eo-joint venturers and said that he could be re-assured by the long·relationship with Mr. McCowan and the way in which Burns Philp had dealt with the various situations which had arisen in the course of it. Mr. Garden claimed that he raised the matter again some two weeks later, saying, "I am still concerned about my liabilities here." This was presumably prior to execution of the joint venture documentation. Garden said that Court replied that it was important for him to have confidence in Garden's dedication to the project and his activity and commitment to it. Court allegedly said that the guarantee was not a means of taking action against him personally for the recovery of funds but was to ensure that Garden applied himself to the project, "ensuring my performance and that I could have no action against me if there was any problems with the joint venture as long as I did the right thing." This conversation allegedly occurred at the Sheraton Hotel or at the offices of Messrs. Chambers, McNab, Tully and Wilson, BPF's solicitors. Mr. McNab, a solicitor from that firm was allegedly present at the time. Mr. Gordon said that before the.second joint venture deed was executed, Mr. Court again made an assertion to the effect:- "that this guarantee was to be a demonstration of my preparedness to put my efforts into the joint venture and make a success of it and that as he said in the first situation, the first guarantee, that was thereason for requiring the guarantee." (Seep. 158.) Mr. Gordon also said that:- "I had to act honestly and I had to use my bestendeavours in regard to the joint venture both insubstance and in spirit. As far as the joint venture was concerned that was the essence of the conversation." (See p. 158.) -- 10 of 47 -- 10 A considerable attack was launched upon Mr. Gordon' s account of this conversation and its effect. Reference was made 'to a number of different versions offered by Mr. Gordon over the years. In an affidavit sworn on 4th May, 1990 (ex. 39) he said that Mr. Court had:- "assured me and allayed my concerns by telling me that the Burns Philp group was a very reputable group and that the senior executives were very jealous of the good name of the group for fair dealing. Mr. Court informed me that the Burns Philp group liked the project very much and that the charges over the land and over the assets of the joint venture company were regarded as the principal security over the project. Mr. Court told me that the guarantee was required as an expression of my confidence in the project, and that, provided I did the right thing, or words to that effect I would have nothing to fear by way of enforcement of the guarantee." This conversation was said to have occurred some time between 7th December, 1984 and 22nd January, 1985, or so I would infer from para. 9 of that affidavit. Mr. Gordon swore in the same affidavit that the matter was discussed again with Mr. Court, a couple of weeks later in the offices of Messrs. Chambers, McNab, Tully and Wilson. Mr. Gordon asserted that Mr. Court repeated the comments he had previously made and added that:- "If we did the wrong thing, or words to tha.t effect, then the plaintiff would enforce its rights, including under the guarantee. Nonetheless, Mr. Court said to me repeatedly words to the effect that the plaintiff's rights under the guarantee would not be enforced, as long as we were complying with the substance and spirit of our obligations under the joint venture." In para. 10 of that affidavit, Mr. Gordon swore that at the time of the execution of the second joint venture deed, he and the second defendant, "continued to rely on the assurances given me by Mr. Court and referred to in para. 9 above." 0 0 0 0 -- 11 of 47 -- 11 In the defence and counter-claim initially delivered, the defendants asserted that - "At or about the time of execution of the said first joint venture documentation the first and second defendants informed the plaintiff that the first and second defendants were concerned by the then requirement by the plaintiff ... that the first andsecond defendants give a guarantee as part of the joint venture documentation." (See para. 6.) Paragraph 7 continued in the form I have set out above save that substantial compliance with the guarantors' obligations under the joint venture was alleged to be a condition precedent to exemption from liability under the guarantees. This plea was subsequently deleted. The defence otherwise reflects the version given in ex. 39. According to the original defence, Court's statements were made at or about the time of entering into the first joint venture agreement. I assume that this implies that they were made prior to execution. In his evidence-in-chief, Gordon similarly asserted two meetings at about the time of the ( \ execution·of the first joint venture deed, separated by about two weeks. He also alleged that there was a further telephone conversation about this matter at the time of signing the second joint venture deed. This was not something to which he had previously sworn, nor was it pleaded in the original defence. I do not draw any inference adverse to Gordon's credibility from this apparent improvement in his recollection because his evidence is generally consistent with Mr. Court's recollections. Two aspects of Gordon' s evidence did cause me to doubt his overall frankness. Firstly, he was determined to avoid acknowledging the correctness of the calculation of the debt allegedly owing, although he advanced no basis for doubting it. -- 12 of 47 -- 12 Given his connection with the enterprise, it was not unreasonable to expect that he would either agree with the calculations or at least comment upon them. Indeed, I was told that the trial was adjourned on a previous occasion so that this matter could be investigated on behalf of the defendants. His reluctance to express a view about this issue suggested that he was taking a very defensive stance and was willing to be evasive to advance his own interests. Similarly, when he was cross-examined about the marked similarity in wording between part of his affidavit and a statement made by Mr. Court, suggesting that he had knowledge of that statement at the time of swearing his affidavit, he unreasonably denied any such possibility in a way which suggested a fear that any other answer would adversely affect his case. In general, he did not strike me as a particularly straightforward witness, although no doubt, the seriousness of his present circumstances might explain his defensiveness. From BPF' s point of view, the difficulty which must be faced is Mr. Court's evidence concerning extra-contractual statements. 0 0 0 Mr. Court worked for the Burns Philp group from 1978 until 1987 c=) and then for the Duke group. Mr. Court said that shortly after the letter of 7th December, 1984 Mr. Gordon telephoned and expressed his unhappiness about the personal guarantee requirements. Mr. Court replied that Burns Philp was a reputable company and that its directors and executives were concerned about its reputation for fair dealing. He said that they liked the project and that the primary security for the transaction clearly was to be the land and the assets of the company (Gordon -- 13 of 47 -- 13 Court), but the guarantee was an expression of Mr. Garden's own confidence in the project and, "that provided he did the right thing he had nothing to fear from Burns Philp." Mr. Court also reminded Mr. Garden that Mr. M<;::Cowan had told him that Burns Philp had stuck with Lae Enterprises throughout their dealings. Mr. Court recalled that at the time of execution of the documents some time later, probably on 22nd January, Mr. Garden also said something like, "I am still not happy about signing (-\ this guarantee and signing the personal guarantees." Mr. Court c ( responded, "If you do the right thing you have nothing to worry about. If you do the wrong thing I will nail you to the wall." Mr. McCowan may also have then said something to the effect that Burns Philp was a good joint venture partner. Mr. Court also thought that prior to signing the documentation relating to the second joint venture, Mr. Gordon had said something like, "I don't know why I should still be signing this guarantee." Apart from Mr. Court's evidence, a statement provided by him to the defendant's solicitors dated 21st October, 1989 was tendered (ex. 24). In para. 6 of that statement Mr. Court said:- "I said the guarantee was required as an expression of his confidence in the project and that provided he did the right thing he had nothing to fear as I knew of several occasions when BPF had been prepared to lose money rather than take action which would have affected its reputation. I reminded him of the long support that had been given Lae and of the sorts of comments made by Mr. McCowan ... " In para. 7 he said that he repeated the same comments in the solicitors' offices on a later occasion. In para. 8 he said that he knew he was probably diminishing the effectiveness of the guarantee by making these statements. I am not entirely sure how -- 14 of 47 -- 14 to take this observation. The significance of such extra-contractual statements has increased greatly since 19,84 as a result of numerous decisions of the High Court. Thus it is difficult to assess Mr. Court's perception of "diminishing effectiveness". As to para. 10 of the statement, I am reluctant to place any weight upon it as it appears to be a summary of Mr. Court's impressions rather than a factual account. Mr. Court's recollection was, to some extent fragmentary, and he was a little equivocal under cross-examination. He did not strike me as a dishonest man, although I thought that he 0 seemed to favour Mr. Gordon for one reason or another. I certainly preferred Mr. Court's recollection of the various 0 conversations to Mr. Gordon's account. Mr. Court was, in every respect a much more impressive witness. Although I think he was inclined to favour Mr. Gordon, I do not think that this extended to the point of deliberately telling lies. I accept that on at least one occasion, Mr. Court said that provided Mr. Gordon did the right thing, he had nothing to fear from Burns Philp. This may have been repeated on subsequent occasions. I have difficulty in attributing legal significance to such a statement. Views will differ as to what is, "doing the right thing", and what may promote fear. Such a statement implies an intention on the part of BPF to be reasonable in its dealings with Mr. Gordon, but I doubt that it goes furth~r than that. Although BPF was to finance the whole undertaking, it is unlikely that the parties intended that in the event of failure, BPF would bear the whole loss. There may have been a suggestion that BPF might not insist upon all of its rights, but it is difficult to 0 0 -- 15 of 47 -- 15 construe the words as meaning that BPF would not insist upon any of . its rights. In my view, the statements as to which Mr-. Court testified were simply too vague to carry legal effect, whether by way of estoppel or collateral contract. The need for precision and absence of ambiguity in statements relied upon to establish an estoppel is best demonstrated in the joint judgment of Mason J. (as his Honour then was) and Deane J. in Legione v. Hateley (1982) 152 C.L.R. 406 at pp. 435-7 where their Honours said:- "First it has long been recognised that a representation must be clear before it can found an estoppel in pais 'Every estoppel, because it concludeth a man to alleadge the truth, must be certaine to every intent, and not to be taken by argument or inference' ... In Western Australia Insurance Co. Ltd. v. Day ton, Isaacs A. C. J. , referring to the requirement that a representation must be 'unambiguous' if it is to found an estoppel in pais said: 'the word "unambiguous" is explained by Kay L.J .... The Lord Justice says: "it is essential to shew that the statement was of such a nature that it would have misled any reasonable man, and that the plaintiff was in fact misled by it." Bowen L. J. says:- "It must be such as will be reasonably understood in a particular sense by the person to whom it is addressed ... " The requirement that a representation must be clear before it can found an estoppel is, in our view, applicable to any doctrine of promissory estoppel ... In the Woodhouse case Lord Hailsham of St. Marylebone L. C. (with whose speech Lord Pear son agreed) commented: "Counsel for the appellants was asked whether he knew of any case in which an ambiguous statement had ever formed the basis of a purely promissory estoppel, as contended for here, as distinct from estoppel of a more familiar type based on factual misrepresentation. He candidly replied that he did not. I do not find this surprising, since it would really be an astonishing thing if, in the case of a -- 16 of 47 -- 16 genuine misunderstanding as to the meaning of an offer, the offeree could obtain by means of the doctrine of promissory estoppel something that he must fail to obtain under the conventional law of contract. I share the feeling of incredulity expressed by Lord Denning M.R. in the course of his judgment in the instant case when he said: 'If the judge be right, it leads to this extraordinary consequence: A letter which is not sufficient to vary a contract is, nevertheless, sufficient to work an estoppel - which will have the same effect as a variation. 1 " In the Court of Appeal, Lord Denning M.R. had proceeded to refer to the higher standard of clarity required of a promissory representation relied upon to found an estoppel if compared with that required when a representation is put forward as an agreed variation of contract: 1 ••• If the representation is put forward as a variation, and is fairly capable of one or other of two meanings, the judge will decide between those two meanings and say which is right. But, if it is put forward as an estoppel, the judge will not decide between the two meanings. He will reject it as an estoppel because it is not precise and unambiguous. There is good sense in this difference. When a contract is varied by correspondence, it is an agreed variation. It is the duty of the court to give effect to the agreement if it possibly can: and it does so by resolving ambiguities, no matter how difficult it may be. But, when a man is estopped, he has not agreed to anything. Quite the reverse. He is stopped from telling the truth. He should not be stopped on an ambiguity. To work an estoppel, the representation must be clear and unequivocal. 1 " I should point out that from the outset, Mr. Gordon and another of his companies were, in effect retained as consultants to the project. They were to be paid for performing this function by Gordon Court from funds provided by BPF. There was nothing inappropriate about such an arrangement, but Mr. Gordon 1 s 0 0 0 0 -- 17 of 47 -- r) 17 own commitment to the project was already secured in that way. The· guarantees were not the only incentives. The defendants experienced considerable difficulty in trying to explain what was meant by the expression, "do the right thing". In the end, they were compelled to submit that it implied doing something less than ensuring that the second defendant met its obligations pursuant to the joint venture agreement and something less than complying with all of the obligations contained in the guarantee. At one stage, they submitted that if, "doing the right thing," meant observing the obligations undertaken pursuant to the documents, then Mr. Court's statements would have no effect. Of course, this is to beg the question. It assumes that any oral statement made by Mr. Court must have had legal consequences. The exercise is to determine whether or not such statement had legal (or equitable) consequences. If the statement is meaningless, or if no clear / 1, and unambiguous meaning can be ascribed to it, then there is no estoppel. Similarly difficulty was experienced in attributing meaning to the expression, "nothing to fear". It indicates an intention that BPF will act reasonably and honourably, but it seems to go little further than that. Although it is less picturesque than the antonymous expression used, "nail you to the wall," it nonetheless is also imprecise in meaning. Although these expressions, taken together and in the relevant context indicate an expectation that BPF would be circumspect in the enforcement of its rights as against Mr. Gordon, they have no precise meaning capable of enforcement. -- 18 of 47 -- 18 It always remained within the discretion of the BPF decision-makers whether or not to enforce its rights; which decision must inevitably have been highly subjective. Apart from the difficulty of enforcing an estoppel based upon these statements, one is led inevitably to the conclusion that despite his protestations to the contrary, it is most unlikely that Mr. Gordon relied upon them in any way. Such statements should be seen as nothing more than the fond expectations of the parties at the outset of the project when the prospect of failure was not foremost in their thinking. As to the suggestion that the statements may, in some way have been incorporated into a collateral contract, I simply cannot see how that can be so on the evidence. The argument must be that in consideration of the defendants entering into the joint ventures and associated documentation, BPF agreed not to enforce the guarantees other than in the stipulated circumstances. It is clear that the parties intended that the documentation contain the agreement between them. It was made clear to Mr. Gordon that BPF required the guarantees as evidence of his commitment to the project. That motivation makes it unlikely that the parties' objective intentions were that BPF not have the benefit of the guarantees. I am unable to infer such an agreement from the evidence. The proper inference from all of the circumstances is that the written documentation comprehensively recorded the agreement between the parties. The statements which have been at the centre of the factual debate were quite informal observations. I say this having given due weight to Mr. Court's evidence to the 0 0 0 0 -- 19 of 47 -- 19 effect that they were statements made in a serious context and in the expectation that Mr. Gordon act upon them. I take this to mean that Mr. Court was putting BPF's position clearly and unequivocally so that Mr. Gordon would understand it. Court's statements should not be taken as detracting from the enforceability of the guarantees. The defendants' other major argument was that the moneys advanced by BPF became repayable only upon completion of the joint venture and realisation of the assets, that this had not occurred because of BPF's refusal to continue to advance funds, ( and that the moneys were not, therefore, repayable. i\ / Two basic propositions underlie these arguments:- (a) That there was a positive obligation upon BPF to continue ·to lend moneys; (b) That such moneys were not repayable (in the absence of default) until completion of the project (including sale). Both propositions depend upon the agreement between the parties as modified by subsequent conduct. It is necessary to consider the evidence in some detail. Exhibit 13 recorded approval for BPF to provide funding to an overall limit of $3.75 million, "set in light of the cash flow projections to allow for reasonable contingencies". Under the heading "Term" the following passage appeared:- "We have noted that the project is estimated to extend over 16 months. However, in keeping with the projections, funding is approved for a term of eight months from first drawdown. Without commitment, this is subject toreview in keeping with progress of the development." -- 20 of 47 -- 20 This seems to mean that the arrangements were to remain in place for a period of eight months, but that the joint venturers could expect an extension thereafter. There was certainly a fixed upper limit for advances. Clause 3. 3 of both joint venture deeds provided that nothing therein or in the various schedules (which included the letters of 7th December, 1984 and 11th October, 1985) constituted a commitment by BPF to advance further funds. Any such obligation must therefore have arisen at a later date. The mortgage debenture in favour of BPF executed by Gordon Court on 22nd January, 1985 secured:- "The aggregate amount of all facilities provided under any agreement pursuant to which the mortgagee agrees to grant certain accommodation, credit, advances, bonds, guarantees, indemnities, leases, securities or other facilities whatsoever to, for, at the request of, or on account of the mortgagor whether under or pursuant to any agreement or arrangement now, heretofore, or hereafter from time to time subsisting between the mortgagor and mortgagee ... and any moneys payable to the mortgagee by the mortgagor hereunder and under any security collateral hereto ... " Clause 2.1 provided that:- "The mortgagor will on written demand repay and pay to the mortgagee the principal sum or so much thereof as then remains outstanding." The "principal sum" included any moneys owing pursuant to the debenture other than interest. However cl. 2.2 provided:- "Notwithstanding cl. 2.1 demand shall not be made hereunder by the mortgagee in respect of any part of the principal sum which shall be payable by the mortgagor pursuant to any agreement until such part of the principal sum shall have become owing due and payable in accordance with the terms and provisions of such agreement or this mortgage debenture." Clause 2.3 provided:- 0 0 0 0 -- 21 of 47 -- ( 21 "Without prejudice to cl. 2. 1 where any agreement provides for the repayment or payment by instalments of any part of the principal sum then the mortgagor will pay such instalments to the mortgagee in accordance with such agreement ... " Clause 2.2 did not exclude the operation of cl.11 of the debenture which provided:- "The moneys hereby secured shall at the option of the mortgagee immediately become due and payable and the security hereby created shall immediately become enforceable without the necessity for any demand or notice (and notwithstanding any delay or previouswaiver of the provisions of this clause by the mortgagee) upon the happening of any one or more of the following events:" (A list of typical "default" events follows.) In summary, moneys advanced by way of loan for the purposes of the first joint venture were repayable according to the terms of the joint venture- i.e., after eight months (in the absence of extension by the lender) or upon default, at the option of BPF. At page 3 of ex. 40, the following passage (relating to the \ second joint venture) appeared:- " In practice we shall see a series of individual funding/ staging approvals by BPF that reflect the overall costs sales and fees estimates and ensureobservance of the limit of $13.6 million. Please note that, in the latter respect, we shallrequire each submission for funding approval to be accompanied by an updated set of projections embodying 'actual figures' where known - and that theongoing payment of consultancy fees and financial management fees (as detailed later) will be subject tothe capacity of the project to bear them, with BPF to be the final arbiter in the event there is not a unanimous view about such capacity." The existing mortgage debenture was to secure advances made pursuant to the new arrangements, although a further guarantee and appropriate mortgage documentation were also required. Clause 12 provided:- -- 22 of 47 -- 22 "It is envisaged that the joint venture will continue until the completion and sale of the whole development. However, each separate funding approval will refer to a specific 'term' for the particular development covered by such funding. The new joint venture termination provisions in existing agreement." agreement line with will those contain in the As with the prior joint venture agreement, the letter provided for BPF to receive 100 per cent of the net proceeds of all settlements after deducting all agreed commissions, fees and selling expenses. Clearly, the parties contemplated that all funding would be provided by BPF, which company would recover the net proceeds of sale as they became available. Despite this expectation, cl.3.3 expressly excluded any enforceable agreement to advance further funds from time to time. Of course, BPF almost immediately became heavily exposed by payment of the purchase price for the land. It was, no doubt in that company's interests to continue to make funds available to bring the joint venture to fruition. Although it was anticipated that advances would be for fixed terms, I infer that this practice was not followed or abandoned at some time prior to mid-1988. By that 0! 0 0 time, funds were being advanced on the basis that they would be 0 repaid as proceeds of sale were generated. My later discussion of the minutes of board meetings of Gordon Court in 1988-89 will make that clear. The defendants submitted that BPF undertook, from time to time to make further advances. Phillip James Harvey commenced work with the Duke group in July 1987 and terminated in March, 1989. He succeeded Mr. Court in supervising the joint venture on behalf of BPF. When he took over, Stage 1 of the Mariners' ------1 -- 23 of 47 -- ( \ ( f I \___/ 23 Village development was nearly completed. Mr. Harvey said that from time to time, peak debts in excess of $13.6 million were fixed for the project by the Duke board. Apparently the cost of the project accelerated quite seriously. Mr. Harvey was adamant that he did not agree to any advance beyond the approved peak borrowing from time to time. Exhibit 22 suggests that this was so at that earlier stage. Mr. Harvey's recollection was that during 1987 and perhaps in 1988, there was a ceiling of $28 million. He made a subsequent submission to the Duke board for an increase in the ceiling to about $34 million. Exhibit 27, a letter of 18th September, 1987 from Mr. Harvey to Mr. N.F. Gordon tends to reinforce the view that there were such approved peaks. The relevant parts are as follows:- "At the board meeting last week, I informed you of the Duke Securities Board decision to approve a peak debt limit of $28.5 million on the project. I was a little dismayed when David subsequently produced updated cash flows indicating funding requirements of $32. 3 million. As a result I was compelled to discuss thematter with directors of Duke Securities. The decisions of the meeting are as follows:- A short term excess of the limit of $28.5 million will be permitted only to allow completion of Mariners' Village Stage I. Such excess to be repaid and the account back in orderincluding interest by 31st December, 1987. This is to be achieved by settlement from Seaquester 1 and Mariners' Village 1. No further development is to be commenced until a largeproportion of the debt is refinanced. No individual ~ell offs of any stages to occur pending further investigation. As a matter of urgency we are to investigate all recommendations prior to 30th September, in consultation with yourself of:- Complete sale of the project -- 24 of 47 -- 24 Sale of part or all of our interests Complete refinance and Duke maintaining its interest in the joint venture Substantial refinance in the interim pending a discussion on the above. " The defendants argued that this showed that the observance of peaks was not a matter of great moment, but I cannot read the letter in this way. Quite clearly, Mr. Harvey was surprised that the agreed peak was inadequate, and this provoked him to make short-term arrangements with Duke to deal with what was perceived to be a problem. Clearly too, the objective was to reduce the c=) excess as soon as possible. Duke's interest in the project was obviously waning to the extent that sale and/or refinancing were 0 being discussed. Minutes of directors' meetings of Seaquester Quays (Garden Court) suggest that finance was a matter of ongoing concern. At a meeting held on 14th April, 1988 attended by both Mr. N.F. Garden and Mr. M. J. Garden, Mr. Harve y and Mr . Mat tner ( an accountant who had been closely concerned with the venture) 0 Mr. Harvey assured the board that an expected restructure of Duke would not affect that company's ability to meet its commitments as a joint venture partner or as a financier to Seaquester Quays. 0 At a meeting held on 18th July, 1988 (present:- Mr. M.J. Garden, Mr. Harvey and Mr. Mattner) there was a lengthy discussion about the future of the joint venture. It was predicted that the debt would peak in February, 1989 although it is not clear whether that was the debt for the entire project or for some part thereof, probably the former. At a meeting held on 10th August, 1988 (present:- Mr. M.J. Gordon, Mr. Harvey and Mr. Mattner) the following occurred:- -- 25 of 47 -- c~ -\ ( / ( 25 "Mariners' Village III - Approval for Construction The project manager advised that design of Mariners' Village III had been completed and building plans lodged with Gold Coast City Council for approval. At the previous meeting the project manager had indicated a preference to call tenders for construction of Mariners' Village III. He had detailed the cost and problems that would occur if tenders were called and then no tender was let for whatever reason. Accordingly it was important the joint venture be committed to the letting of a contract prior to the calling of tenders. The project manager recommended to the meeting that the company call tenders for the construction of 34 units at Mariners' Village III. Mr. Gordon requested of Mr. Harvey as to whether Duke Pacific Finance had any reservations in proceeding with construction of Mariners' Village III and explained in detail the timeframe proposed. It was anticipated that tenders would close in mid-October and that construction would commence as soon as possible after the evaluation oftenders and awarding of a contract. Mr. Harvey confirmed that Duke Pacific Finance were committed to construction of Mariners' Village III-V and that he was happy with the time frame discussed. He agreed to proceed and authorised the project manager to call tenders for the construction of 34 units." At a meeting held on 13th October, 1988 (present:- Mr. Harvey, Mr. M. J. Gordon and Mr. Mat tner) the following occurred:- "Mr. Harvey mentioned that he had discussions with Duke Pacific's financiers on this project and that he believed it may be necessary for Duke Pacific toarrange some refinancing for the project. Mr. Harvey will keep directors informed of the proceedings and he suggested that there may be a possible reduction in interest rates due to the refinancing." At a meeting on 17th November, 1988 (present:- Mr. M.J. Gordon, Mr. Harvey, Mr. C. James and Mr. Mat tner) it was recorded that the successful tenderer for the Mariners' Village II (sic) development was Gordon Pacific Constructions Pty. Ltd., another company associated with the first defendant. Almost certainly, -- 26 of 47 -- 26 this was a reference to Mariners' Village III. Letters of intent had been exchanged, but no contract had been signed. The following passage also appears in the minutes of that meeting under the heading "Duke Pacific - Re-Financing":- "Mr. Harvey advised that·he had made one approach in this regard but the proposal was not considered sui table for Seaquester Quays at this time. He advised that he expected a proposal to come from the contact in London in the next couple of weeks, such proposal based on using insurance to m1n1m1se borrowing costs. He wished to talk to the person and obtain all relevant details prior to any commitment." At a meeting held on 15th December, 1988 (present:- 0 Mr. M.J. Gordon, Mr. Harvey, Mr. Mattner) the following was recorded under the heading "Financial Position of Duke Pacific O Finance":- "Mr. Harvey explained the circumstances surrounding the temporary cash problems being experienced by Duke Pacific Finance, primarily due to repercussions from the collapse (of) Rothwells Bank in Perth. $3,000,000 had been placed on short term deposit to meet building claims and other expenses and it had not been possible to recover this money from the short term money market. Dalgetys as the major shareholder of the Duke group has recently become involved in the control of the group and a representative of Dalgetys has been appointed as Executive Director of the group. At ~he present time directors were continuing negotiations and it was hoped that temporary financial arrangements put in place by the Duke group would be replaced by longer term funding directly from Dalgetys. It was hoped that this would be in place before the end of December, 1988. Mr. Harvey acknowledged that building claims were presently outstanding in respect of Mariners' Village II for $447,000 and for Mariners' Village III of $175,000. He was not able to give any firm commitment as to the timing of payment but hoped it would be possible before Christmas 1988. He advised that other areas in the group were providing positive cash flow and that his total shortfall over the next two to three months would only be approximately $1,000,000. Mr. Harvey agreed to ascertain whether Dalgetys were prepared to issue a letter of comfort directly to Gordon Pacific Constructions Pty. Ltd. that their accounts would be paid in full in due course, to permit the builder to consider continuing with the building contract even 0 0 -- 27 of 47 -- ( I\ ( 27 though payments were still outstanding and the joint venture company was in default of the contract. Mr. Harvey advised that he was having discussions with Bill Acceptance, Queensland and Resi-Statewide in Melbourne in respect of refinancing of the core debt of $20 million for Seaquester Quays Pty. Ltd. Mr. Harvey acknowledged that a joint venture with an exposure of $30 million, such as Sequester Quays Pty. Ltd. was much too large an investment for a company ofthe size of the Duke group. Mr. Michael Gordon advised that Gordon Pacific Constructions Pty. Ltd. required a letter of commitment from Duke Pacific Finance Ltd., or its parent, as financiers of the joint venture in respect of both building contracts for Mariners' Village II and Mariners' Village III. Mr. Harvey requested that a draft proposal be submitted for consideration by himself and the solicitors for the Duke groups. Mr. Gordon left the room and arranged for Messrs. Primrose Couper Cronin and Rudkin to fax a draft proposal to the meeting (the draft letter was subsequently received and taken by Mr. Harvey for consideration by his company's solicitors). Mr. Gordon requested that the channels of communication between the Duke group and Gordon Pacific remain open at all times either between Mr. Harvey and Mr. Gordon or via Mr. Mattner. Mr. Gordon advised that the Gordon Pacific group is most willing to assist the joint venture in any way possible as long as it is not detrimental to the interest of Gordon Pacific group. He requested that funds available to Duke Pacific Finance be distributed pro rata to all major creditors at every possibleoccasion even it meant that progress building claims could only be partly paid from time to time. He hoped that this expression of good faith would assist the joint venture and the Duke group in the short term and would not result in Gordon Pacific Constructions not receiving an equitable share of available funds. Mr. Harvey advised that it was difficult for him togive any undertaking at the present time due to the fact tha,t directors of the Duke group were still meeting and he was not aware of the terms of those meetings or any resolution from the meetings. He expected to be advised by the Duke directors by thisafternoon (Thursday) tomorrow or Monday at the very latest. He would then be in a position to advise Michael Gordon of the full facts and if possible to make part payments of the builder's claims. -- 28 of 47 -- 28 Duke Pacific - Approval of Finance for Joint Venture It was noted that the debt of the joint venture would reach approximately $34 million prior to settlement moneys being received on Mariners' Village II. Mr. Harvey on behalf of Duke Pacific Finance Limited confirmed that Duke Pacific Finance Limited would support that peak debt and the cash flow for construction of the balance of Mariners' Village II and the cash flow required for the construction of Mariners' Village III. Building Contract - Mariners' Village III In accordance with earlier directors' approval, .Gordon Pacific Construction Pty. Ltd. had commenced work on site and the first progress claim had been made, even though the formal building contract had not been signed. The form of contract had now been finalised by negotiations between Mr. Mattner, John Bruce & Partners, Gordon Pacific Constructions and Gordon Property Developments as project manager. The contract was tabled for signing by the directors of Seaquester Quays Pty. Ltd .. Mr. Mattner explained in detail the reasons for certain conditions of the contract to ensure that the terms of the tender were applied equally to Gordon Pacific Constructions Pty. Ltd. as they would have been pad a totally arm' s length company been the successeul tenderer. Mr. Gordon left the room to discuss the situation with Mr. Barry Cronin, a director of Gordon Pacific Limited and that company's solicitors. He returned with the draft letter of comfort proposed to be given by the Duke Group to Gordon Pacific Construction Pty. Ltd. in respect of continued funding of construction of Stages II and III of Mariners' Village. The company secretary detailed the implications of signing the building contract for both joint venture partners, for the joint venture itself and also the possible personal liability of individual directors under s. 556 of the Companies Code. This matter was important in view of the present uncertain financial situation of Duke Pacific Finance Limited. Mr. Michael Gordon advised that following his discussions with Mr. Cronin he confirmed that Gordon Pacific Constructions Pty. Ltd. would be prepared to sign the building contract. Mr. Harvey requested that the contract be considered by his company's solicitors and was given the original building contract for Mariners' Village II and both 0 0 0 0 -- 29 of 47 -- ( ) 29 copies of the building contract for Mariners' Village III." At paragraph 4.1.3 there was a further reference to re-financing, but I need not set that passage out here. The defendants submitted that the reference to a peak debt of $34 million together with the cash flows for construction of the balance of Mariners' Village II and Mariners' Village III should be taken as indicating an undertaking to meet the cumulative total of those three amounts. Even apart from the other evidence, I would not have so read that clause. In the context of this transaction, the reference to a peak debt suggests to me the total permissible amount owing at any one time, coupled with an expectation that it would be sufficient to accommodate anticipated outgoings. The $34 million figure was an estimate, not of the amount presently owing but of the amount which might become owing in total before incoming funds reduced that total. This is consistent with Mr. Harvey's assertion as to the arrangement between the parties. Mr. Harvey said that he had been told that his submission l/' to his board to increase the peak debt to $34 million was the last one which was likely to be approved. This in itself makes it unlikely that Mr. Harvey would have given an undertaking suggesting any greater exposure. It is important to remember that the significant words for present purposes were the words used by Mr. Harvey at the meeting, not the account recorded in the minutes. I am quite satisfied that in the context of all of the dealings between the parties, Mr. Harvey did not intend and did not communicate an intention that the funding commitment go beyond about $34 million. I am also satisfied that Mr. M.J. -- 30 of 47 -- 30 Gordon did not misunderstand Mr. Harvey' s intention. To the extent to which Mr. Gordon's evidence conflicts with Mr. Harvey's in this regard, I prefer Mr. Harvey's. This conclusion is to some extent confirmed by the minutes of the meeting of 19th January, 1989 (present:- Mr. M. J. Gordon, Mr. Harvey, Mr. Mattner) . In those minutes, following a discussion of the possibility of replacement of Duke as the financier and as joint venturer, Mr. Harvey is recorded as having:- "On behalf of Duke Finance Limited confirmed that Duke Pacific Finance Limited would support the peak debt of $34 million prior to settlement moneys from Mariners' Village II and that all funds required for construction of the balance of Mariners' Village II and for the construction of Mariners' Village III would be provided by Duke Pacific Finance Limited." Again, it must be kept in mind that $34 million was the estimated peak prior to the commencement of cash flow from Mariners' Village II. These statements must be understood in that context. The peak debt could only be, in my view the maximum exposure anticipated at any one time. The minutes also recorded that the building contract for Mariners' Village III had not yet been signed. At a meeting held on 16th February, 1989 (present:- Mr. M.J. Gordon, Mr. Harvey, Mr. Mattner) Mr. Harvey put the matter beyond doubt. Paragraph 3.2 recorded:- "Mr. Harvey, on behalf of Duke Pacific Finance Limited confirmed his previous advice that Duke Pacific Finance Limited has approved the advance of funds to a peak debt of $34 million to meet the balance construction costs of Mariners' Village II, the contract for Mariners' Village III and administrative costs prior to receipt of settlement moneys from Mariners' Village II sales." Paragraph 3.3 recorded:- 0 0 0 0 -- 31 of 47 -- 31 "The company secretary tabled the stamped building contract between Seaquester Quays Pty. Ltd. and Garden Pacific Constructions Pty. Ltd. It was noted that this contract had been signed by Mr. Harvey as nominee director of Duke Pacific Finance Limited and by Mr. Michael Garden as nominee director of Jalome Pty. Ltd.. Mr. Garden had noted that he had signed the contract relying on verbal advice from Mr. Harvey that Duke Pacific Finance Limited has approved the necessary funding to meet the payments required under the building contract." There was a further report in relation to re-financing. By way of background I should say that there was evidence (-) from Mr. Harvey in cross-examination (at p. 304) that as early as July, 1988 it was anticipated that the debt would peak in ( ) February, 1989 because of the likely marketing schedule for Mariners 1 Village II. I should also say that Mr. Harvey 1 s references to a peak of $34 million is a reference to a round figure. Probably, the actual figure was $34.68 million, which was the figure predicted by a revised budget estimate presented at the meeting on 17th November, 1988. Mr. Harvey doubted that the approved peak was ever as high as that. His best recollection was that it was probably $34.4 million, however I infer that it was probably $34.68 million. It should also be noted that interest was accruing on the overall loan at the rate of about $400,000 per month. It was common ground that this amount was also to be taken into account in calculating the peak from time to time. (Seep. 328.) To the extent that Mr. M.J. Gordon asserted that there was agreement by Mr. Harvey on behalf of BPF to advance in excess of $34.68 million in total for the overall Seaquester Quays project, I reject that evidence and prefer the evidence of Mr. Harvey. My observation of the demeanour of the witnesses led me to the -- 32 of 47 -- ~-------------~----~~ 32 conclusion that Mr. Harvey was more reliable than Mr Gordon in this respect. The documentation, in particular the minutes also clearly indicated such a peak debt. I am unable to accept the various explanations offered by Mr. M.J. Gordon and submissions put on behalf of the defendants to the effect that the expression "peak debt" meant something other than that which I have indicated. The price of the contract for Mariners' Village III was in excess of $5 million. The builder may have signed that contract on or prior to 15th December, 1988, but it was not signed by Seaquester Quays until early 1989, between the January and February meetings. In January, 1989 it was anticipated that Mariners' Village II would be completed by 28th February, 1989 and that between six and twelve weeks would then be required to effect registration of the plan. Settlement of pre-registration contracts would be completed 21 days after registration, indicating that proceeds of sale would be available from May, 1989 at the earliest. There were varying expectations as to this matter. At p. 337, Mr. M.J. Gordon said that such moneys were expected in March or April, 1989. The minutes of the meeting of 16th February, 1989 at para. 4.3 suggest that registration was expected by 23rd March, 1989 with settlement from 13th April, that is 21 days later. until 25th May. In fact, the plan was not registered It is appropriate to summarize the financial position of the joint venture as it was in late 1988 and early 1989. Exhibits 49, 50 and 51, the budget reports as at 30th November, 31st December, 1988 and 31st January, 1989 show respectively loan 0 0 0 0 -- 33 of 47 -- (\ 33 balances of $28,830,492, $30,935,343 and $30,935,343. The last figure is incorrect. It was generally agreed in evidence that a figure of $32, 289, 397.31 was the correct figure as at 31st January. (Seep. 341 and ex. 15.) As at 31st January, 1989 and as at the meeting on 16th February, 1989, the understanding was that the approved peak was $34.68 million. The loan balance as at 31st January was $32,289,397.31 with interest accruing at about $400,000 a month. Settlement of Mariners' Village II sales was then expected to commence from 13th April according to the minutes. Substantial new obligations had been incurred under the agreement for construction of Mariners' Village III. However the construction period was 43 weeks. Work had started, probably on 14th November, 1988 with practical completion expected by 11th September, 1989. The price was payable in instalments and there were to be retention moneys. Hence the actual immediate exposure ( under the contract in February, 1989 was not necessarily such as to render a peak of $34. 68 million obviously unreasonable, although it was very tight and with the benefit of hindsight, inadequate. I am therefore unable to accept either of the basic propositions referred to above. At most, the documentation and dealings between the parties support the propo~ition that loan funds were to be repayable from the proceeds of sale of the joint venture properties, but not that BPF was only to be .repaid if the project was completed as contemplated. This would be a most unusual proposition and quite inconsistent with the express -- 34 of 47 -- 34 exclusion in the joint venture deeds of any obligation to continue to lend funds. For the same reasons, I cannot accept that the contractual obligations to Gordon Court included an open-ended obligation to lend. The evidence also fails to establish any such contractual obligation to the defendants. However the assurances given by Harvey in 1988-89 were probably such as to render it unconscionable to allow BPF to deny in these proceedings an obligation to lend up to $34.68 million if such ~ denial would cause detriment to the defendants. It is probable that the defendants permitted Gordon Court to enter into the building contract only because funds were available up to that limit. Gordon Court probably also relied on such availability. As the defendants are entitled to the benefit of any defences available to that company as principal debtor, they may be able to rely upon any estoppel upon which that company could rely if sued for the debt, although that probably adds little in the present case. I should say by way of completeness that it was not submitted by the defendants that any of the conduct of BPF had the effect of discharging the guarantees. It is appropriate to consider the scope of the doctrine of estoppel as outlined in The Commonwealth v. Verwayen (1990) 170 C.L.R. 394. I should say that in their submissions as to estoppel, the defendants generally did not seek to distinguish between or amongst the various aspects of that doctrine, perhaps adopting the view of Mason C.J. as follows:- "The result is that it should be accepted that there is but one doctrine of estoppel, which provides that a court of common law or equity may do· what is required, but not more, to prevent a person who has ~ ~ 0 -- 35 of 47 -- ( ) ( ) 35 relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs) , which assumption the party estopped hasinduced him to hold, from suffering detriment inreliance upon the assumption as a result of the denial of its correctness. A central element of that doctrine is that there must be a proportionality between the remedy and the detriment which is its purpose to avoid. It would be wholly inequitable and unjust to insist upon a disproportionate making good of the relevant assumption." Brennan J., at p. 422 said:- "Equitable estoppel or, as I prefer to call it, an equity arising by estoppel, precludes a person who, by a promise, has induced another party to rely on the promise and thereby to act to his detriment from resiling from the promise without avoiding thedetriment ... An equity of this kind, by imposing a liability either to avoid detriment to the other party or to honour the promise, trenches upon the liberties of immuni ties of the person who is bound. An estoppel, whether in pais or arising in equity, is binding so soon as it is acted on to the detriment of the other party." Deane J., whilst seeking to avoid an exhaustive definition of estoppel by conduct, discussed some relevant considerations at pps. 444 et seq. as follows: 111 • 2. The central principle of the doctrine is that the law will not permit an unconscionable - or more accurately, unconscientious - departure by one party from the subject matter of an assumptionwhich has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be notadhered to for the purposes of the litigation. 3. Since an estoppel will not arise unless the party claiming the benefit of it has adopted the assumption as the basis of action or inaction and thereby placed himself in a position of significant disadvantage if departure from the assumption be permitted, the resolution of an issue of estoppel by conduct willinvolve an examination of the relevant belief, actionsand position of that party. 4. The question whether such a departure would be unconscionable relates to the conduct of the -- 36 of 47 -- 5. 6. 7. 36 allegedly estopped party in all the circumstances. That party must have played such a part in the adoption of, or persistence in, the assumption that he would be guilty of unjust and oppressive conduct if he now were to depart from it. The cases indicate four main, but not exhaustive, categories in which an affirmative answer to that question may be justified, namely, where that party: (a) has induced the assumption by express or implied representations; (b)has entered into contractual or other material relations with the other party on the conventional basis of the assumption; (c) has exercised against the other party rights which would exist only if the assumption were correct; (d) knew that the other party laboured under the assumption and refrained from correcting him when it was his duty in conscience to do so. Ultimately, however, the question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption, and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted. The assumption may be of fact or law, present or future. That is to say it ~nay be about the present or future existence of a fact or state of affairs (including the state of the law or the existence of a legal right, interest or relationship or the content of future conduct). Estoppel by conduct does not of itself constitute an independent cause of action. The assumed fact or state of affairs (which one party is estopped from denying) may be relied upon defensively or it may be useq aggressively as the factual foundation of an action arising under ordinary principles with the entitlement to ultimate relief being determined on the basis of the existence of that fact or state of affairs. In some cases, the estoppel may operate to fashion an assumed state of affairs which will found relief (under ordinary principles) which gives effect to the assumption itself (eg where the defendant in an action for declaration of trust is estopped from denying the existence of the trust)." 0 0 0 0 -- 37 of 47 -- ( \ \ ) ( ' \, ) i ·, '-.__) 37 At p. 453-4 Dawson J. said:- "It is the requirement of unconscionable conduct which is now seen as the protection of undue intrusion upon the law of contract, for a voluntary promise of itself will not give rise to an estoppel. An estoppel will occur only where unconscionable conduct on the part of one gives rise to an equity on the part of another. The estoppel will then operate to take account of that equity. How exactly the estoppel will operate to take account of that equity is another question. The result of an estoppel at common law was, viewed as a separate and distinct doctrine from equitable estoppel, to preclude the party estopped from denying the assumption upon which the other party acted to his detriment. It followed that the party who acted to his detriment was, in effect, given the benefit of the assumption. It was all or nothing. By contrast, the view is expressed by Mason C.J. and Wilson J. and by Brennan J. in Wal tons Stores (Interstate) Ltd -v- Maher ... , that an estoppel in equity may not entitle the party raising it to the full benefit of the assumption upon which he relied. The equity is said "not to compel · the party bound to fulfil the assumption or expectation; it is to avoid thedetriment which, if the assumption or expectation goes unfulfilled, will be suffered by the party who hasbeen induced to act or to abstain from acting thereon, per Brennan J •. To avoid the detriment may, however, require that the party estopped make good the assumption ... but, depending upon the circumstances ofthe case, the relief required may be considerably less". Although it was unnecessary to his Honour's judgment, Toohey J., at p. 475 said: "But on the present state of the authorities, the consequence of any promissory estoppel is that the court should enforce the promise only as a means ofavoiding detriment and to the extent necessary toachieve that end ... ". Gauldron J., at p. 487 said: "Although it is not necessary for me to deal with theargument that the object of an estoppel is to avoid detriment and not to make good the assumption on which it is founded, it is convenient that I note my agreement with Mason C.J. that the substantive doctrine of estoppel permits a court to do what isrequired to avoid detriment and does not, in every case, require the making good of the assumption. Even -- 38 of 47 -- 38 so, it may be that an assumption should be made good unless it is clear that no detriment will be suffered other than that which can be compensated by some other remedy. Where the nature or likely extent of the detriment cannot be accurately or adequately predicted, it may be necessary in the interests of justice that the assumption be made good to avoid the possibility of detriment even though the detriment cannot be said to be inevitable or more probable than not". McHugh J., at p. 500-1 said: "But the equitable doctrines of estoppel create rights. They give rise to equities which are enforceable against the party estopped. The equitable doctrines result in new rights between the parties when it is unconscionable for a party to insist on his or her strict legal rights. It will be unconscionable for a party to insist on his or her strict legal rights if that party has induced the other party to assume that a different legal relationship exists or will exist between them, if he or she knew that the other party would act or refrain from acting on that assumption and if, as a result, the other party will suffer detriment unless the assumption is maintained. Hence, to avoid detriment to the party who has been induced to act or refrain from acting on that assumption, equity will require the parties to act on the bas.is of the relationship assumed by the innocent party until the detriment is removed or the innocent party otherwise compensated... Once the detriment has ceased or been paid for, there is nothing unconscionable in a party insisting on reverting to his or her former relationship with the other party and enforcing his or her strict legal rights." Clearly, the avoidance of detriment is significant in the doctrine of estoppel. Examination of the alleged detriment in the present case may reveal something about the likely operation of the doctrine. The defendants 1 case was not as precise as might have been expected on this issue. Broadly, detriment was alleged as a consequence of diminution in value of the project, as a consequence of exposure of the defendants to debts and as a consequence of Gordon Pacific Constructions entering into the building agreement. 0 0 0 0 -- 39 of 47 -- ( ' \ ) ' / 39 Gordon Pacific Constructions may have so suffered detriment. It also did work in ·advance of the contract with such an expectation. However that company is not a party to this litigation. There was only a slight suggestion that the first defendant may have suffered detriment as a result of any detriment to Gordon Pacific Constructions. However Mr. Gordon was at great pains to point out that Gordon Pacific Constructions was a listed public company and not his alter ego. His association with it was never clearly defined. The state of evidence is not such as to lead me to infer that either defendant suffered detriment as a result of Gordon Pacific Constructions entering into the contract or performing building works in advance of contract. In the first week of March, 1989 BPF refused to advance further moneys to Gordon Court, although the circumstances in which that occurred were far from clear. The builder left the site on 7th March. At the time at which payments ceased, progress certificate 11 for Mariners' Village II was outstanding in the amount of $580,636.82, and certificates 3A, 4 and 5 were outstanding for Mariners' Village III in the amounts of $257, 385, $310,160.70 and $384,651.30 respectively. As at 1st March, 1989 the prospective total indebtedness (were BPF to continue to fund) was as follows:- Amount owing as at 28.2.89 Amount of outstanding certificates Total $32,772,949 (ex. 1S) $ 1,532,833 (ex. 52) $34,305,782 As it happened BPF, did meet some outgoings in March, 1989 taking the debt at 31st March to $33,341,995.23, including -- 40 of 47 -- ~----------- .. -------- ------~- 40 accumulated interest to that date. Certificate 12 for. Mariners' Village II ($571,731) and Certificate 6 for Mariners' Village III ($301,270) were then also outstanding, as were the certificates mentioned above, totalling $2,405,834 in all. Payment of these amounts would therefore have taken the total debt beyond $34.68 million. It was common ground that there were then no likely sources of funds other than from realisation of Mariners' Village II and possibly, unexpected sales of remaining land on Mariners' Village 0 I and that the project could not have been completed within the peak of $34.68 million. In the events which happened, moneys were not forthcoming from Mariners' Village II until June as the plan was not registered until May, nor were any relevant funds received from Mariners' Village I sales. Given my finding that BPF at no time committed itself beyond $34.68 million, it follows that collapse of the project was, by this time inevitable. The defendants sought to establish detriment by showing diminution in the value of the project as a result of the withholding of funds by BPF. This evidence came from Mr. M.J. Gordon. Although I accept that an unfinished project is likely to be worth relatively less than a finished project, in the sense that the unfinished project will not reflect fully the value of work put into it, I was unpersuaded by Mr. Garden's attempts to quantify the diminution. I thought that his evidence in this regard was quite facile and obviously little more than a series of guesses. I reject it. In any event, in view of my findings, any estoppel is limited to preventing BPF from denying an obligation to lend up to $34.68 million. As I have concluded 0 0 0 ------------ -- 41 of 47 -- ( 41 that the project could not have been completed within that peak, and that the effect of refusing finance short of that peak was to accelerate the inevitable collapse of the project by a very short period of time, such conduct did not diminish the value of the unfinished project. There can be little doubt that Gordon Court was exposed to the prospect of litigation by its inability to pay the builder, once BPF declined to advance further funds. However this was inevitable in any event in view of my findings as to the upper limit approved by BPF. The evidence does not indicate any ( J additional detriment to Gordon Court flowing from the failure of BPF to fund up to that approved limit. The debt to the builder is greater, but that owed to BPF is less. If anything, one suspects that early termination probably avoided increased losses. Thus I conclude that ·Gordon Court did not suffer any detriment as a result of the failure to advance up to the agreed ( '· peak. ( When one looks at the first and second defendants' positions, the matter is even clearer. They submitted that they would not have allowed Gordon Court to enter into the building contract in the absence of an assurance of funds from BPF. However once again, my findings exclude any expectation of funds beyond the nominated peak. To the extent that funds were advanced to Gordon Court, the defendants were liable to BPF for those funds or perhaps, for half of them. By not advancing the money, BPF simply reduced the extent of the defendants' exposure as guarantors. Once it is accepted that there was no appreciable diminution in the value of the project as a result of the slight -- 42 of 47 -- ~---------- ------ ---- . . 42 acceleration of its collapse, it is clear that neither the first nor second defendant has suffered detriment. In those circumstances, there is nothing unconscionable or unconscientious in BPF departing from such obligation as it may have incurred to advance funds up to $34.68 million. All it did was to recognize the inevitable and impending failure of the project. I should stress that there are three findings critical to this conclusion. They are: (a) That BPF was not contractually bound to advance funds in n\ y excess of $34.68 million; (b) That BPF should not be permitted to deny an obligation to advance up to that sum if the defendants will suffer p detriment thereby; (c) That there was no other reasonably available source of finance for the joint venture; (d) That the evidence does not disclose any loss caused by the joint venture finance being terminated short of a total Q advance of $34.68 million. I can see no basis, in either contract or estoppel for limiting the entitlement of BPF to recover the amount of the debt. Finally, I turn to the question of whether or not the funds advanced by BPF have become repayable. BPF accepted that the debt was primarily repayable from the proceeds of sale rather than on demand. It was common ground that the debt was also repayable upon default by Gordon Court under the mortgage debenture or other security documents, at the option of BPF. However the defendants submitted that to the extent that any such () r -- 43 of 47 -- 43 default was brought about by the action of BPF, the funds would not become repayable.· Accepting that the moneys were repayable from the proceeds of sale, such sale has already been effected and the proceeds received. (See p. 121.) The only outstanding matter is the question of claims against the joint venturers for contributions. Exhibit 15 discloses that the last sale was effected in December, 1990 when $1,450,000 was received. A further sum of $1,153.12 was received in January, 1991, being the balance of a deposit after deduction of the agent's commission. The defendants ( ',: submitted that at the earliest, the moneys became payable by Gordon Court (and therefore the defendants) upon such realization. However the writ in this action was issued on 10th April, 1990 following demand upon the guarantors made on 5th April. It was submitted that such demand was made prior to payment by Gordon Court falling due and was therefore ( ineffective. To the extent that the writ might be sufficient demand, it was also issued prior to payment falling due. There are two difficulties with this argument. Firstly, the expectation or agreement that advances be repaid out of proceeds of sale was based upon an assumption that the joint venture would continue. I would have thought that there would be an implied term that, in the event of termination of the joint venture (as has clearly occurred), the moneys would be repayable. However BPF did not make such a submission. The second defect in the argument is that since the issue of the writ, BPF has persisted in the proceedings and has delivered amended statements of claim on numerous occasions, including during the course of the trial. -- 44 of 47 -- 44 Order 24 r. 1 provides that a plaintiff may, "alter, modify, or extend, his claim" by delivery of a statement of claim. Order 32 r. 1(6) provides that an amendment may be made in the course of proceedings, notwithstanding that it has the effect of adding a cause of action which has arisen since the issue of the writ. It is impossible to characterise BPF's conduct of this action as other than a continuing demand for payment pursuant to the guarantees. The moneys were repayable by Gordon Court no later than December, 1990 when the last asset was sold. It would be c=) a most curious result if these proceedings were to fail because there was no proper demand upon the guarantors. The law does not compel such an outcome. The moneys were also repayable in the event of default of the kind specified in cl. 11 of mortgage debenture and cl. 24.1 of the bill of encumbrance. The former clause provides in effect that the moneys shall, at the option of BPF become payable, "if the mortgagor is unable to pay its debts within the meaning of s.364 of the Companies (Queensland) Code " . . . . Clause 24.1(i) of the bill of encumbrance provides as a condition of default:- "If either of the encumbrancer or any guarantor of the encumbrancer is unable to pay its debts or is unable to certify that it is and will continue to be able to pay all its debts as and when they fall due." I do not understand the reference to s. 364 of the Companies Code to imply that only deemed insolvency is relevant for this purpose. The intention of both clauses is that where commercial insolvency is proven, the debt may become payable at the option of BPF and without notice. There can be no doubt that once BPF declined to advance further funds, Gordon Court was commercially insolvent in the sense that it was unable to pay its debts as 0 c=) c=) ---------- I -- 45 of 47 -- 45 they fell due. The liquidation of its assets took a significant period of time. Its solvency always depended upon its continuing to have a supportive financier. Once BPF declined to continue in that role, Gordon Court was insolvent. Exhibit 25, the first defendant's statement as a director of Gordon Court, made on 2nd November, 1989 supports that conclusion. In those circumstances, I conclude that BPF was entitled to call up the outstanding amount upon the basis of insolvency. The demand on the guarantors dated 5th April, 1990 indicated that BPF had elected to call up the moneys, justifying that demand. The defendants also submitted that to the extent that any act of default was provoked by conduct on the part of BPF, it could not justify calling up the debt. This argument was never advanced with great precision, probably because it does not stand close scrutiny. A default caused by a breach of a contractual obligation by BPF may well be treated in this way, but a default / \ caused by lawful conduct contemplated by the contractual documents would surely be in a different category. There is no justification for so restricting BPF in the exercise of a right ··~ conferred by agreement of the parties. It might be said that BPF was in default in not lending up to the agreed peak of $34.68 million, and that this default provoked Gordon Court's default. However the position of insolvency in March, 1989 was not caused by such default. Obligations incurred by Gordon Court prior to the suspension of work on 7th March were such as to require greater funding than that available to it as the figures as at the end of March disclosed. It was already commercially insolvent. -- 46 of 47 -- 46 It may be that I have not dealt exhaustively with every aspect of every argument advanced by the parties. The case was conducted in a very diffuse way. There was, if I may say so with respect, a certain lack of precision in some difficult areas. This greatly lengthened the trial. Numerous adjournments were allowed in an attempt to ensure that both sides had every opportunity to respond to shifts in position by their opponents. I am confident that all parties had reasonable opportunities to respond to the subtle nuances of the arguments advanced against them. My reasons reflect the conduct of the case. To the extent that further findings are required I will give the parties an opportunity to formulate submissions. As I understand it, the amount due as at the date of trial was $22,880,492. However the defendants submitted that pursuant to the joint venture deeds, the second defendant (guaranteed by the first defendant) should bear only half of any loss. Breffny (guaranteed by BPF) should bear the other half. There is merit in this submission, but it complicates the appropriate order at this time. If either BPF/Breffny or one of the defendants has paid other debts of the joint venture, that may affect the amount of the present debt which should be paid by each. An account may be necessary, although it would not be a very difficult matter. I will hear further submissions as to the forms of orders and costs. 0 0 0 0 ----------------------------- -- 47 of 47 --