Bank of New Zealand v Hoult & Ors [1991] QSCFC 132

TRANSCRIPT OF PROCEEDINGS ^ State Reporting Bureau, 4th Floor, The Law Courts, George Street, BRISBANE. O. 4000 Tei. (07) 227.4360. (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau ) ° REVISED COPIES ISSUED Court Reporting Bureau Date-, \U'/( \ / ^ \ SUPREME COURT OF QUEENSLAND FULL COURT THOMAS J DERRINGTON MOYNIHAN J J V Appeal No 234 of 1990 BANK OF NEW ZEALAND (Plaintiff) and Respondent DONOVAN RICHARD HOULT, DIANE LOLA HOULT and KEVIN JAMES GOOD (Defendants) BY ORIGINAL ACTION Appellants DONOVAN RICHARD HOULT, DIANE LOLA HOULT and KEVIN JAMES GOOD (Plaintiffs by Counterclaim) and Appellants [1991] QSCFC 132 -- 1 of 13 -- ] 10 20 30 40 50 60 1 10 20 30 40 50 60 jnuyi BANK OF NEW ZEALAND (First Defendant by Counterclaim) and DAVID CHARLES EVANS (Second Defendant by Counterclaim) Respondent Respondent BY COUNTERCLAIM BRISBANE ..DATE 31/10/91 9.30 A.M. .. JUDGMENT 2 Govt. Printer, Qtd. -- 2 of 13 -- 1 10 20 30 40 50 60 1 10 20 30 40 50 60 311091 JUDGMENT ‘ MR JUSTICE THOMAS : I agree with the reasons about to be published and the orders about to be proposed by my brother Derrington. MR JUSTICE DERRINGTON: In my view the appeal should be dismissed with costs. I publish my reasons . MR JUSTICE MOYNIHAN: I agree with both the reasons and order which have been referred to. MR JUSTICE THOMAS: The order will be that which my brother Derrington has just indicated. ^.ovt. Printer, Qld. 5- -- 3 of 13 -- IN THE SUPREME COURT OF QUEENSLAND FULL COURT Writ No. 234 of 1990 BETWEEN BANK OF NEW ZEALAND (Plaintiff) Respondent and DONOVAN RICHARD HOULT DIANE LOLA HOULT and KEVIN JAMES GOOD (Defendant) Appellants BY ORIGINAL ACTION DONOVAN RICHARD HOULT DIANE LOLA HOULT and KEVIN JAMES GOOD (Plaintiffs by Counterclaim) Appellants and BANK OF NEW ZEALAND (First Defendant by Counterclaim) Respondent and DAVID CHARLES EVANS (Second Defendant by Counterclaim) Respondent BY COUNTERCLAIM THOMAS J DERRINGTON J MOYNIHAN J Reasons for judgment delivered by Derrington J on 31st October, 1991. Thomas & Moynihan JJ agreeing with those reasons and with the orders proposed. "APPEAL DISMISSED WITH COSTS." -- 4 of 13 -- IN THE SUPREME COURT OF QUEENSLAND FULL COURT NO Before the Full Court Mr Justice Thomas Mr Justice Derrington Mr Justice Moynihan BETWEEN: BANK OF NEW ZEALAND (Plaintiff) - and - DONOVAN RICHARD HOULT. DIANE LOLA HOULT and KEVIN JAMES GOOD (Defendant) BY ORIGINAL ACTION DONOVAN RICHARD HOULT. DIANE LOLA HOULT and KEVIN JAMES GOOD (Plaintiffs by Counterclaim ) - and - BANK OF NEW ZEALAND (First Defendant by Counterclaim) - and - DAVID CHARLES EVANS (Second Defendant by Counterclaim) BY COUNTERCLAIM JUDGMENT - DERRINGTON J. . 234 of 1990 Respondent Appellants Appellants Respondent Respondent Delivered the day of Oc^hoLe>r 1991 -- 5 of 13 -- 2 CATCHWORDS Counsel: J.C. B. J. Solicitors : Bell for appellants Clarke for respondent Corrs Chambers Westgarth for appellants Hill & Taylor for respondent 8th October, 1991 Hearing date: -- 6 of 13 -- IN THE SUPREME COURT OF QUEENSLAND FULL COURT No. 234 of 1990 BETWEEN: BANK OF NEW ZEALAND (Plaintiff) - and - DONOVAN RICHARD HOULT. DIANE LOLA HOULT and KEVIN JAMES GOOD (Defendant) BY ORIGINAL ACTION DONOVAN RICHARD HOULT. DIANE LOLA HOULT and KEVIN JAMES GOOD (Plaintiffs by Counterclaim) - and - BANK OF NEW ZEALAND (First Defendant by Counterclaim) - and - DAVID CHARLES EVANS (Second Defendant by Counterclaim) Respondent Appellants Appellants Respondent Respondent BY COUNTERCLAIM JUDGMENT - DERRINGTON J. Delivered the day of 1991 Mr Hoult was the managing director of North Queensland Resources N.L. ("N.Q.R." ), Mrs Hoult is his wife and Mr Good was a co-director. Messrs Hoult and Good controlled companies which held a small shareholding in Strategic Resources Holdings Limited -- 7 of 13 -- 2 ("S.R.H.") which in turn owned eighteen per cent of the issued share capital of N.Q.R. In 1989 N.Q.R. required funds to exploit a gold mine and for that purpose made a rights issue to its shareholders. The underwriter of the issue insisted that S.R.H. accept two obligations, the first being to take up its entitlement and the second to sub-underwrite the issue to the extent of $150,000.00. In order to undertake these obligations S.R.H. obtained two facilities from the Bank of New Zealand ("the Bank"), the first to the extent of about $350,000.00 to accommodate its purchase of its entitlement, and the second of $150,000.00 to cover its sub-underwriting liability. The Bank required and obtained personal guarantees from Mr and Mrs Hoult and Mr Good in respect of both facilities and, as the learned trial Judge found, gave an assurance to the guarantors that for the purpose of the guarantees the facility would be limited to the above purposes. The issue was a success so that although S.R.H. used most of its first facility in the purchase of the shares to which it was entitled under the issue, the second facility remained untouched as S.R.H. was not called upon as sub-underwriter. Because of the success of the issue S.R.H. was able to sell the shares which it had taken up under its entitlement at a profit of about $150,000.00. This led it to consider taking up a much larger option on further shares in N.Q.R. which would have cost it of the order of $550,000.00. Such a course would have been beneficial to N.Q.R. by the injection of further capital, and consequently beneficial to Mr and Mrs Hoult and Mr Good also. -- 8 of 13 -- 3 For the purpose of obtaining the additional funding S.R.H. used the services of Mr Kent, a financial adviser, who entered into negotiations with the Bank on its behalf for that purpose, and on these matters he worked closely with Mr Hoult and Mr Good in their capacity of directors of N.Q.R. The negotiations with the Bank involved the use of the $150,000.00 in the undrawn facility that had been reserved for sub-underwriting liability and, or alternatively, the provision of additional funds. Such negotiations extended from 12 July, 1989 to at least 29 August, 1989, and was conducted in part by correspondence and in part by verbal negotiations. The learned trial Judge found, and learned counsel for the guarantors conceded that such a finding was reasonable, that the guarantors were aware of the negotiations and the details of them, and the correspondence constituting the negotiations was admitted in evidence. On 28 August, 1989 Mr Hoult had a conversation with the Bank's manager, Mr Evans, although the latter could not recall it. Mr Hoult kept a diary entry outlining it and he used the outline to refresh his memory in evidence, though it was equivocal as to the point in issue. Although he claims that Mr Evans told him that the Bank would grant a completely new facility to provide funds necessary to exercise its option, the learned trial Judge did not accept this version and found that Mr Evans had probably spoken of an extension of the original facility for the purpose. That would have entailed the use of the proceeds of the sale of the shares originally taken up under the entitlement plus the use of the $150,000.00 in the facility -- 9 of 13 -- 4 which had not previously been used. In coming to this conclusion, the trial Judge may have relied upon the guarantors' probable knowledge of the negotiations which had taken place in the correspondence, and he probably did so. It must be remembered that the guarantors were not parties to the correspondence, nor was Mr Kent their agent, but their knowledge of the details of his activities was, as it has been stated, highly probable and relevant. On 2 September, 1989 there was a further conversation between Messrs Hoult and Evans concerning the payment by Hoult into S.R.H.'s current account with the Bank of the proceeds of the sale of the shares. Mr Hoult claims that the conversation was to the effect that the payment was to liquidate completely the indebtedness which was still the subject of the first guarantee but Mr Evans denied this and this denial was believed. As it turns out Mr Hoult did pay the money into the current account of S.R.H. and immediately drew a cheque against it in favour of N.Q.R. for about $550,000.00 being the purchase price of the shares taken up under the option. He says that he did this in the belief that the sum was covered by the completely new facility granted by the Bank in accordance with his version of the conversation of 28 August; but this too was disbelieved. The result was that the cheque was covered by the money which he had paid in plus the further facility granted by the Bank, including the reorganisation of the previously unused facility covering sub-underwriting liability. Conversely, the money paid in the account did not go to liquidate the first facility, which was still covered by the first guarantee. -- 10 of 13 -- 5 When in the course of time S.R.H. failed to meet its obligations, the Bank sought to recover under both guarantees. For reasons which are unnecessary to discuss, the trial Judge disallowed the Bank's action on the second guarantee, that is, the one provided in respect of the facility to cover sub-underwriting liabilities; but he gave judgment on the first guarantee, that is, the one given in relation to the facility for the purchase money for the shares taken up by S.R.H. under its entitlement. Not content with this, the guarantors have appealed on a number of grounds but upon the hearing of the appeal have relied only upon a small number of them. Indeed the essential ground turns upon one point because if that is lost the other grounds which have been persevered in, being dependent on it, must fall with it. The point is simple. It relates to the correspondence between Mr Kent and Mr Evans which was admitted over the objection of the appellants' counsel at the hearing. Whilst he now concedes that his objection at the time may have been wrong because in general the correspondence was admissible as original evidence of the terms of the negotiations between those gentlemen, which is correct, he claims that in his assessment of the credibility of Mr Hoult in respect of the vital conversations of 28 August and 1 September the learned trial Judge acted upon the truth of a statement made in part of that correspondence. He would not have been entitled to do this because it would have infringed the hearsay rule to which he did not advert. The appellants say that the relevant passage occurred in a letter of 29 August, 1989 from Mr Evans to Mr Kent reading: "We -- 11 of 13 -- 6 refer to your letter of 14 th August, 1989 and subsequent discussions regarding the conversion of options in North Queensland Resources N.L. into fully paid shares". They correctly point out that this is a statement of fact that there were discussions subsequent to the letter of 14 August. Consequently they claim that the learned trial Judge was moved by this to believe that Messrs Hoult and Good were aware of such discussions as well as of the correspondence so that in considering the state of Mr Hoult's mind at the time of the conversation with Evans on 28 August for the purpose of determining his credibility on the issue of the contents of the conversation, he was acting upon the hearsay evidence contained in that passage. When asked to demonstrate any passages in the judgment which would support this contention, learned counsel for the appellants was unable to do so but claimed that material evidencing the fact that Mr Kent had negotiations with Mr Evans for the continuation of current indebtedness, including that guaranteed by the appellants, and an extension of the facilities to produce the additional funds required, could not be found elsewhere and so must have been the subject of such discussions. Consequently the conclusion reached by the learned trial Judge as to Mr Hoult's knowledge of relevant affairs must have assumed that he also had knowledge of such oral negotiations, as to which there was no evidence except on the hearsay objected to. However, that is not so for the letter of 14 August itself contains a reference to "the extension of the current facility to fund the purchase of the outstanding N.Q.R. options". In addition , it was clearly -- 12 of 13 -- 7 open to His Honour to come to the conclusion by implication from the circumstances that there must have been further discussion, with a high degree of probability that Mr Hoult and Mr Good were aware of it. It would be wrong therefore to assume that he relied in any way upon this small inadmissible part of the evidence. Although it is reasonable to believe that they saw and relied upon the correspondence generally to indicate the nature of the negotiation, it is hardly likely that this would have been the only source of their knowledge. The learned trial Judge explained a number of reasons as to why they would have had a very serious interest in knowing the details of the arrangements between Mr Kent and the Bank and how they had every opportunity to discover them. Moreover, as for Mr Hoult's credit the learned trial Judge did not express any inclination elsewhere to have found Mr Hoult to be a credible witness. It is highly unlikely that the trivial hearsay part of the correspondence had any influence on this disbelief of that gentleman's evidence as to the critical conversations. That being so, his finding on the matter against the appellants cannot be successfully attacked; and that finding conclusively decides the issue generally. Consequently this ground and those dependent upon it must fail. This concludes the matter without the need for further consideration and accordingly the appeal should be dismissed with costs . -- 13 of 13 --