Pace v Westpac Banking Corporation

[2001] QSC 415

SUPREME COURT OF QUEENSLAND

CITATION:                Pace & Ors v Westpac Banking Corporation [2001] QSC

415

PARTIES:                     RENO PACE

(Plaintiff)

&

MARIO ANTHONY PACE

(Second Plaintiff)

and

PAUL MICHAEL PACE

(Third Plaintiff)

and

JOSEPHINE PACE

(Fourth Plaintiff)

v

WESTPAC BANKING CORPORATION

(Defendant)

FILE NO:  S135/2000

DIVISION:                   Trial Division

DELIVERED ON:       29 October 2001

DELIVERED AT:        Mackay

HEARING DATE:          4th, 5th, 6th and 8th June, 25th and 26th July 2001.

JUDGE:   Dutney J

ORDERS:It is ordered that the defendant be permanently restrained from seeking to recover any part of the debt owed by the plaintiffs on account 20-1333 pursuant to any personal covenant the bank may have in relation thereto.  It is  further ordered that the mortgages in favour of the defendant over the land being lot 12 on Registered Plan 908019 and Lot 11 on registered Plan 908019 be released by the defendant at its expense.  The defendant is to pay damages to the plaintiffs assessed at

$173616.51 together with interest at 10% from 30

June 1999 in the sum of $40504.73.  On the counterclaim it is declared that the amount owing to the bank on account 20-1333 as at 26 July 2001 was $415,018.44.

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CATCHWORDS:           CONTRACT – Whether buying englobo land in reliance on a statement by bank manager that the bank would finance a proposed subdivision gives rise to an enforceable contract.

TRADE PRACTICES - MISLEADING AND DECEPTIVE CONDUCT – whether statements misleading or deceptive – At what stage does the claim arise – At what time should damages be assessed – whether claim statute barred.

NEGLIGENCE – MIS-STATEMENT – Whether reliance on statements of bank’s employee was reasonable – Whether damage was a foreseeable outcome of reliance.

ESTOPPEL – Whether elements of estoppel present. DAMAGES – NEGLIGENCE – TRADE PRACTICES ACT - MITITIGATION - Time at which damages should be assessed – returning plaintiff to original position – Whether reasonable steps taken – Whether 12 months a reasonable period to attempt to sell property

Esanda Finance Corporation Ltd v Peat Marwick Hungerford (1996-1997) 188 CLR 241 – applied. Hawkins v Clayton (1988) 164 CLR 539 – applied. Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999)

199 CLR 413 – referred to.

San Sebastion Pty Ltd v The Minister (1986) 162 CLR

340 – applied.

Waltons Stores (Interstate) Pty Ltd v Maher (1987-

1988) 164 CLR 387 – applied.

Wardley Australia Ltd v Western Australia (1992) 175

CLR 514 – referred to.

Water Board v Moustakis (1988) 180 CLR 491 –

applied.

Trade Practices Act (Cth) 1974 ss80, 82 and 87.

COUNSEL:   P Land for the Plaintiffs

D Savage for the Defendant

SOLICITORS:              S R Wallace and Wallace for the Plaintiffs

Corrs Chambers Westgarth for the Defendant

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1. Dutney J:  The first and third plaintiffs are brothers. Both were born in Malta. The  first  plaintiff  speaks  English  reasonably  well.    The  third  plaintiff  has enough English to cope with everyday life in Australia but plainly found the demands  of  giving  evidence  and  being  cross-examined  difficult.  They  are labourers with poor education and no particular access to capital. Apart from the matters discussed below they had no business experience. The second plaintiff is the son of the first plaintiff.  The second plaintiff was born in Australia and has no language difficulty. The fourth plaintiff is the wife of the third plaintiff. The fourth plaintiff is competent in English.  The second and fourth defendants were passive players in the events described.  They simply responded as advised by either Paul or Reno Pace respectively.  Paul Pace, for his part largely acted on the information supplied to him by Reno Pace who was the only plaintiff present at all discussions with the bank

1. Habana is a hilly rural residential area on the northern fringe of Mackay.  High land  at  Habana  commands  impressive  views  of  the  coast  and  north  to  the Whitsundays.

1. In 1991, the first and third plaintiffs and a third brother, Emmanuel Pace, had saved sufficient money to buy a 100-acre block of land at Olletts Road, Habana. When the purchase settled the brothers approached Westpac in Mackay for a loan to subdivide the land for resale.  The brothers were long time customers of the bank.  The first and third plaintiffs had banked with it since arriving in Australia at which time it operated as the CBA Bank before the merger which created Westpac.

1. The bank agreed to lend $100,000 secured over the Olletts Road land.  At about the same time the bank agreed to lend the brothers a further sum of $150,000 to purchase a second block of approximately 107 acres at Habana which became known as Medina Heights.

1. Both loans were documented, as one would expect from a bank.

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1. The subdivision on the Olletts Road land was completed in 1992 and named Habana heights.  The brothers sold the land themselves without the assistance of agents through their own contacts.  The Westpac borrowings were repaid from the proceeds.

1. In 1993 the first and second plaintiffs each built houses for themselves on part of the Medina Heights land.

1. In 1995 the brothers decided to subdivide about half the Medina Heights land into ten 5-acre blocks for resale.  At the time the Mackay City Council would not allow rural residential subdivisions below 5 acres.

1. For the purpose of the subdivision the brothers through their spokesman, Reno Pace, approached the local Westpac business manager, Mr Terry Seay.  The brothers intended to borrow money as required for the development.  Initially, an overdraft of $25,000 was approved and a letter of offer dated 2 June 1995 sent to the brothers setting out the terms.  This money was for initial rezoning and subdivision costs.

[10]In March 1996 an application was made for finance to complete the subdivision in an amount of $497,000.  By that stage the brothers had obtained conditional rezoning approval and a preliminary estimate from the brothers’ engineers had also been provided.

[11]Mr Seay submitted the request to his superiors.  In the submission Mr Seay supported the application and sought to maintain control of the prospective loan, writing:1

“This project is more of a  ‘mum & dad’ affair than say a multi stage development.  QIDC have been active in offering their services for this type  of  deal,  and  we  may  risk  losing  the  business  with  changes  to management at this stage of proceedings”

[12]   Mr  Seay  recommended  approval  of  the  facility  broken  up  into  a  $77,000

overdraft, $40,000 by way of a guarantee facility and a $380,000 bill facility.

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Mr  Seay’s  recommendation  in  relation  to  the  bill  facility  was  that  it  be conditional on a detailed HTW valuation, final council approval, confirmation of engineer’s costings and engineer’s certification of the roadworks.

[13]The application was not met with instant approval by Mr Seay’s superiors who commenced by reprimanding Mr Seay for not having passed the request for finance to the bank’s Commercial Banking Centre which would normally have administered this type of facility and then outlined their reservations.2

[14]Mr Seay wrote back defending his position and received a curt handwritten note in  these  terms  from  Mr  O’Flynn,  the  Manager  of  Business  Credit  at  the Queensland Credit Centre3:

“Allpoints in my memo 28/3/96 have not been adequately addressed. We will only reconsider once the following have been provided:-

·  HTW report

·  Connell Wagner report

·  Firm costings and cashflow schedule

·  Marketing plan

Nofunding    will    be    approved    until    we    are    given    trading figures/financials,  income  and  outgoings  for  all  partners  as  at

30/6/95 or later if possible.”

[15]   The application was declined.

[16]Mr  Seay  had  already  advanced  $45,000  of  the  overdraft  facility  being  the original $25,000 plus a further $20,000 to cover the sinking of bores on each block.4  Possibly because Mr Seay had already committed the bank to it, Mr Seay was ultimately able to persuade Mr O’Flynn to confirm the overdraft facility and give approval “in principle” to a further sum of $410,000 subject to the conditions set out in the handwritten note being satisfied.

[17]There is no reason to believe the Pace brothers were aware of any reluctance on the part of the bank to approve their application.  They received a letter from Mr

1 Exhibit 18, Volume 1, page 69
2 ibid, page 90
3 ibid, page 93
4 ibid, page 94

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Seay dated 11 April 1996 enclosing a letter of offer in relation to the $45,000

overdraft and advising approval in principle to the further sum of $410,000.

[18]Mr Reno Pace described his understanding of the bank’s position.  He would speak to Mr Seay on behalf of himself and his brothers and tell Mr Seay what was required.  Mr Seay’s standard response was  “No problems”5.  Mr Pace acknowledged that paperwork needed to be completed, usually prior to the money actually being advanced but as far as he was aware Mr Seay would tell him the money would be advanced and it was.  I have no reason to believe that Mr Reno Pace or any of the plaintiffs had any knowledge of the limits on Mr Seay’s lending discretion.

[19]The Medina Heights development proceeded to the stage of having the plans sealed by the council and costings and a valuation obtained.  The roadworks commenced.  By November 1996 they were at least substantially completed6. Mr Reno Pace said that by November the roadworks were largely complete and bills had been received.  The November bill was $49,900. Mr Seay told Mr Reno Pace to “wait a few days before you pay it”.

[20]On 15 November 1996, Mr Seay submitted an application for approval for further funding to complete the subdivision.  In doing so Mr Seay wrote:

“In April you approved OD $40 (sic) to assist with the initial rezoning and outlays for a proposed new subdivision.  We have recently committed to OD $60 pending submission of this application.”7

[21]In the light of the correspondence exchanged in April 1996 between Mr Seay and his superiors in the bank the increase in the overdraft apparently without approval was to say the least a bold step on Mr Seay’s part.  I accept Mr Reno Pace’s evidence that by the time the application for the final financing was submitted by Mr Seay the bulk of the money had already been committed on the

5 Transcript page 65
6 Transcript page 70
7 Exhibit 18, page 151

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assurances of Mr Seay that it would be forthcoming.  Fortunately the application was approved by the bank’s Commercial Credit Centre.8

[22]I should make some comment at this stage about my impression of Mr Seay.  I found him an unimpressive witness.  His evidence in chief left me in doubt as to whether  he  simply  had  no  recall  of  any  relevant  event  or  was  deliberately prevaricating.  As cross-examination of him proceeded I became increasingly satisfied  that  Mr  Seay  was  being  less  than  frank.    I  do  not  accept  his uncorroborated evidence.

[23]There were a number of instances where Mr Seay can be demonstrated to have acted towards the Paces in apparent defiance of instructions from higher up the bank hierarchy.  The series of memos from page 90 to page 95 of exhibit 18 to which  I  have  already  referred  demonstrate  that  Mr  Seay  was  prepared  to approve additional funding in defiance of the response from Mr O’Flynn to a formal internal request.

[24]The quote from the finance application of 15 November 1996 clearly demonstrates commitment of the bank by Mr Seay to increased funding prior to approval. Another example is set out at [34] below.

[25]The Medina Heights subdivision was completed in about February 1997.  Three of the ten blocks were presold.  Over the next few months three more blocks were sold making a total of six sold by mid 1997.  These sales were sufficient to repay the money borrowed from the bank and leave a surplus in addition to the remaining land.

[26]In January 1997 Reno Pace became aware of another block of land at 3 Olletts Road being available for sale.  This was more or less opposite the Paces’ first subdivision at Olletts Road, which was known as Habana Heights.

8 This was despite the immediate response being to reject the application.  See exhibit 29.

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[27]Reno Pace discussed the purchase of this land with his brother Paul.  This time it was decided to proceed without the involvement of Emmanuel Pace but to include the second and fourth defendants.  Mr Reno Pace thought he signed a contract to purchase the land  “subject to finance” on about 6 February 1997. The contract itself is dated 13 February 1997.  The purchase price was $287,500 and the amount specified in the finance clause is “sufficient to complete”.

[28]Mr Reno Pace took the contract to Mr Seay.  Mr Pace’s account of the meeting is as follows:

“… I went to see Terry … and I told him I find this new block of land.  I explained the situation were this and the potential of the block.  I told him I enter into subject to finance  - subject to finance contract, and I told him I need to borrow – I told him the price is $287,500.  I told him we like to borrow 300 to cover the purchase price and the stamp duties.  I also told him there is no need for us – no point for us to borrow 300 if the bank is not willing to give us money to do the subdivision.  I also told him for us to buy it we need money to do the subdivision otherwise we cannot afford to buy it.  We discussed the shape of the blocks.  How many blocks we might fit in, and …

Did you – did you have any discussion with him about what you’d been told by the council?— Yes.  I did.

Yes? --- Yes.  I told him what one of the councillor told me, there’s a good chance we’ll – the blocks will go to two and a half acres, not five acres. At that stage we talked about we might fit in up to 40 blocks, but on the end of the meeting we come to the conclusion that we worked upon 30 blocks.  I told him about, it’s going to be a stage – we do in stages, which he was very happy about that.  We talked about the asset the property will make after the stage 1 complete and so on.”9

“Was there any talk about how you would  – how you would pay it? --- Yes.  We – it was – we discussed the security.  What mortgage we going to give the bank and we would take some profits from Medina Heights to go towards rezoning, and then we’ll – the 300 would be paid from the sale of

–from stage 1.

Was there any talk about the payment of interest? --- Yes. I did  – did spoke to him.  I told him I only can  – we only can offer  – we only can afford to pay interest and we willing to pay interest in advance.”10

9 Transcript, page 18
10 Transcript, page 19

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After a discussion about the security which was available and which apart from the land being purchased was to include the unsubdivided balance of the land at Medina Heights (lots 11 and 12) and two allotments from the subdivision (lots 1 and 10) the evidence continued:

“Yes.  And did he say anything about your proposal?   What was his response when… ? --- …  Yes.

… you put all this forward to him? --- Yes.  He said, Reno ‘Reno’, he said

‘you  – you  already  done  two  small  subdivision.’   He  said,  ‘You  got experience.  You know what you’re doing.’ He said, ‘This is going to be a big one, but you going to do it in stages and you – and you going to be okay.’ And he also said –he said, ‘You going to be okay and you prove to us what you’re doing.’ He said, ‘The money will come for purchase the block [and]11  stage 1, because you’ve got a good name with us,’he said.

All right.  Okay.  And did he say anything about whether money would be provided for the later stages, stages 2 and 3? --- Yes.  At this stage he was saying, ‘Reno, I don’t think you will need money.  I don’t think you will need us for stage 2 and 3.”12

[29]Mr Seay prepared a file note relating to this meeting dated 19 February, 1997. It does not refer to the conversation about which Mr Pace gave evidence.  It does however acknowledge that apart from reliance on the security offered clearance of the debt created by financing the purchase was dependent upon a successful subdivision.13  The absence of any reference to the critical portion of the conversation relating to financing the first stage of the proposed subdivision does not surprise me.  I unreservedly accept that Mr Seay had no authority to make such a commitment and that at the time the conversation was conducted the bank had no factual basis on which to consider any finance application. Nonetheless, as I have already indicated my impression of Mr Seay is not favourable.  He gave me the impression of being first and foremost a salesman. I consider that he would have been likely to make such statements, no doubt believing he could ultimately get approval from his superiors.  I also consider him  shrewd  enough  not  to  leave  such  a  large  and  obvious  example  of overreaching his authority on the file.

11 The transcript shows “in” but my recollection is that this is a misprint for “and”.  In any case I

consider the meaning was clear and the evidence was repeated on several occasions.

12 Transcript, pages 19-20

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[30]The next meeting between Mr Seay and any of the plaintiffs was in March 1997. All of the plaintiffs attended.  The purpose of the meeting was to sign security documents relating to the finance to settle the purchase of the land at 3 Olletts Road.

[31]   Reno Pace’s recollection of the relevant part of the meeting was as follows:14

“… You walked in and he gave you a letter.  Is that right? --- He gave me the letter.

Yes, and then what happened? --- Then he – like I said before, he spoke to Paul a little bit.  Then he  – we said  – he said,  ‘Is good news.  We’re lending you 370’

Yes? --- The  – ‘We giving you extra 70 which can go towards rezoning paperwork.

Yes.  Yes, go on.  What else was said? --- Well I – I said to Terry – I said,

‘Terry, 370 won’t be enough to do stage 1’and he went on again, he said to me, ‘No, 370, it’s enough to cover the purchase and start you going’ and then I ask – I told him – I said, Terry, you do understand for us to repay you, you must give us money to do stage 1 otherwise we can’t afford to pay you.’

And did he…  ? --- And he said, ‘There’ll be no problem with that.’  I  – and when I said that I even looked in his eye and more or less that discussion took place in February, so him and I, we understood what we were talking about.”

[32]Mr Seay’s evidence on the representations alleged by the plaintiffs was very brief.  He was taken through his diary note and asked whether he had made any commitment to the Paces.  His response was that “It wasn’t possible for me to do that.”15  Evidence was led to establish the rather obvious proposition that no prudent banker would promise to lend for a subdivision without firm costings, a valuation and a proper marketing plan.  I accept that no prudent banker could give any indication of the bank’s preparedness to lend for stage 1 at the time of Mr Seay’s conversations with the Paces.  I do not accept that Mr Seay was a prudent banker.

13 Exhibit 18, page 182
14 Transcript, pages 24-25
15 Transcript, page 304

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[33]A good illustration of the extraordinary conduct of Mr Seay is to be found in the bank’s own correspondence in August 1998.16  On 21 August 1998 Mr Seay sought approval  “in principle”  for the funding for stage 1 of the proposed subdivision at 3 Olletts Road.  Mr Anderson, the Manager Credit at Business Banking Centre (Credit) in Mackay responded by a memo dated 24 August

1998 stating, inter alia:

“Unfortunately I can’t give you any indication of likely approval for stage

1 of Olletts Road, without a formal application including Cash Flow, Valuation (addressing value of lots on completion, value of englobo land, saleability  of  lots,  timeframe  for  sale  of  lots,  and  acceptability  of costings), Financial Accounts, Marketing Plan, pre-sales etc.”

[34]If the dealings with the Plaintiffs were being conducted properly I would have expected this clear statement of the bank’s position to have been communicated to them.  Rather, Mr Seay wrote on 28 August, 1998 as follows:

“Based on your cost estimates, we would be happy to favourably consider providing finance to complete stage one of your Olletts Road subdivision.

In due course we will need:

·  Firm engineer’s costings

·  Full valuer’s report from Herron Todd White”

The cost estimates referred to were simply Mr Reno Pace’ own handwritten estimates.

[35]The  letter  from  Mr  Seay  to  the  plaintiffs  clearly  misrepresents  the  bank’s position.  When asked how he could write such a letter to the plaintiffs in view of the memo he had received from his superior he said:17

“Just before you do that, going back to 422, how could you say that based on those cost estimates the bank would be happy to favourably consider finance in view of dot point 4 in the memo on the previous page … ? --- Yeah.

… which is also a response to the bank being given those cost estimates? --

- Yes.  That officer wasn’t prepared to commit at that particular time.

But he wasn’t prepared to give any indication … ? --- No, that’s correct.

16 Exhibit 18, pages 418-422
17 Transcript, page 326

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…  one way or the other.  Well how could you write within a few days to the customers and say the bank would happily consider – would be happy to favourably consider providing finance? --- I believe there was a deal there.

That was just your personal opinion? --- Yes.”

[36]This response is indicative of Mr Seay’s cavalier approach to dealing with the plaintiffs.  Mr Reno Pace said that he received Mr Seay’s letter of 28 August,

1998 following a telephone conversation he had with him in which he recalls Mr Seay saying, “Reno, the money been approved in Brisbane.”18  The evidence of Mr Reno Pace in relation to assurances as to the availability of finance is consistent with Mr Seay’s general approach.  I find it probable that Mr Seay did assure Mr Pace in February and March 1998 of the bank’s willingness to lend to complete stage 1 of the proposed subdivision.  I am satisfied that Mr Seay had no reasonable or other basis for giving such an assurance.  Mr Seay, himself concedes he could have no view of the likelihood of finance being approved in February or March 1996 because he had no proper figures to work on.  Indeed the evidence suggests that the ultimate rejection of finance was predictable even at  the  outset.    The  project  was  much  larger  than  anything  the  Pace’s  had attempted   previously,   particularly   Medina   Heights   where   Mr   Seay   had experienced difficulty in getting finance approved.  The risk was higher.  The cost was unknown.  The plaintiffs had no capacity to repay the loan without a successful subdivision.

[37]There is no doubt that Mr Seay knew the plaintiffs would eventually approach the bank for finance to subdivide stage 1.19  Mr Seay knew that the plaintiffs did not have the financial capacity to continue to hold the unsubdivided land for any extended period of time nor any capacity to repay the purchase price without selling  the  land  or  subdividing  it  successfully.    Mr  Seay  seemed  to  have confidence in Reno Pace.  I do not doubt that Mr Seay would have told Mr Reno Pace that the bank would provide any necessary finance for the subdivision.

18 Transcript, page 31
19 Exhibit 18, pages 183, 185, 412

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[38]I am not satisfied that the assurances of Mr Seay were such as to give rise to a binding commitment on the part of the bank to lend any money towards the subdivision.  Many of the essential features of a contract were missing.  No amount was agreed.  No terms were agreed.  Mr Pace’s previous dealings with the bank were sufficient to satisfy me that he knew the bank would only in fact lend money after obtaining a formal valuation, costings from an engineer and after  the  plaintiffs  had  signed  loan  documents.    Nonetheless  I  regard  it  as reasonable for the plaintiffs to rely on Mr Seay’s assurance of finance being ultimately approved.  Mr Seay was the public face of the bank as far as the plaintiffs were concerned.  The plaintiffs had no reason to suspect that Mr Seay was expressing a personal and not an official opinion as to the likelihood of finance  being  forthcoming  nor  that  the  opinion  had  no  factual  basis.    The representations  made  by  Mr  Seay  were  made  in  response  to  a  request  for information made of Mr Seay in his capacity as a bank officer.  I am satisfied that Mr Seay knew the Paces were relying on what he told them as the basis for proceeding with the contract to purchase the land at 3 Olletts Road.  I am also satisfied both for the reasons already given and those which follow that the representations concerning the bank’s preparedness to lend to complete stage 1 of the subdivision were in fact made.

[39]The plaintiffs continued with the subdivision proposal until June 1999.  By that time the land was surveyed, bores were sunk, conditional subdivisional approval was obtained and an appeal conducted against the conditions.

[40]In April, 1999 Mr Barry Deacon, a valuer with HTW prepared a valuation of the land as it was and of the proposed subdivision covering the matters referred to in Mr Anderson’s memo of 24 August 1998.  This was obtained at the request of Mr Seay.  Mr Deacon was engaged by Mr Reno Pace and asked to contact Mr Seay to ensure that the valuation met Mr Seay’s  requirements.    When  the valuation was obtained Mr Reno Pace went to see Mr Seay with the document. The conversation was recounted by Mr Pace as follows:20

“All right.  Well now did you get the report from Herron Todd White in about April? --- April, yes sir.

20 Transcript, pages 33-34

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And did you take that into Mr Seay in his office? --- I believe – yes I did.

All right? --- Yes.

And did you discuss it with Mr Seay? --- Yes, we did.

And what did he say about it? --- We talked about the costing.  He said the costing is still a bit higher than we estimate in ’98, but he said,  ‘That’s okay because it’s a good report and it’s showing a good profit on the end of it.’ And he said, ‘Because you got plenty asset at the bank, there’d be no problem.’ We talked about – he said the boss, he will like this report and I might add this is the first time he mentioned the boss to me.  He said, ‘The boss will like this report.’… ”

“All right.  Well in any case, when you were discussing the report, was anything said about the money for stage 1? --- Yes, he said the money is a bit higher than we estimated but he be no problems because I got a good name.  We using contractors, they done a good job and I got plenty assets.

All right.  Well now what’s the next thing happen?  I left this meeting, I

went home, and the next thing is happened I get a phone call from him.

Yes.  And about when was that? --- June.

Yes.  Of 1999? --- Yes.

And what did he say? --- He said, ‘Reno, sorry mate, I got some bad news for you.  The money did not been approve in Brisbane.’ He went on to say Westpac got all of money invested in this type and the bank don’t wish to lend any money – any more money on this type of loans.  And he went on, he said, ‘Reno, I will see if I can get you finance from Whitsunday – law firm in Whitsunday.’ And I said, ‘Sorry, that’s not’– I said, ‘Terry, that’s not fair mate.  The money always was coming.’ And he said, ‘Yes mate, sorry.’”

[41]Mr Seay did not remember Mr Reno Pace personally bringing in the valuation but accepted that it was likely.21  His evidence was that as soon as he saw the valuation he could see that the project was not viable from the bank’s point of view.    The  main  problem  identified  was  that  there  had  been  a  significant increase in estimated cost over the figures he had discussed earlier with Mr Pace and there had been a downturn in the market for the type of rural residential subdivision proposed.22

21 Transcript, page 327
22 Transcript, page 327

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[42]In relation to whether or not Mr Seay had indicated that subdivisional finance would be available if the plaintiffs went ahead and purchased the land at 3

Olletts  Road,  the  strongest  argument  for  the  bank  centred  on  the  lack  of immediate protest by Reno Pace when finance was finally refused.  After the refusal of finance the file in relation to the plaintiff’s indebtedness was passed to the bank’s Loan Management Unit and into the care of a Mr Buzza.  Mr Buzza gave evidence.  I have no reason to doubt anything he said on this issue.  His evidence  in  relation  to  the  critical  issue  was  that  Mr  Reno  Pace  made  no mention to him in the discussions they had of any assurance or commitment given  by  Mr  Seay  either  before  the  land  was  purchased  or  subsequently.23

Further,  no  mention  was  made  of  the  alleged  statements  of  Mr  Seay  in correspondence to the bank from the plaintiffs’ solicitors, Messrs S.R. Wallace

& Wallace, dated 24 February, 200024 or from the plaintiffs’ accountant, J Forsyth & Co, dated 21 March, 2000.25    Of  these,  the  former  is  the  most significant making reference to representations apparently made after the initial loan of $370,000 but not before.  Indeed, allegations that the representations relied on in the trial had been made by Mr Seay did not arise until the statement of claim was filed on 22 August, 2000.  Both letters were written at a time that the plaintiffs were attempting to sell or refinance the land and were seeking to persuade the bank to extend the term of the loan to enable that purpose to be achieved.  It is unlikely that litigation was contemplated at the time the letters were written.  The reserve price the plaintiffs had placed on the land, while perhaps unrealistic in the market as it then existed would have enabled the plaintiffs to clear their debt to the bank without loss to themselves.  At that time it is unlikely in my view that either the solicitors or accountants had fully investigated the plaintiffs’ account of what they say happened as would have been the case when it was decided to consider litigation.  It should also be borne in mind that the version of the conversation with Mr Seay when the initial loan documents  for  3  Olletts  Road  were  signed  as  given  by  Mr  Reno  Pace  is corroborated in substance by each of the other plaintiffs.26  There are some

23 Transcript, page 254
24 Exhibit 18, page 535
25 Exhibit 18, page 538
26 Mario Pace’s evidence is at Transcript, page 171, Paul Pace’s evidence is at Transcript, page 185 and

Josephine Pace’s evidence is at Transcript, page 198.

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problems with each of the corroborating witnesses evidence.  Mario Pace could not recall Mr Seay’s response to the statement that the project was dependent on the  bank  ultimately  lending  the  money  to  complete  the  subdivision  but recollected that the impression conveyed was favourable.  Paul Pace agreed under cross examination that he had discussed his evidence with his brother27 but the frankness with which he agreed to the propositions put persuaded me that he was more likely than not to be giving an honest account.  Josephine Pace gave  the  least  satisfactory  evidence.    She  denied  having  discussed  her recollections with her husband, something I found a little unlikely, and then gave  evidence  corresponding  with  Mr  Reno  Pace’s  account  of  the  first discussion with Mr Seay at which only the two of them were present.  While I would not be prepared to act on the evidence of Josephine Pace I do not have similar  reservations  about  either  Paul  Pace  or  Mario  Pace  both  of  whom appeared to be honest witnesses.

[43]To succeed the plaintiffs must establish either that they were misled or deceived by the bank or that they acted on advice negligently given by the bank through Mr Seay.  In the latter case the plaintiffs must establish that Mr Seay knew or ought to have known that the plaintiffs would rely on the advice or assurance he gave as to the bank’s preparedness to lend, it must have been reasonable for the plaintiffs to so rely, the plaintiffs must in fact rely and damage must have been a foreseeable outcome of the reliance.28

[44]I have no difficulty in finding any of the requirements established in view of the discussion  above.    The  plaintiffs  through  Reno  Pace  expressly  sought  the assurance that the bank would be likely to lend for at least stage 1 of the proposed subdivision.  While I accept that no enforceable promise was made to this effect I also accept that there was no basis upon which Mr Seay could have given  any  assurance  at  all  and  to  do  so  even  qualified  by  the  plaintiffs’ knowledge that ultimately they would have to make a formal application and satisfy the bank’s criteria was in my view both negligent and misleading.

27 Transcript, page2 192-194

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[45]What then flows from the representation?  I accept that the plaintiffs would not have proceeded to settle the contract to purchase the land if the representations had not been made.  Although by the time the representations were made in the presence of all four plaintiffs the contract was unconditional.  If at the due date for settlement the plaintiffs failed to settle there is no evidence the vendor could not have resold the land at the same or a similar price.  I consider it unlikely that the vendor would have sought to have the contract specifically performed.  It seems to me that the more likely response would be to negotiate a forfeiture of some part of the deposit of $26,650.00 payable on settlement and the $100.00 in fact paid.29  In any event the decision to make the contract unconditional was made in reliance on the first representation made by Mr Seay to Mr Reno Pace alone which he then passed on to the other plaintiffs.

[46]As a result of the representations the plaintiffs now own the fee simple in the land at 3 Olletts Road subject to the bank’s mortgage.  The bank also has security over lots 11 and 12 on registered plan 908019.  The evidence discloses that the plaintiffs spent $124,855.84 on the rezoning and other preliminary works.30    The  bank  had  initially  loaned  the  plaintiffs  $370,000  of  which

$287,500 represented the purchase price of the land.  The plaintiffs thus spent

$42,355.84 of their own money on the project.  In addition the plaintiffs paid (as opposed to incurred) $67,524.66 interest and charges on the $370,000 loan.  The plaintiffs also claimed $63,856.12 in relation to account 20-1026.  This was mainly interest paid from this account in relation to the $370,000 loan between April 1999 and September 2000.  Subject to deducting from the amount claimed the sum of $120.11 interest earned on the balance of the $370,000 loan, up to the time the account had to be topped up by external deposits, this seems to me to represent actual expenditure.  The plaintiffs’total expenditure from their own resources on the project thus comes to $173,616.51.  At the time the bank refused subdivisional finance the value of the unsubdivided land according to

28 See San Sebastion Pty Ltd v The Minister (1986) 162 CLR 340 at 372. This passage was cited with approval in Esanda Finance Corporation Ltd v Peat Marwick Hungerford (1996-1997) 188 CLR 241 by Brennan CJ at 250, Dawson J at 257 and by Toohey and Gaudron JJ at 262.

29 See exhibit 19 especially clause 9.3 of the general conditions.
30 See exhibit 27.  This is the total less the charges incurred in relation to the two bank accounts.

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the Herron Todd White valuation was $475,000.  At the time of the Herron Todd White valuation the value of this type of land was falling.  However one looks at the position, whether it be in negligence or under the Trade Practices Act 1974, the plaintiffs’cause of action was not complete until the bank refused the finance application because no loss had crystallised prior to such time.31 In this case the submission was made on behalf of the bank that any claim under the Trade Practices Act arose at the time the representation was made which was in February 1997 or when the plaintiffs first spent any money towards the subdivision and was thus statute barred prior to the commencement of the proceedings.  I reject that submission.  Since the representation I have found was made concerned future conduct of the bank it is not until it was clear that the  bank  would  not  lend  to  complete  stage  1  that  the  limitation  period commenced to run.  This is not a case where the negligence or misleading conduct caused the plaintiffs to enter into a contract to buy land for more than it was worth.  The evidence suggests that even at the time of purchase the land was  worth  $290,000.32    Because  the  expenditure  on  the  land  towards  the proposed subdivision increased the value of the land it is not possible to identify the point, certainly one more than three years prior to the commencement of the action, when the value of the asset acquired exceeded the amount spent so that damage was suffered even if it were before the rejection of finance.  I consider, however  that  the  loss  was  sustained  when  the  subsequent  expenditure  on preliminary works and bank interest and charges incurred in consequence of the statements of Mr Seay became irrecoverable by reason of the inability of the plaintiffs to obtain finance to subdivide the land.  In my view this case falls into that class of case described by Deane J (with whom Mason CJ and Wilson J agreed on this point) in Hawkins v Clayton33:

“If a wrongful action or breach of duty by one person not only causes unlawful  injury  to  another,  but  while  its  effect  remains,  effectively precludes that other from bringing proceedings to recover the damage to which he is entitled the other person is doubly injured.  There can be no acceptable or even sensible justification of a law which provides that to sustain the second injury will preclude recovery of damages for the first

31 For negligence see Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 at 424 (per Gaudron J) and 447 (per Gummow J) and Hawkins v Clayton (1988) 164 CLR 539. In relation to the Trade Practices Act claim see Wardley Australia Ltd v Western Australia (1992) 175 CLR 514.

32 See the HTW valuation obtained by the bank in exhibit 18, pages 268-273.
33 (1988) 164 CLR at 543, 590.

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…   It seems to me, however, that the preferable approach is to recognise that  it  could  not  have  been  the  legislative  intent  that  the  effect  of provisions such as …  the Limitation Act should be that a cause of action for a wrongful act should be barred by lapse of time during a period in which  the  wrongful  act  itself  effectively  precluded    the  bringing  of proceedings.”

For as long as the plaintiffs laboured under the belief induced by Mr Seay that the bank would provide finance when the application was made the fact that they   were   incurring   a   loss   was   concealed   from   them   by   Mr   Seay’s representations.  That position continued at least until June 1999.  There is, of course, no limitation problem in relation to the claim in negligence.

[47]Since the cause of action did not arise before June 1999 the earliest date at which damages should be assessed is June 1999.  The proper course is for the plaintiffs to be given a reasonable time after the cause of action arose in order to sell the land and mitigate their loss.  The evidence discloses that after the bank refused  to  finance  the  subdivision  the  plaintiffs  made  other  applications  to different institutions for finance without success.  This lack of success did not surprise me. Having looked at the valuation provided by Herron Todd White I accept the bank’s evidence that a prudent lender would not have financed this project. Thereafter the land was placed with a number of real estate agents to sell without success.  The evidence discloses that after June 1999 the value of land surrounding Mackay fell.  There is no evidence that there was in fact a buyer for the land after June 1999 at least at anything approaching the April

1999 valuation.  The evidence shows that the land was placed with several real estate  agents  but  no  offers  were  elicited.34    Accepting  as  I  do  that  it  was reasonable for the plaintiffs to first exhaust alternative finance options and then to set about marketing the land as a single allotment a reasonable period for sale in my view would not be less than 12 months after June 1999.  At trial the value of the subject land was $375,000.35  The evidence does not disclose how the value of the land performed in the intervening period.  It seems to me in the light of the evidence I have outlined not to be unreasonable to adopt this as the value of the land on a poor market.  To put the plaintiffs in the theoretical

34 Transcript, page 143.
35 See exhibit 24.

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position they would have been in had the representation not been made or the negligence not occurred would involve adding the amount the plaintiffs spent and the amount they owe the bank and deducting the value of the asset they retain.  The debt owed to the bank at trial was claimed as being $415,018.44.36

I accept that figure as accurate.  The damages would therefor be $213,634.95. Since this represents money actually spent from early 1997 through to mid 2000 and the bank debt includes interest up to the date of trial interest should be added.  I allow 10% from 30 June 1999 totalling $49,841.03.  In the result there would be a net debt in favour of the bank of $151,542.46.  If I were limited to awarding damages I would award the plaintiff a total of $263,475.98 including interest on the claim and the bank $415,018.44 on the counterclaim resulting in a net judgement in favour of the bank of $151,542.46.  If the proper date to assess  damages  was  the  date  of  settlement  of  the  purchase  contract  the plaintiff’s loss would be greater because at that date the value of the asset acquired by the plaintiffs would be $290,000 and not the $375,000 I have used. I would still regard the expenditure subsequently as recoverable consequential loss.

[48]The above scenario does not in fact leave the plaintiffs in the position they would have been in had the offending conduct of Mr Seay not occurred.  Had the conduct not occurred the plaintiffs would not have held the land at 3 Olletts Road.  The bank would not have had mortgages over the residual part of Medina Heights on which the plaintiffs’homes are constructed and there would not be a residual debt to the bank incurring interest.  In addition, the plaintiffs would not be subject to the uncertainty of the market in attempting to sell the 3 Olletts Road land which now might be worth more or less than the value I have put on it.

[49]Because I have found the conduct of Mr Seay for which the bank is liable to be in contravention of Part V of the Trade Practices Act, s87 of that Act becomes at least theoretically relevant.  I recognise that no specific claim for relief was framed around s87.  Nonetheless it was a matter raised in the course of address

36 See exhibit 32.

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with both counsel.37   Counsel for the plaintiffs adopted the suggestion made by me as to the way in which relief might be framed.  Counsel for the defendant argued against it only on the grounds that if the facts and law were as he contended no right to relief under the Trade Practices Act arose.  The granting of relief under s87 does not affect the course of the evidence or the way in which either counsel conducted his clients’ case.    It  seems  to  me  that  the peculiarities of this case enable the position to be almost exactly restored insofar as the plaintiffs are concerned while removing the risk of an unfavourable movement in the market resulting in loss or further loss to either the plaintiffs or the bank.  The course suggested by me in argument having been adopted by the plaintiffs’ counsel I consider I am entitled to frame relief under s87 as well as under s82 and s80 both of which were expressly relied on by the plaintiffs.38

[50]The end I consider appropriate can be arrived at by ordering that contractual arrangements between the plaintiff and the bank be varied such that the bank is precluded from exercising any personal right to recover against any of the plaintiffs the debt owed by the plaintiffs to the bank on account 20-1333 and compensating the plaintiffs for their own money they actually spent.  The bank would then be entitled to realise whatever it can from the property at 3 Olletts Road, Habana.  The plaintiffs are left as they were before the bank’s officer, Mr Seay, engaged in the misleading or deceptive conduct.

[51]In addition to the matters already discussed, the plaintiffs sought relief based upon an estoppel.  The legal principles applicable are discussed in  Waltons Stores (Interstate) Pty Ltd v Maher.39  To become entitled to relief the plaintiffs must  establish  that  the  statements  made  by  Mr  Seay  have  created  such  an assumption on the part of the plaintiffs as to the bank’s preparedness to finance stage 1 of the proposed subdivision that it would be unconscionable to allow the bank  to  depart  from  that  assumption.    If  the  mere  fact  of  declining  the application for finance when it was finally made were sufficient to constitute unconscionability  the  case  would  be  made  out.  Mere  non-fulfilment  of  a

37 See transcript, page 417, 441
38 See Water Board v Moustakis (1988) 180 CLR 491.
39 (1987-1988) 164 CLR 387 at 397-9, 404-406, 413 and 458-463.

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promise is not of itself enough, however.40  That is especially so in this case. The negligence or misleading conduct in this case does not arise because of a promise that the money would be made available irrespective of amount or the precise nature of the subdivision.  Having regard to the previous experience of the plaintiffs with the bank the plaintiffs must be taken to have known that any application for finance would be considered on its merits at the time it was made.  The plaintiffs must have been aware that there would be a risk that the bank’s lending policy may have changed or some other unforseen circumstance have arisen which resulted in the application being refused.  The negligence or misleading conduct in this case arose from the indication given by Mr Seay that on the basis of the project discussed with him the bank would provide finance. This necessarily implied that the project as discussed conformed or was at least likely to conform to the bank’s then current lending criteria and was capable of acceptance by the bank.  Mr Seay had no basis in fact for creating such an impression or making such a representation when his knowledge of the project was limited to a hand drawn sketch of a possible subdivision by Mr Pace and what Mr Pace told him at the meeting.  Mr Seay possessed no information on the basis of which he was able to express any informed view as to whether the project would or could meet the bank’s then existing lending criteria.  The minimum  that  would  be  required  to  form  such  a  view  would  have  been information of the type set out in Mr Anderson’s memo of 24 August 1998 to which I have earlier referred.  The absence of a binding promise, however, results  in  my  not  regarding  this  case  as  one  in  which  the  bank  should  be estopped from denying its right to decline the plaintiffs’finance application.

[52]I order that the defendant be permanently restrained from seeking to recover any part of the debt owed by the plaintiffs on account 20-1333 pursuant to any personal covenant the bank may have in relation thereto.  I further order that the mortgages in favour of the defendant over the land being lot 12 on Registered Plan 908019 and Lot 11 on registered Plan 908019 be released by the defendant at its expense.  I order the defendant to pay damages to the plaintiffs assessed at

$173,616.51 together with interest at 10% from 30 June 1999 in the sum of

40 (1987-1988) 164 CLR at 406.

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$40,504.73.  On the counterclaim I declare that the amount owing to the bank on account 20-1333 as at 26 July 2001 was $415,018.44.

[53]The orders I have made are not intended to inhibit the bank exercising any security rights it has in relation to Lot 3 on Registered Plan 811288.