Bank of New Zealand v Hoult & Ors [1991] QSC 18

10 30 40 50 IN THE SUPREME COURT OF QUEENSLAND ' CIVIL JURISDICTION I/ / SC 1 Mi«\v, i/~ \ :e..:.N=o..!.... -'2=3::::....4::;__::o::..:::t-/~-=9-=-0 A • BEFORE MR. JUSTICE BYRNE -rr:t?i~r:o .C():~:,~-s··,;:~(·:\lf~·, ,-·1 Court r·:r-;p(ll till'! Elurf:rnf 1· BRISBANE, 14 FEBRUARY 1991 ... n 8 18 , /Cf 1 ,~J }__r_/t. ..... _0 (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Chief Court Reporter,Court Reporting Bureau.) BETWEEN: BANK OF NEW ZEALAND -and- DONOVAN RICHARD HOULT, DIANE LOLA HOULT and KEVIN JAMES GOOD AND BETWEEN: DONOVAN RICHARD HOULT, DIANE LOLA HOULT and KEVIN JAMES GOOD -and- BANK OF NEW ZEALAND -and- DAVID CHARLES EVANS JUDGMENT Plaintiff Defendants BY ORIGINAL ACTION Plaintiffs First Defendant Second Defendant BY COUNTERCLAIM HIS HONOUR: The agreed list of transcript corrections delivered at the conclusion of the addresses has been marked Exhibit 53. The plaintiff is entitled to judgment in an amount to be calculated in accordance with the reasons I am about to publish. Because the amount is not the subject of a 20 30 40 50 ___ 6_0_ ·---·-·· ·-·--·---------------------------------' 60 Govt. Printer. Qld. 1 -- 1 of 27 -- 10 20 30 40 50 60 calculation adduced in evidence, nor, despite my having canvassed the matter in addresses, is the calculation agreed, the plaintiff must bring in minutes providing for an account to be taken of the amount which, consistently with my reasons, the defendants must pay. The counterclaim is dismissed. As to costs, since the account ought not to have been necessary, I order that the plaintiff pay the defendants' costs of and incidental to the taking of the account to be taxed as between solicitor and own client. There will be a further order that otherwise the defendants pay half the plaintiff's taxed costs of the proceedings, including reserved costs, if any. Liberty to apply in relation to the account. I publish my reasons. Govt. Printer, Qld. 2 10 30 40 50 60 -- 2 of 27 -- IN THE SUPREME COURT OF QUEENSLAND . No. 234 of 1990 Before Mr Justice Byrne BETWEEN:· AND: AND: AND: AND: BANK OF NEW ZEALAND DONOVAN RICHARD HOULT, DIANE LOLA HOULT and KEVIN JAMES GOOD Plaintiff Defendants DONOVAN RICHARD HOULT, DIANE LOLA HOULT and KEVIN JAMES GOOD Plaintiffs by Counterclaim BANK OF NEW ZEALAND First Defendant by Counterclaim DAVID CHARLES EVANS Second Defendant by Counterclaim JUDGMENT - BYRNE J. Delivered the 14th day of February, 1991 CATCHWORDS: Counsel: Solicitors: B.J. Clarke for the plaintiff J.C. Bell for the defendant Hill & Taylor for the plaintiff Chambers McNab Tully & Wilson for the defendant Hearing dates: 16, 17, 18, 21, 22, 23, 24, 25 and 29 January, 1991 -- 3 of 27 -- IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AND: No. 234 of 1990 BANK OF NEW ZEALAND DONOVAN RICHARD HOULT, DIANE LOLA HOULT and KEVIN JAMES GOOD Plaintiff Defendants DONOVAN RICHARD HOULT, DIANE LOLA HOULT and KEVIN JAMES GOOD Plaintiffs by Counterclaim BANK OF NEW ZEALAND First Defendant by Counterclaim DAVID CHARLES EVANS Second Defendant by Counterclaim JUDGMENT - BYRNE J. Delivered the 14th day of February, 1991 This is an action upon a guarantee dated 18 July 1989 by which the defendants guaranteed to pay to the plaintiff on written demand all "moneys which ... may ... hereafter be owing to the bank on any account whatsoever by the principal debtor." Strategic Resources Holdings Limited ( "SRH") was that debtor. -- 4 of 27 -- 2 SRH is a public company. In mid-1989 it owned about 18 per cent of the issued share capital of an Australian mining company, North Queensland Resources N.L. ("NQR"). At that time, the defendants D.R. Hoult ("Hoult") and K.J. Good were directors of NQR, and companies they controlled held small parcels of shares in SRH. D.L. Hoult is Hoult's wife. Hoult was NQR's managing director. In 1989 NQR needed money to exploit a gold mine. In May that year the company announced a rights issue under which shareholders could purchase one new share for every seven shares held at a price of 40 cents each. The underwriter insisted that SRH accept two obligations in relation to NQR's rights issue: (i) take up its entitlement of almost 859,000 shares; and (ii) sub-underwrite the issue to the extent of $150,000. SRH' s principal asset was its shareholding in NQR. When the rights issue was announced SRH held 6,010,000 shares in NQR. It then also had an agreement with NQR conferring rights to purchase about another six million shares in NQR for 25 cents each. However, SRH had no money to accept its rights issue entitlement or to meet a $150,000 liability. So it searched for a financier willing. to lend the almost $500,000 needed to satisfy the underwriter's conditions. SRH employed Financial Management Applications Pty Ltd as a consultant. This company was controlled by Mr Kent. Kent shared office premises with NQR. In June 1989 Kent approached the plaintiff bank. A meeting was arranged for 20 June. Mr Evans and Mr Johnstone were there for the bank. Kent represented SRH. Hoult spoke for NQR. The discussion extended -- 5 of 27 -- 3 beyond SRH's immediate requirements in respect of the NQR issue. The bank was interested in expanding its operations in the mineral resources sector. NQR was seen as a prospective customer. This first meeting was exploratory and a range of matters was discussed in a general way. SRH' s needs were canvassed but the conversation did not descend to such detail as the security the bank would require were it to advance the $500,000. In the days following the meeting Kent spoke to Evans and negotiated the SRH borrowing. The bank required guarantees from Good and the Hoults. Kent told Hoult and Good about this. By 30 June 1989 the bank had agreed to advance the $500,000. On 4 July a solicitor for SRH told Hoult that a letter of offer had been received from the bank. Two days later Hoult saw the bank's letter (ex. 3). It states: "BORROWER FACILITY TYPE/ AMOUNT PURPOSE TERM AND REDUCTIONS SECURITY Strategic Limited Resources Holdings Fully Drawn advance $500,000. (a) Capital requirements for take up of Rights issue $350,000. ( b) Stand-by facility for Sub- underwri ting - $150,000. On going facility's (sic) butsubject to Annual Review with the next review due 31 st October 1989. To be prepared by Bank's solicitor at Company's cost and is to comprise of:- from Strategic Resources Holdings Limited (1) General Lien over the following share script:~ -- 6 of 27 -- CONDITIONS PRECEDENT REPORTING REQUIREMENTS 4 North Queensland Resources Limited (a) 6,010,000 shares (held) (b) 858,571 shares (rights issue) ( c) 375,000 shares ( sub- underwri ting) ... from Donovan Richard Hoult, DianeLola Hoult and Kevin James Good Joint and several "All Obligations" Guarantee ... ( 1 ) Letter of Subordination is to be given to Bank from shareholders Trustee Companies pledging that monies due and owing by Strategic Resources HoldingsLimited will not be accepted in repayment in preference to monies due and owing to the Bank without the prior written consent of the Bank first hand. ( 2) Facility exposure is to be restricted to $350,000 in the event that sub-underwriting component is not required. (1) Unaudited Half-Yearly Balance Sheets and Financial Statements for Strategic Resources Holdings Limited as at 31 st December and 30th June of each year to be provided by 31 st March and 31st October respectively. (5) Annual Personal Statement ofPosition of Donovan Richard Houl t and Kevin James Good to be provided by 31st Octobereach year." The NQR board met in Sydney on the morning of 7 July. The meeting was attended by Hoult, Good, other directors and Kent. -- 7 of 27 -- 5 The main topic was the proposed $500,000 loan to SRH. Concern was expressed about some aspects of the offer. A Sydney director, Mr Brown, was troubled about the "letter of subordination" ( see Condition ( 1 ) ) which would postpone an existing liability of SRH to a company of his. SRH also owed money to the trustee of the D.H. 80 Trust: Hoult's trust. And there were other reasons for Hoult to be interested in the implications of the "all obligations" guarantee the bank required. Apart from a small amount of cash, SRH's assets consisted of its NQR shares and (i) its entitlements to take more NQR shares under the 1:7 rights issue; and (ii) its option agreement. NQR had not paid a dividend and no dividend was expected until about a year after production began from the gold mine to be developed with capital injected by the rights issue. SRH, in short, had no income and no immediate prospect of earning any. SRH could sell its NQR shares to repay the borrowing, but that would dilute its interest in NQR. In any event, an investment in NQR was speculative and in early July 1989 Hoult and Good could not have been sure that the market price of NQR shares would remain above the rights issue price of 40 cents per share. Of course, if the shares were not sold at a good price, SRH could not repay the bank from its own resources. A guarantee of SRH's obligations under the 30 June facility therefore posed problems. The risk was accentuated by the inability of the Houl ts and Good to control SRH. Their stake in SRH accounted for less than 25 per cent of the company's issued share capital. One obvious contingency was -- 8 of 27 -- 6 that SRH might enter into commitments beyond the $500,000 borrowing which it could not satisfy or might be reluctant to discharge. Concerns about what the guarantee might involve led Hoult to discuss its ramifications with Evans. At about 4 p.m. on 7 July Hoult telephoned Evans. A primary purpose of his call was to establish the bank's understanding of the potential liability under the guarantee. There was discussion about repayment of the loan by SRH through sale of shares acquired under the issue. Evans "confirmed" (as Hoult's diary records it) information he had from Kent of SRH's intention to "pay monies back from sale of shares after issue". Hoult raised the chance that the $150,000 set aside for the sub- underwriting commitment might be used by SRH to purchase further shares in NQR if the rights issue were "over-subscribed". Evans said "No" to that idea. Then Hoult told Evans that both he and Good were concerned that their liability under the "all obligations" guarantee would be "open ended". Evans must have understood this expression of concern as directed to the prospect that the bank, without the consent of the Hoults and Good, might rely on the guarantee in relation to future transactions with SRH. Evans, who had said that SRH would receive only the $344,000 needed to take up its rights entitlement unless SRH had to honour its obligations under the sub-underwriting agreement, said that guarantors' liability, as Hoult's diary records his words: "was only as stated in the letter of June 30 and nomore. Any further advances would be renegotiated at that time and drawn up in a separate letter of offer from bank. 'SRH can not draw funds in excess of those -- 9 of 27 -- 7 mentioned in letter and for those purposes only. Don't worry'." In context, this was an unequivocal statement of the bank's intention that the guarantee would not be relied on other than in relation to moneys lent for the specific purposes stated in the 30 June facility letter. With that assurance, Hoult telephoned Good to tell him what Evans had said. Good was content to accept Hoult's account. So was Mrs Hoult. She acted on Hoult's advice to sign the guarantee. Before the guarantee was executed or the bank's advance made, Kent sought more flexible arrangements. On 12 July he wrote to Evans asking that the borrowing become a "revolving" facility: ex. 42. The letter proposed that some of the borrowed moneys be used for purposes other than the rights issue and the sub-underwriting. Kent's idea was for SRH to trade in NQR shares. The evidence does not show that the Hoults or Good knew of these requests by Kent when the guarantees were given on 18 July. In any event, it was not until 26 July that Evans agreed to Kent's proposal: see ex. 43. Accordingly, when the guarantors signed the guarantees Evans had induced them to expect that, if SRH did not require funds for the sub-underwriting, their liability could not exceed SRH' s debt on the approximately $350,000 lent to take up SRH' s rights entitlement, at least unless they later consented to the guarantee's extending to fresh obligations of SRH. By 20 July the bank had opened two accounts for SRH. One was a current account - the "gilt edged account" The other is described as "full drawn loan ... ". $344,000 was credited to -- 10 of 27 -- 8 the cheque account on 2 0 July; and on that day SRH withdrew $343,428 to pay for its rights issue entitlement. The $344,000 advanced under the 30 June facility letter was debited to the other account as a "transfer". This created in the "full drawn loan" account a debit balance of $344,000. That amount, plus interest but allowing credit for some repayments, is included in the sum sued for. More will be said shortly of these accounts. The NQR rights issue succeeded. SRH took up its full entitlement. There was no liability on the sub-underwriting. On 14 August Kent wrote telling Evans those things: ex. 44. This letter also asked the bank to "consider the extension of the current facility to fund the purchase of 6,750,000 options of 25 cents requiring $1,687,500 ... " Evans placed the proposal before the bank's Credit Committee. Its prospects were to be influenced by the bank's wish to attract NQR as a customer. By about mid-August Hoult knew that Kent was negotiating to adjust the arrangements concluded by the 30 June facility letter. Others knew also. On 22 August further dealings by both SRH and NQR were discussed at a board meeting of NQR attended by Good and Hoult. By this time most if not all of the 858,572 shares from the rights issue had been sold. Kent knew this. So did Hoult. As Kent's 14 August letter to the bank .reveals, SRH anticipated that its sales of NQR shares would yield a profit of about $150,000 and was anxious to borrow about another $1.6 M to fund the purchase of more NQR shares through the exercise of its option agreement. This prospect - a proposal which would have provided NQR with about another $1.7 -- 11 of 27 -- 9 M - had significance for NQR. In his evidence Hoult described Kent, NQR's consultant, as having "overall financial control" of NQR. So it is unlikely that Kent did not tell Hoult of the proposals contained in his 14 August letter before the NQR board meeting on 22 August. Hoult, however, denied knowledge of Kent's proposal that SRH borrow another $1.6 M to buy more NQR shares. Hoult did acknowledge that, towards the end of August, Kent discussed with him an SRH request for additional funds: see pp. 81, 136-137; cf. last para. letter 28 August 1989 to D.M. Laurence, part of ex. 17. But he says that Kent spoke only of a new $500,000 facility. By the end of the meeting on the 22nd Good was aware of proposals by SRH to use more borrowed funds to buy NQR shares. Despite Hoult's denial and Good's inability to recall the discussion, probably those at the meeting knew that SRH was negotiating to borrow (i) the undrawn balance of the $500,000 approved under the 30 June facility; and (ii) additional funds to acquire SRH's full entitlement of another six million shares in NQR under the option agreement. Good was not happy about his guarantee's comprehending borrowings by SRH of more than a million dollars: a concern which explains conversations between Hoult and Evans on 28 August. By 28 August the bank, as Evans knew, was considering two proposals from SRH. One was to use the balance of the $500,000 to buy more NQR shares ( at 25 cents) in exercise of rights conferred by the option agreement. The other was to borrow $1 . 6 M to exhaust SRH' s option entitlements. Both proposals meant that moneys advanced by the bank to SRH would find their -- 12 of 27 -- 10 way to NQR. By late August the bank's consultant, Mr Prentice, had reported favourably on NQR, and some officers were keen that the bank replace Standard Chartered Bank as NQR's banker. Yet the bank had not committed itself to NQR when Hoult spoke to Evans on 28 August. One other prelude to these discussions should be mentioned. Possibly, Kent discussed with Hoult in late August repaying the $344,000 borrowing with the proceeds of sale of the NQR shares, and taking a new $500,000 facility. However, the only new proposal Kent actually made to Evans concerning $500,000 was to draw on the balance of the $500,000 approved by the 30 June letter to buy more NQR shares. I have not found it easy to ascertain the content of the conversations between Hoult and Evans on 28 August. There is no version of them from Evans. He denies having spoken to Hoult in late August. Clearly he is mistaken about that. Hoult's 1989 diary and notes and letters written that day are contemporaneous records. Their authenticity should be accepted. They prove that Hoult and Evans did converse on the 28th. Nevertheless I cannot accept all the detail of Hoult's account. His testimony is based on reconstruction from his diary notes and ex. 17. This was evident from the way in which he testified. That impression is supported by the affidavit Hoult swore in April, 1990 to oppose summary judgment. His 1989 diary was then inaccessible. The affidavit does not say that he spoke to Evans in about late August. However, it does speak of a conversation between Kent and Evans at that time. Hoult's affidavit deposes, on information from Kent, that in late August, "when it became necessary for NQR to raise further funds", Kent "approached the -- 13 of 27 -- 11 plaintiff and the plaintiff agreed to advance further funds" to SRH to buy two million NQR shares at an "exercise price" of 25 cents each. According to the affidavit, "Mr Kent informed me that Mr Evans had readily agreed to the facility as the plaintiff would then be holding 8 million fully paid NQR shares then selling on market at an average of about 55 cents per share i.e. approximately $4.8 million." Moreover, no mention was made of the conversations in the defence the guarantors delivered in May 1990. It was only after the diary was retrieved from storage that the pleading was amended to allege that these conversations with Evans meant that the liability under the guarantee "ceased and determined on 28 August 1989" para. 3A(d). Hoult's evidence about his conversations with Evans on 28 August cannot be regarded as reliable except as his diary notes distinctly support it. Hoult's diary records a telephone conversation with Evans at 10.32 a.m.: "Phoned David Evans . . . re SRH draw down. Said we could have $500,000. Would have to wait until bank approved gold financing." The note may be a fair recording of Hoult's impression of things Evans said. But Hoult's evidence amplifying it cannot be entirely accepted. He testified that he called Evans regarding a "further facility" of $500,000 for SRH. Evans, according to Hoult, said that "we could have the $500,000 but it was predicated by the approval of an overall financing" of NQR which had been "informally approved" . It is possible, although unlikely, that when he telephoned Evans Hoult laboured under the misapprehension that Kent and Evans had discussed a -- 14 of 27 -- 12 new $500,000 facility and spoke to Evans about a figure of $500,000 on that assumption. Some considerations support Hoult in saying that when he spoke to Evans Hoult had in mind a new $500,000 facility rather than a drawdown under the old. Hoult's letter to Laurence written on the 28th says that "the bank has indicated it is prepared to advance a further $500,000 to SRH to exercise 2 million NQR options": ex. 17. The same day Hoult wrote to Kent drawing attention to the letter to Laurence, adding: "Evans indicated today that overall financing wouldhave to be approved but that could well happen soonest. Get Evans' approval or otherwise to thepresent proposal by Friday. Don't forget to zero ... fully drawn account this week." Hoult's conversations later that day with Good may be said to be consistent with his testimony but they are equivocal. Finally, Hoult may have anticipated that the bank would be repaid its initial advance in the near future from the proceeds of the sales of the NQR shares; and if that happened a fresh $500,000 facility would be needed. However, several factors suggest that the conversation with Evans was not quite as Hoult would prefer. Some have already been mentioned: see pp. 10-11. Th~re are others. First, Hoult wanted to get more funds to NQR quickly. It would help if SRH could draw on any existing facility rather than a borrowing yet to be negotiated by SRH. Secondly, as I have said, Kent had not discussed with Evans a proposed new $500,000 facility before Hoult spoke to Evans on the 28th. Thirdly, Evans's letter to Kent the next day (ex. 45) is not consistent with his having agreed to a new $500,000 facility. Moreover, it is improbable that a new facility would -- 15 of 27 -- 13 have been discussed unless on the basis that the existing loan would be repaid. Yet Hoult does not say that he discussed with Evans the possibility that SRH might repay the initial advance. For his part, by the 28th Evans assumed that the proceeds of sale of the NQR shares would be used to buy more NQR shares. Importantly, I am satisfied that Evans did not tell Houlton 28 August or at any other time that the bank had, formally or informally, approved the "gold financing" to NQR. Evans realised that the bank was likely to do so. The consultant's report had been favourable and a number of bank officers supported the bank's becoming NQR's banker. But Evans knew that a decision had yet to be made. It is also significant that Hoult's written instruction to Kent on the 28th (part of ex. 17) speaks of Evans indicating "that overall financing would have to be approved but that could well happen soonest". This cannot readily be reconciled with his testimony that Evans told him on the 28th that the refinancing was "informally approved". Probably what Evans said to Hoult was that the balance of the $500,000 could be drawn down immediately but that any further advance would have to wait until the bank had approved its "gold financing" to NQR. If Hoult took what Evans said to mean more than this, it was a misunderstanding by him. However, I doubt that Hoult made such a mistake. In the afternoon Good telephoned Hoult to discuss the bank's relationship with NQR. What was said is not apparent. However, at about 4.15 p.m., Good telephoned Hoult to express his concern about additional borrowings by SRH. Good was, I think, referring to the $1.6 M mentioned in Kent's 14 August letter. Good said he would not -- 16 of 27 -- 14 guarantee these further borrowings by SRH and asked Hoult to telephone Evans to say so. A few minutes later, Hoult spoke to Evans. He told Evans that he and Good both considered that their "guarantees would not extend to further borrowings by SRH": Hoult's diary note. This was intended by Hoult and should have been understood by Evans to refer to borrowings additional to the $500,000 mentioned in the 30 June facility letter. Hoult's diary note continues: "Evans said bank happy with SRH/NQR dealings. Prentice very keen. Agreed SRH could stand alone. Reiterated that no funds would be advanced until gold financing through BNZ Sydney/Wellington Boards." The diary note contains no suggestion that the liability of the guarantors in respect of the debt then outstanding - the $344,000 plus interest - should be affected. Nor did the discussion relate to the balance of the $500,000 approved by the 30 June facility letter. Unconvincingly as it seemed to me, Hoult' s evidence portrayed Evans as "speaking specifically" about the $500, 000 in agreeing that the bank had sufficient security. I am not persuaded that this accurately describes the substance of the conversation. On the contrary, I consider that the discussion was directed to borrowings by SRH beyond the balance of the $500,000 approved on 30 June. Probably, although it is not necessary to decide the question, the conversation proceeded on a tacit assumption that the guarantee would comprehend a drawdown of the balance of the $500,000 approved on 30 June. On 1 September Hoult went to a stockbroker and collected three cheques representing the sale proceeds of the NQR shares -- 17 of 27 -- J 15 acquired under the rights issue. $412,333. All were payable to SRH. The cheques amounted to Hoult wanted to use the moneys (and more, if SRH had it) immediately to provide funds to NQR. An exercise of SRH' s option rights could justify the payment. For two million of its shares, NQR would receive $500,000. On the morning of 1 September SRH' s II full drawn loan 11 account was in debit balance: $352,688.36 comprising principal ($344,000 advanced on 20 July) and interest. The current account was in small credit: $400.74. Now, if the bank had not - and, as Hoult knew, it had not - agreed to a new $500,000 . facility for SRH, it would only be possible for Hoult to transfer substantial funds to NQR promptly if the $412,333 were not used to repay the bank's loan. To get more than that $412,333 required the bank's co-operation to transfer the balance of the $500,000 to the cheque account. Once that happened, that amount and the $412,333 could be paid to NQR. So it was that on 1 September Houl t spoke to Evans by telephone. Neither Houl t nor Evans has a. note of their discussion. Hoult explains the absence of a note on the basis that he made the call from a stockbroker's office and did not have his diary to hand. However that may be, I prefer Evans's account of the conversation largely because it is more consistent with (i) the documentation Evans brought into existence that day to effect the transactions; (ii) the nature of the transactions and that their implementation would satisfy Hoult's anxiety to pay as much to NQR as soon as was possible; (iii) my rejection of parts of Hoult' s testimony concerning -- 18 of 27 -- 16 conversations four days earlier with Evans; (iv) the absence of any reference to the conversation in discussions with Evans and Johnstone after the bank's demands were made on the guarantors, in the affidavits filed in opposition to the summary judgment proceedings or in the pleadings; (v) the fact that the bank did not at any time grant a new $500,000 facility to SRH. Hoult asked Evans to transfer the undrawn portion of the $500,000 advance into SRH's cheque account. He told Evans that the money was to "convert some options into shares". This was the proposal approved a few days before: see Evans's letter to Kent of 29 August (ex. 45); and so the request would not have occasioned any surprise. Evans checked SRH's indebtedness. The undrawn balance was a little more than $147,000. Evans told Hoult the figure. Hoult asked that $140,000 be transferred to SRH's cheque account. Evans gave his written authorization to the transfer, describing the transaction in the bank's records as "partial draw down of F. D. A.". Al though Houl t did not disclose to Evans that he intended depositing the broker's cheques, before the bank closed at 5 p.m., Hoult paid them in to the current account. That created a credit balance of $412,733.74. Evans's authorization of the $140,000 drawdown meant that that sum was (i) credited to the cheque account; and (ii) simultaneously debited to the "full drawn" account. This produced a healthy current account balance of $552,733.74. Hoult, who was not authorized to sign a cheque on the SRH account except as a joint signatory with Kent, nevertheless signed an SRH cheque for $550,000 payable to NQR. The cheque was collected that day by the bank after its deposit to an NQR -- 19 of 27 -- 17 account and, notwithstanding the absence of a sufficient authority, was eventually paid. ( The internal system for ensuring that the cheque was duly authorized was inadequate to detect the omission). NQR now had its money from SRH. The bank, of course, had not been repaid by SRH. Later on, some amounts were deposited in in partial reduction of the indebtedness. Most of the debt - the $344,000, the $140,000 and interest has not been paid. The guarantors contend that on 1 September "the plaintiff received the $412,333, which sum exceeded the amount then owed" by SRH: para. 2 (h) amended defence. This is true in the limited sense that the bank collected cheques to that value and credited the proceeds to SRH's current account. But the bank did not receive the moneys for itself. Accordingly, the receipt could not satisfy SRH's liability. In other words, apart from a few payments made after 1 September, the $344,000 initially advanced remains outstanding. This conclusion matters to the guarantors' case that the Hoult/Evans conversations on 28 August meant that no liability could attach for "future" advances. Even if, contrary to my view, the 28 August conversations were as Hoult would have them, this gro_und of defence could not affect the guarantors' liability for the initial, mostly still outstanding, $344,000. Otherwise, in view of what Evans had said on 7 July, Hoult's version of the 28 August discussions with Evans cannot affect the guarantors. Mr Clarke properly conceded that, if Hoult is right about the Evans conversation on 7 July, the bank cannot recover the $140,000 advanced on 1 September or interest attributable to it. (The bank, despite -- 20 of 27 -- 18 foreshadowing an intention to do so by its reply, did not attempt to prove that the guarantors consented to the guarantee's extending to that $140,000 advance). My conclusion that Evans did represent to Hoult, and through Hoult to Mrs Hoult and Good, that the bank intended not to rely on the guarantee except in relation to loans for the purposes identified in the facility letter means that the guarantors are not liable for the $140,000. The amount of their liability is affected by other considerations. Credit must be given for the repayments; and interest should be calculated on the assumption that the payments were in reduction of the $344,000 first borrowed, not the $140,000. This Mr Clarke accepted. It follows that the bank cannot recover all of SRH's debt. Not content with this limited victory, the guarantors contend that no liability at all should attach for SRH's debts. The contention is that the guarantee was induced by conduct contravening s. 52 of the Trade Practices Act 1974 and ought to be set aside completely. What Evans said to Houlton 7 July is the foundation of this claim. The guarantors say they executed the guarantee believing that the bank would not, in any circumstances, rely on it other than for borrowings (i) to take up SRH's rights entitlement; and (ii) used in sub-underwriting the issue. Their case is that what Evans said was misleading because Evans contemplated that, without the guarantors' consent, the bank might possibly resort to the guarantee in respect of other obligations of SRH. To prove the contention the guarantors point to Evans's evidence. If his evidence is accepted, then it is correct that when Evans spoke to Houlton -- 21 of 27 -- 19 7 July he envisaged that the "all obligations" guarantee might be relied on, without the guarantors' consent, to enforce claims based on borrowings for purposes other than those stipulated in the facility letter. Evans was asked in cross-examination whether "it is certainly incorrect to say that in early July 1989 that you saw the guarantors proposed liability to be anything but open ended?". He answered: "The proposed liability at that point in time from the initial offer was $500,000". This response was neutral. Neither that answer nor that by these proceedings the bank seeks to recover the $140,000 without attempting to prove that the guarantors consented to that further borrowing establishes that Evans expected the bank to rely upon the guarantee in respect of other liabilities of SRH. However, in re-examination Evans gave more evidence about his belief in July 1989 concerning enforcement of the guarantee. The transcript records this exchange with the bank's counsel: "Now, in each of those cases, if there was a wholly new advance I'm just asking you again yourunderstanding in the middle of 1989, or what you understood the practice most likely to occur in respect of any client. If there was a wholly new advance, there would be a facility letter, you say.What----?-- We would have sent out a new letter of offer and it would have completely redetailed the ·whole---- If there had been guarantors, what would you have expected to occur in relation to them?-- That the guarantors consent would have been required. If it was a change in purpose but not a major change in purpose?-- I don't believe we would have sought the consent of the guarantors and I believe that this - the approval that I got in late August was actually referred to our executive----- I'm just Mr. Evans. asking you to talk Would you expect, about in the any case client, of any -- 22 of 27 -- 20 client, that in the case of a minor change in purpose,for a copy of the letter that you refer to, or the correspondence, to be sent to the guarantors?-- No, I don't think it would have been. What about in the case of correspondence in the eventof the release of a minor part of the security and there were guarantors, what would-----?-- If it was only a minor part of the security and it didn't breach some sort of covenant in the - didn't cause a breachof the terms and conditions letter, then we wouldn't have corresponded with the guarantors." This testimony, if accepted as truly stating Evans's attitude, acknowledges that when on 7 July 1989 Evans gave the assurance recorded in Hoult's diary he anticipated that the bank might use the guarantee in relation to liabilities of SRH other than on borrowings for the two limited purposes described in the facility letter. This stance is different from what he told Hoult to expect, although it is consistent with the bank's prosecuting this litigation. Evans, it should be said, is still employed by the bank. So I have considered whether this evidence is more an attempt to support the bank's case than as accurately representing his understanding in July 1989 of the bank's likely use of the guarantee. In the result, the answers should, I think, be accepted at face value. It follows that the bank has contravened s. 52. If what Evans said to Hoult was a representation as to a future matter - a prediction concerning the chance that the guarantee might be used for other liabilities - there were no reasonable grounds for saying it: see s. 51A. If what he said is more appropriately regarded as a statement of present intention, then because Evans contemplated at the time that the guarantee might perhaps be resorted to in relation to advances other than for -- 23 of 27 -- 21 taking up the entitlement under the rights issue and the sub- underwriting, his statement was a misrepresentation. On either basis it was misleading or deceptive conduct. (Mr Clarke accepted that Evans's state of mind when he spoke to Houlton 7 July should be attributed to the bank and that what he said was conduct by the bank in trade or commerce). All the guarantors were induced to execute the guarantee by what Evans told Hoult. But for that assurance they would not have executed the guarantee unless special conditions were added limiting their liability to borrowings for the two stated purposes. That the guarantee was procured by conduct contravening s. 52 of the Trade Practices Act does not mean that it cannot be enforced. The conclusion does however enliven the jurisdiction conferred bys. 87(1) of the Trade Practices Act to make orders which "will prevent or reduce the loss or damage" which otherwise the guarantors might be likely to suffer. Section 87 confers wide powers to remedy the consequences of conduct contravening s. 52. No doubt its operation in this case would permit orders to be made having the ef feet of precluding enforcement of the guarantee al together. In my opinion, such a result would not accord with an appropriate exercise of the discretion. The present circumstances do not reasonably require that the bank should be deprived entirely of its guarantee. The three guarantors would, I am satisfied, have guaranteed SRH borrowings for the two purposes specifically identified in the facility letter. And the bank would not have made the $344,000 loan without such a guarantee. No other consideration justifies an order having greater impact on the -- 24 of 27 -- 22 bank's rights against the guarantors then the estoppel which the bank accepts precludes its asserting rights inconsistent with the assurance Evans gave to Houl t on 7 July. Indeed the existence of the estoppel makes it unnecessary in this case to make any special order under s. 87 because there is no hint of any SRH liability to the bank except that raised in this action. The counter-claim may be dismissed. The bank is entitled to judgment in the amount of the initial advance, less all repayments, plus interest. The figure is susceptible of calculation. The bank should not have all its costs. It has been only partially successful, and the the guarantee was procured by conduct contravening s. 52. Moreover, on the bank's part at least, the trial was conducted at unnecessary length. No order need be made for the costs of the counter-claim. The length of the trial was not increased because of it and it is unlikely that the counter-claim caused any increased costs in the interlocutory phase. The bank should have half its costs of the proceedings, including reserved costs, to be taxed. Finally, applications made on behalf of the guarantors near the end of the trial should be mentioned. During Mr Clarke's final address Mr Bell sought leave to deliver a rejoinder directed to para. 8 of the bank's reply. The proposed rejoinder was: "The plaintiff is estopped from asserting that the money paid on 1st September 1989 was other than a full repayment of the sums advanced by the plaintiff to SRH for the purposes expressed in the facility letter dated 30th June, 1989. The facts relied on are: (i) Evans orally agreed with Hoult for himself and the other defendants on 1st September, 1989 that -- 25 of 27 -- 23 the moneys to be paid in on that date by Hoult would be received in repayment of that sum advanced for the purposes set out in the facility letter; (ii) The defendant Hoult caused SRH to pay the sum of $412,333 in on 1st September in accordance with such agreement. These facts are common ground. On 18 April 1990 the matter was listed as commercial cause and directions were given. A defence and counter-claim was delivered on 9 May. The reply was delivered on 8 June. An amended defence and counter-claim was delivered on 17 July. On 21 August the action was entered on the list of matters ready for trial. On 21 November the trial dates were allocated, no doubt in reliance on assurances by the legal representatives that the case was ready for trial. Because it was to be tried in vacation, the case was specially reviewed by Dowsett J. on 13 December. No amendment to the pleadings was foreshadowed. The trial proceeded before me for eight days without a suggestion that the guarantors wished to litigate the issue raised by the proposed rejoinder. The application was therefore very late. More importantly, although witnesses were asked about the conversation between Evans and Houlton 1 September, on the pleadings as they stood when the addresses began, the events on that day were not relied on to found any estoppel. Mr Clarke said that the bank's case would have been conducted differently had the issue sought to be raised by the rejoinder been identified by a pleading. The rejoinder accordingly exposed a risk of prejudice. The application was therefore refused. In the addresses Mr Bell -- 26 of 27 -- 24 also sought leave to amend the amended defence by setting up a case that: "By making the representations pleaded in para.2(c)(i) (of the defence) the plaintiff impliedlyrepresented that it was the intention of the plaintiff only ever to rely on the guarantee for advances madeby the plaintiff to SRH for the purposes of its taking up the rights and sub-underwriting as set out in the letter of 30th June, 1989 and for no other purpose ... (and that) the plaintiff did not have the saidintention at the time of making the saidrepresentation." This amendment was also refused and for substantially the same reasons as those which resulted in refusal of the application for leave to deliver the rejoinder. -- 27 of 27 --