Supreme Court of Western Australia

452. The statutory unconscionability claim arises in the unlikely context of a commercial dispute between, on one side, experienced property developers with very substantial assets advised by an experienced financial adviser, lawyers and quantity surveyors and on the other side, the Financiers. This context, coupled with Westgem's decision not to call any evidence to explain the effect on it of the alleged unconscionable conduct, constitutes a difficult platform from which to advance an unconscionable conduct claim.
453. For the reasons developed below there was nothing inherently unconscionable in the Financiers' relying on their contractual rights and there was nothing in the circumstances that made the exercise of their contractual rights unconscionable.
454. The failure by Westgem to establish that the MOFA incorporated the contractual terms for which it contended and the findings made on the alleged breaches of those terms constitute further substantial obstacles in Westgem's path to success on its unconscionability claim in respect of the first Cost Overrun. The effect of those conclusions and findings is that, in withholding further Drawings and in seeking payment of the first Cost Overrun, the Financiers were doing no more than exercising their rights under the MOFA.
455. The contractual rights were part of the bargain freely entered into by Westgem after a long period of negotiation. The right to withhold further Drawings under the MOFA until a Cost Overrun was paid was not only part of the bargain but, given the facility limits and the ratio requirements referred to earlier in these reasons, it was not a right that was in any sense disproportionate to the event that gave rise to its exercise.
456. The overwhelming impression conveyed by the contemporaneous documents - Westgem's internal documents and its communications with the Financiers' representatives is that Mr Saraceni, Mr Pourzand, Mr Clohessy and the managers who worked with them were experienced astute business people. Westgem was not an entity likely to be taken advantage of. Mr Clohessy was responsible for many of the communications exchanged with the Financiers. He advocated forcefully on Westgem's behalf and when he was unhappy with the Financiers' conduct he made that clear.
457. The possibility of a Cost Overrun was not sprung on Westgem by the Financiers. The possibility had been raised by Mr Nagle in his letter to Mr Saraceni of 9 April 2009. By early July 2009 Mr Saraceni, Mr Pourzand and Mr Clohessy were putting in place arrangements to cover an anticipated Cost Overrun that would require a contribution of equity.
458. Westgem's internal calculations disclosed that a Cost Overrun of (at least) $13 million was inevitable. As recorded in the factual findings, 'Financial Statement No 6', prepared for Westgem's internal purposes in June 2009, recorded that the 'contract sum' was $251,331,347 suggesting a Cost Overrun of approximately $20 million. In any event, the contract sum figure in Financial Statement No 6 exceeded the 'forecast final figure' contained in the Response Budget prepared by Mr Frank Saraceni and disclosed to RBB by at least $15 million. The Response Budget was, as Mr Simpson described it, 'an extremely positive snapshot', prepared (as I have inferred) to ease the Financiers' concerns about the possibility of a Cost Overrun. In the light of Westgem's internal calculations it is very difficult to see how it can be said that the Financiers acted unconscionably in pressing for payment of the Cost Overrun of $13 million.
459. By failing to disclose to Bankwest the construction cost figures contained in Financial Statement No 6 and instead disclosing the 'extremely positive snapshot' figures contained in the Response Budget Westgem was not being candid with the Financiers. In this respect Westgem's conduct underlines the necessity for, and legitimacy of, the Financiers' reliance upon their contractual rights to protect their interests.
460. For these reasons I am not satisfied that Westgem has established that the Financiers' conduct, in all of the circumstances, was unconscionable.

461. Westgem alleges that Mr Nagle's assertion on 22 July 2009 that there was a Cost Overrun in the sum of $13 million constituted conduct that contravened the prohibitions against misleading or deceptive conduct contained in s 12DA of the ASIC Act and s 10 of the FTA.[302]
462. As I have found that there was a Cost Overrun in the amount of $13 million on 22 July 2009 the misleading or deceptive conduct claim is not made out.

463. The Financiers raised a wide range of positive defences to Westgem's first Cost Overrun claim. As I have concluded that Westgem's first Cost Overrun claims fail at a number of levels it is unnecessary to address the Financiers' further defences.

September 2009

464. Salta prepared Project Control Group Report No 14 for a meeting of the Project Control Group that took place on 2 September 2009. In the report Salta recorded its view that the 'current approved contract sum' was $267,730,082.[303]
465. On 2 September 2009 Mr Nagle sent an email to Mr Clohessy in which he stated that he had asked Mr Sanders to review the position set out in his email to Mr Clohessy of 17 August 2009 (in which Mr Nagle had compared the adjustments to various provisional sum items recorded in Contract Sum Adjustment 20 with figures provided by RBB in its 16 July 2009 report and with the figures contained in Mr Frank Saraceni's 'response budget') and proposed that he and Mr Clohessy get together with Mr Frank Saraceni the following week to go through the details.[304] Mr Nagle stated that the position '... must be resolved quickly in time for the payment claim later this month'.

466. Following the Project Control Group meeting on 2 September 2009 Mr Sanders reviewed Salta's structure remeasure variation register and formed the view that there was approximately $6 million in structure remeasure costs yet to be approved by a Contract Sum Adjustment, but which were likely to be approved, and that there was an additional amount of approximately $1 million in further structural variations which were likely to be incurred.[305] Mr Sanders calculated that the total estimated construction cost had increased to $262,460,939 that he rounded up to $265,000,000. He prepared a note recording his calculations. The contents of Mr Sanders' note are relevant to a credit issue raised in relation to a cost to complete calculation undertaken by him later in September and for that reasons I include it in full:[306]

Contract Sum $211,879,573

CSA's

To No 21 $267,730,082

Add back Tunnel $4,300,000

$272,030,082

Deduct IFO CSA's 31,869,143

$240,160,939

Heritage works $2.5 m

Pavilion $1.5 m

Tunnel overrun $2.0 m 6,000,000

$246,160,939

Reinforcement overrun 3,000,000

249,160,939

Other

• VM 1.8 m
• P Sums balance 1.0 m
• Plant room 0.5 m

3,300,000

252,460,939

Other variations etc 10,000,000

262,460,939

Say 265,000,000

467. I accept the explanation of Mr Sanders' calculations given in his witness statement, which was as follows:[307]

On 3 September 2009, I performed some high level calculations, without going into much detail, of the construction cost to complete the project in order to get a feel for the then estimated total construction cost. I did so as I was concerned that the construction costs to complete the project were still blowing out: [RBB.001.012.0033]. I prepared this review based on the information and numbers that had been provided to me by Salta and the Superintendent, as well as my own observations of the project and my experience in assessing the costs to complete projects. My workings were as follows:

(a) I started with the original contract sum of $211,879,573 and added the variations up to CSA 21, which brought the contract sum to $267,730,082;

(b) I added back $4,300,000 for the tunnel for the reasons I have stated above, which brought the total to $272,030,082;

(c) I then deducted the CSAs which related to the IFO Works, totalling $31,869,143, which reflected the current value of the IFO Works in Salta's scope, bringing the total to $240,160,939;

(d) I then added:

(i) $2.5 million for the heritage works as, based on the estimate I prepared on 13 May 2009, I formed the view that the $500,000 allowance of the provisional sum would be inadequate for these works;

(ii) $1.5 million for the pavilion as I was aware that a variation would be required to cover these additional works; and

(iii) a $2 million contingency for tunnel overruns as, based on my initial estimate referred to in paragraphs 31to 37 above, I formed the view that there would be an overrun on the provisional sum for the tunnel of $4.3 million. As I explained above, I had initially estimated a provisional sum of $5 million for the tunnel in November 2007. I had formed that assessment based on what I had been told by Frank Saraceni regarding the works. However, by this stage, I was concerned that a provisional sum of $5 million would be insufficient.

These amounts brought the total to $246,160,939;

(e) I then added an additional $3 million for reinforcement remeasure overrun, which is a specific line item in the structure remeasure, which brought the figure to $249,160,939. I included this figure as an allowance for the ongoing dispute regarding the structure remeasure that I was aware of, based on my review of the correspondence, discussions with the Superintendent and attendance at PCG meetings.

(f) I also accounted for 'other' costs, including:

(i) 'VM' of $1.8 million for value management, which I took from Salta's figures in its letter dated 12 August 2009;

(ii) $1 million for the balance of provisional sums;

(iii) $500,000 for the plant room, which referred to a variation for relocating the plant room from the basement to the roof, which I was aware was required based on my attendance at PCG meetings and discussions with Paul Simpson; and

These amounts totalled $3.3 million. Adding those figures brought the total cost to $252,460,939; and

(g) finally, I added $10 million for other variations, being unprocessed variation claims and variations which might be submitted in the future. This brought the total forecast construction costs to $262,460,939. I then rounded this up to $265 million.

Westgem's September 2009 construction cost forecast

468. On 4 September 2009 Mr Nagle and Mr Sanders met Mr Frank Saraceni to discuss project costs. At the meeting Mr Frank Saraceni produced a 'Summary of Construction Costs to the end of August 2009' which incorporated Contract Sum Adjustment 21 (Westgem's September 2009 construction cost forecast). The summary was as follows:[308]

RAINE SQUARE DEVELOPMENT

Summary of Construction Costs to end of August 2009

Incorporating CSA No. 21

Westgem claims credits

469. At the meeting on 4 September 2009 Mr Frank Saraceni told Mr Nagle and Mr Sanders that Westgem's quantity surveyors, Rider Levett Bucknall (RLB), were measuring 'credits' in Westgem's favour and that a Contract Sum Adjustment would be issued in respect of those credits in the order of $2 million. Mr Sanders said that he would advise the banks to use his figures for construction costs unless Mr Frank Saraceni could prove them wrong.[309]
470. The claim that 'credits' were due and ought to be taken into account in calculating the Cost to Complete became (to adopt the phrase in the Financiers' closing submissions) 'a recurring theme' in the communications between Westgem and the Finance Parties in the period between September and November 2009. The credits in Mr Frank Saraceni's summary of construction costs were for 'the removal of scope to podium to build shell and core only' in the amount of $2 million and 'mechanical variations' in the sum of $600,000 and the tunnel.
471. By email sent on 8 September 2009 Mr Sanders sought details of the credits from Mr Simpson[310] (this email was copied to Mr Nagle) and by email sent on the same day Mr Nagle stated to Mr Clohessy 'The information has yet to be provided. Can you please urgently address the matter'.[311]

Mr Sanders reviews Westgem's September 2009 forecast and Contract Sum Adjustment 22

472. On 9 September 2009 Mr Nagle sent an email to Mr Sanders in which he stated that he had tried to reconcile the various cost estimates that had been provided including Westgem's 4 September cost estimate of $243 million but was finding it difficult to compare the estimates as he was unsure whether certain costs had been included or excluded. He asked Mr Sanders to review the position.[312]
473. On the afternoon of 11 September 2009 Mr Nagle sent an email to Mr Clohessy recording that Mr Sanders had not received details of the 'CSA credits'.[313]
474. On Friday, 11 September 2009 Mr Sanders was in the process of finalising a review of the forecast construction cost for the Project which he had started to prepare earlier in the week in response to Mr Nagle's request on 9 September 2009.
475. At 4.26 pm on 11 September 2009 Contract Sum Adjustment 22 was sent by Mr Simpson to a number of people including Mr Sanders.[314] It referred to two adjustments described as follows:

(a) 'VFN 590 - Reduced scope of works to Podium level - based on Indicative Estimate prepared by Rider Levett Bucknall dated 7 September 2009 - Deduction: $1,700,000'.

(b) 'VFN 591 - Deduct supply and installation of window blinds - Deduction: $660,000'.

476. The Podium was the name given to the level at the base of the main tower or viewed from another perspective the uppermost level, or roof, of the three levels of retail space from which the main tower emerged. The Podium comprised a landscaped area and an area to the north of the main tower on which a structure known as the Pavilion was to be constructed. The Pavilion was to contain conference and training facilities for Bankwest. The variation removed from Salta's scope of works the fit out of the Pavilion, with the result that, in respect of the Pavilion, Salta's scope was reduced to the construction of the 'shell and core' of the Pavilion. In subsequent communications and discussions the variation was referred to interchangeably as the Podium works or the Pavilion works.
477. In the email to which Contract Sum Adjustment 22 was attached Mr Simpson stated:[315]

With regard to the values please note VFN 590 is based on an Indicative Estimate prepared for us by an Independent QS and whilst we acknowledge that the rates will need to be altered and the services figures confirmed, the overall amount is deemed sufficiently accurate for this purpose. VFN 591 is self-explanatory, will be covered in due course by an SI and then subject to confirmation by the subcontractor.

478. Contract Sum Adjustment 22 attached a letter dated 7 September 2009 from RLB to Saraceni Project Engineering explaining the basis upon which it had prepared the 'Indicative Estimate' referred to in Mr Simpson's email and it is significant. Relevantly, the letter stated:[316]

Further to your recent instructions, we have prepared an Indicative Estimate for the cost savings anticipated as a consequence of the decision to construct the Podium level of the above development on a 'shell and core' basis.

We understand that the previously documented works to the office and pavilion areas on this level have been significantly reduced in scope and will now be substantially undertaken by the tenant as part of their fit-out works.

We attach our assessment of the deduction we anticipate as a consequence of the reduced scope of works by the base building contractor, in the total amount of $1,668,476 (excluding GST).

Our assessment has been based upon information provided by yourselves and advice received from each of the building services consultants.

479. Also attached to Mr Simpson's email of 11 September 2009 was a copy of a handwritten calculation of the amount to be credited in respect of the removal of the supply and installation of the window blinds. The calculation contained the statement 'Value to be confirmed by subcontractor in due course'.[317]
480. It is convenient to depart from a chronological account and record two matters:

(a) First, on 22 September 2009 Mr Artelaris sent an email to a representative of the blinds subcontractor in which he expressed the hope that the subcontractor appreciated the reasons why '[Westgem] have had to extract the blinds installation from Salta's contract' but, after referring to other matters, went on to state that the installation of the blinds might remain within the Salta contract. Mr Artelaris asked the blinds subcontractor to keep the communication 'strictly confidential between ourselves'.[318]

(b) Secondly, on 23 September 2009 Mr Nagle sent an email to Mr Sanders in which he recorded that he had spoken with the CBA Fit-Out team in respect of the Podium credit and stated:[319]

While the CSA removes the obligation from the Salta contract I have been advised that it is expected that the payment obligation still rests with Westgem (as part of its commitment to deliver the base build).

481. Although by Contract Sum Adjustment 22 Westgem contended that VFN 591 gave rise to a credit in respect of window blinds, which should be taken into account when calculating the construction costs, ultimately, it did not press this contention and, as will be seen, the deduction of $660,000 did not feature in later lists of the credits Westgem contended were not taken into account when they should have been.
482. On 12 September 2009 Mr Nagle sent an email to Mr Clohessy in which he referred to a telephone conversation with Mr Clohessy and stated:[320]

The $260m forecast to come from RBB does not take into account any potential CSA credits. These will be considered when the details are provided.

The forecast includes a general contingency for the rest of the project.

483. I infer from this email that Mr Sanders had informed Mr Nagle of his revised cost forecast contained in the report that he had prepared but which was not sent to Mr Nagle until 14 September 2009 - Mr Sanders had met Mr Nagle on 11 September 2009.[321]
484. Mr Sanders' evidence was that he did not recall reviewing Mr Simpson's email and Contract Sum Adjustment 22 as he was preparing his report. His evidence was that if he had received Contract Sum Adjustment 22 in time to review it before finalising his report he would not have allowed the credits against the adjusted contract sum for the Podium works or the blinds.[322]
485. Mr Sanders' explanation as to why he would not have allowed a credit for the Podium works was that the credit was based upon an indicative estimate prepared by Westgem's quantity surveyors and not upon a figure agreed between the contracting parties. He said that it was unusual and he was surprised to see a negative Contract Sum Adjustment based on an estimate. He said he would not have acknowledged it as a credit unless he had some confidence that Salta would agree with the Contract Sum Adjustment. Further Mr Sanders understood that although the work had been removed from Salta's contract it still needed to be completed and he was not satisfied that the work would be funded from a source other than the construction budget. For these reasons he did not regard the deduction in respect of the cost of the Podium work as a 'credit'. Mr Sanders adopted a similar approach to the 'credit' Westgem contended it should have been allowed for the blinds. Mr Sanders considered that the blinds would need to be supplied and installed and that in the absence of any evidence to the contrary the cost would need to be funded from the construction budget and on that basis no 'credit' should be allowed. I accept Mr Sanders' evidence of the reasons why he would not have not have been prepared to allow credits for the Podium works or the blinds.[323]
486. Mr Sanders forwarded Contract Sum Adjustment 22 to Mr Nagle by email sent at 11.44 am on Monday, 14 September 2009. In the forwarding email Mr Sanders stated: 'Received today'. The email recorded that it had been forwarded to Mr Sanders from an email address xerox.rbb.local at 10.14 am on 14 September 2009 ‑ Mr Sanders explained that he had printed the email from Mr Simpson and then scanned it.[324]

RBB's 14 September 2009 report

487. On 14 September 2009 at 12.52 pm Mr Sanders sent his report on the Cost to Complete to Mr Nagle. The material parts of the report were as follows:[325]

488. Mr Sanders was cross‑examined about the inclusion of the item 'Ongoing contingency required by Bankwest (say) 5,339,061'. Mr Sanders' evidence-in-chief in relation to the inclusion of this allowance in his calculations was as follows:[326]

I allowed an additional contingency for the balance of the Project at $5,339,061, taking the total forecast total to $260 million. This additional ongoing contingency was to allow for future variations not yet submitted or known, the ongoing dispute between Westgem and Salta regarding the quantum of remeasure, future overruns on provisional sums and any issues not yet contemplated. This additional ongoing contingency of approximately $5.3 million included an amount for heritage works. I had previously estimated that work to cost $2.5 million, based on certain assumptions as to the scope of those works, however the scope was yet to be confirmed and therefore the cost was uncertain. I had previously allowed in my hand written calculations on 3 September 2009 ... An ongoing contingency of $10 million.... On review of this assessment, I allowed for an ongoing contingency of $5.3 million. I had done so to be moderate in favour of Westgem, as I explained above in paragraph 23.

489. In par 23 of his witness statement Mr Sanders had explained that when he was estimating construction costs during the life of the Project his approach was to be moderate, an approach which favoured the developer, and that he took this approach because he knew that if he was overly cautious and alarmist and estimated construction costs that might be above the developer's level of funding that would result in significant consequences which the developer and the bank would have to deal with but which might not, in fact, eventuate.
490. In cross-examination Mr Sanders was referred to the explanation for making the allowances for contingencies contained in the passage of his witness statement set out in the preceding paragraph. He was asked about the words 'Ongoing contingency required by the bank (say)'. The cross‑examination began as follows:[327]

Why did you write those words?---Because I need - the bank requires an ongoing contingency to finish the project.

But I thought you said this was your opinion?---It is. I - I have the same view.

Well, why did you need to say that one was required by the bank?---Because when I discussed these things with Frank, he would rather I did not have it - and I am explaining I have to have it the bank requires it, I require it.

...

And when you say 'say' at the end of that sentence, what were you trying to communicate?---That it's an allowance rounding.

Right. That is what I thought you were going to say. Well, ordinarily, if it was an allowance and one was going to round, to say - to use the word 'say' indicates that you were either rounding up or rounding down the number; correct?---No.

Right. You do not use the word 'say' in relation to an absolutely specific number, do you?---I was making the point here that I was rounding this to 260 million.

Why?---Which included a contingency ongoing as I have stated in item F.

All right. So that means, does it, that the amount you chose for that contingency, and you say you chose it, was driven by a desire by you to reach a conclusion of $260 million; is that right?---No, that is saying - - -

Well, then, tell me why the figure is $5,339,061?---Because once I decided that - to allow a contingency in the order of five, five and a half million, I chose to round it.

491. The cross-examiner pursued the proposition that Mr Sanders had adopted the contingency figure of $5,339,061 to arrive at a pre‑determined result:[328]

But doesn't this tell us that your process of thinking involved at least an element of reverse reasoning, and what I mean by that is you determine that you want the result to be $260 million and then you identify a contingency and an amount that brings the total to that number. That is what you are doing, isn't it?---No.

What you could do is simply have your contingency which, of course, is nothing more than a best guess is it, a contingency?---I could have

Sorry?---I could have put a number in, a round number and then rounded it.

You could have put a - - - ?---I chose to do it in one hit.

Right. And the reason you did that is because the bank had asked you to do it; correct?---No.

And that's why you wrote the words 'required by Bankwest'; correct?‑‑‑It is not correct.

Well, your only explanation for why you wrote the words 'required by Bankwest' is because, what, Frank Saraceni asked you to write those words?---No.

Why did you write those words again?---I was making the point that to go forward in the project in the calculation I needed to allow future contingency.

Yes?---It is a requirement of both me and the bank.

492. Anticipating the line of cross‑examination Mr Sanders said that he could not believe 'you're suggesting that I concocted this to the bank's number'. That proposition was then put to Mr Sanders:[329]

All right. Just relax. I am suggesting to you that the words: ongoing contingency required by the bank - by Bankwest, meant when you wrote them, exactly what they say. That that was an ongoing contingency that Bankwest had required. That is what I am suggesting to you?---Well, it's not correct.

Right?---What they require is an ongoing contingency. You're suggesting to me that I put that number in there to get a bank's number.

Correct?---That's not correct.

493. It was put to Mr Sanders that the reason for the inclusion of the contingency was that Mr Nagle had already demanded payment of $17 million and Mr Nagle needed Mr Sanders' calculations to show a Cost Overrun of $17 million.[330]

And what I am suggesting to you, it was not to get to the bank's number, it was to get back to the number you had told Mr Nagle at an earlier meeting on 11 September. And that what had happened is that you had had a meeting with Mr Nagle, some numbers had been scratched out by him and you, and that you had told him that you thought there would be a costs overrun of $17 million. That's what happened; correct?---I do not recall.

You do not recall. And then what happened is you had some form of communication with Mr Nagle prior to signing off on this report and you said something like 'Look, it's not going to be 17 million. It's going to be some amount less.' That happened, didn't it?---I don't believe so.

And Mr Nagle said to you 'well, it has got to be 17 million because I have already told Westgem it is 17 million and I have already demanded that they pay it'. Remember that?---No.

And he said, 'you can fix it just by putting an extra contingency in', didn't he?---Absolutely not.

And that is why you wanted people reading this to know that that contingency was something that the bank had required?---I will revisit that. The bank requires a contingency. You are suggesting they gave me a number, to match a number. It is not correct.

I am suggesting that Mr Nagle said he was in an embarrassed position because he had already made a demand on Westgem 17, so why do not you put in a further contingency so that it comes up to 17. That is what I am suggesting to you?---Well, you are wrong.

494. In closing submissions Westgem contended that Mr Sanders' explanation for the words 'as required by Bankwest' in his report was illogical, implausible and inconsistent with contemporaneous documents in which Bankwest had decided to maintain a $5 million contingency. The 'contemporaneous document' cited by Westgem was an email from Mr Leber to Mr Jeff Malcolm of Bankwest in which, referring to the first Cost Overrun, Mr Leber had (relevantly) written:[331]

Recommended equity contribution is $13 million. This will meet all identified Cost Overruns to date & maintain a contingency of $5 million (approx. 5% of remain contract value) for the remainder of the project.

495. Mr Sanders' explanation for including the words 'required by Bankwest' was unclear. The issue, however, is whether Mr Sanders' estimate of the construction costs contained in his report accorded with opinions genuinely held by him or whether he had adjusted his estimate at the Financiers' request. There are two reasons why I am satisfied that Mr Sanders had not adjusted his estimate at the Financiers' request. The first is that the objective circumstances support the conclusion that the estimate reflected Mr Sanders' opinion and was the product of the application of his professional expertise to the matters of which he was aware. The second is that in my assessment Mr Sanders was an honest witness and his denial that he had not included the contingency 'to match the bank's number' should be accepted.
496. I will begin with the objective circumstances. The first circumstance is that Mr Sanders had included a contingency in his 16 July 2009 report of $4,923,248 ($1,923,248 and $3,000,000). The second circumstance is that in the high level calculations undertaken by Mr Sanders on 3 September 2009 he had estimated the construction costs at $265 million and this figure included a contingency of $10 million (albeit it was referred to as 'Other variations etc'). The third circumstance is that the inclusion of a contingency was not an unreasonable or unusual thing to do and the amount of $5,339,061 was not objectively unreasonable. In this respect it is to be noted that Mr Frank Saraceni had included a contingency in Westgem's 4 September 2009 construction cost forecast and had, so it appears, adopted an approach very similar to that adopted by Mr Sanders. That is, Mr Frank Saraceni had included a contingency in the very specific amount of $5,739,061, inferentially to produce a round number for the 'Forecast Adjusted Contract Sum' of $243 million. The fourth circumstance, which is perhaps an extension of the third circumstance, is that there is nothing sinister in both Mr Sanders and Bankwest holding the view that a contingency was required or that the inclusion of a contingency was a matter Mr Sanders had discussed with Mr Nagle or others at Bankwest. That there had been such a discussion does not justify the conclusion that Mr Sanders had included his contingency figure in order to arrive at a predetermined outcome. The fifth circumstance is that while Mr Nagle had sent an email to Mr Clohessy on 12 September 2009 in which he referred to the '$260 million forecast to come from RBB ...' there is no evidence to support the proposition put to Mr Sanders in cross‑examination that he adjusted his estimate because the Financiers had demanded Westgem pay a Cost Overrun of $17 million before they received his report and they did not want to withdraw such a demand.
497. My observations about Mr Sanders' credit generally are as follows. My impression was that Mr Sanders found giving evidence a stressful experience. He appeared very tense. He was from time to time (understandably) defensive in his responses to questions as is apparent from the extracts of his cross‑examination set out above. My strong impression, however, was that the stress and tension Mr Sanders appeared to be under was not an indication that his evidence was untruthful or that he was dishonest. He was not evasive in his answers. He was genuinely upset that his professional integrity was the subject of attack. Mr Sanders had been a quantity surveyor since 1972. He had worked on a number of large construction projects and had acted as the independent certifier on developments comparable to Raine Square. He had held various positions in the Australian Institute of Quantity Surveyors and was the National President of that organisation between 2009 and 2011. It is inherently unlikely that a person of Mr Sanders' experience and seniority in his profession would jeopardise his professional reputation in the manner Westgem alleges.
498. Mr Sanders was cross‑examined also about the last line of his report that read, 'excludes credits proposed by Saracen but not yet received'. It was suggested to Mr Sanders that this was not an accurate statement because by the time he sent the report to Mr Nagle on Monday, 14 September 2009, he had received Contract Sum Adjustment 22 as it had been sent to him the preceding Friday ‑ 11 September 2009. He was cross‑examined about why he had said that the document had been 'Received today' in his email to Mr Nagle of 11.44 am on 14 September 2009 and it was suggested to him that this wording created a false impression.[332] It was suggested to Mr Sanders that he 'couldn't bring himself not to pass on' Contract Sum Adjustment 22 to Mr Nagle and that he wanted to make sure that Mr Nagle knew that the opinion expressed in his report was out of date as it did not take into account Contract Sum Adjustment 22. Mr Sanders said that he had made a mistake and should have said in the email 'reviewed today'.[333] I found Mr Sanders's evidence about the wording of his email by which he forwarded Contract Sum Adjustment 22 to Mr Nagle a little unclear but I do not accept the proposition developed in the cross‑examination to which I have referred, that is, Mr Sanders was concerned to protect his own position from any adverse consequences that might flow from reliance on a report that was not based on the latest information. When cross-examined Mr Sanders was being asked about his thought processes at the time he sent a two word email some nine and a half years before he gave evidence. In the absence of evidence of any objective facts supporting the proposition that Mr Sanders was concerned about his own position I attribute the lack of clarity in his evidence to the elapse of time rather than anything more sinister.

Mr Sanders discusses RBB report with Mr Frank Saraceni

499. Mr Sanders gave evidence, which I accept, that he discussed his 14 September 2009 report with Mr Frank Saraceni shortly after he prepared it. He said that Mr Saraceni accepted that the total construction cost was $243 million. Mr Sanders said that, in response, he had said to Mr Saraceni that in order to forecast a realistic cost to complete he had to take into account some of Salta's variation claims as well as include some added contingency to allow for likely future variations, overruns and remeasure and therefore his assessment was that the total construction costs would be $260 million.

Mr Nagle acts on RBB's 14 September 2009 report

500. I infer that Mr Nagle read the email sent to him by Mr Sanders at 11.44 am on 14 September 2009 attaching Contract Sum Adjustment 22 and read Contract Sum Adjustment 22 and gave it consideration as a matter of some urgency. I infer he read these documents before determining the cost to complete for the purposes of assessing whether there was a further Cost Overrun. I draw this inference from the following facts: first, Mr Nagle had been seeking details of the credits claimed by Westgem since the issue of credits had been raised by Mr Frank Saraceni on 4 September 2009 and it would have been reasonable for Mr Nagle to assume that Contract Sum Adjustment 22 would have addressed those credits - in his email to Mr Clohessy of 12 September 2009 he referred to 'CSA credits'; second, earlier Contract Sum Adjustments, in particular Contract Sum Adjustment 20, had given rise to a number of concerns on Mr Nagle's part which meant it was likely that he would have paid immediate attention to a further Contract Sum Adjustment; third, Mr Nagle was required to make a determination of the Cost to Complete before Westgem's September drawdown request made for the purposes of funding Salta's September 2009 progress payment - he was subject to time constraints; and, fourth, in his email of 12 September 2009 Mr Nagle had told Mr Clohessy that RBB's figure of $260 million did not take account of 'CSA credits' and that they would be considered 'when the details are provided'.

Westgem's Financial Statement No 7.1

501. On 14 September 2009 Financial Statement No 7.1 was prepared by Westgem.[334] It specified a forecast contract sum of $246,402,313. This sum did not include any allowance for contingencies. Financial Statement No 7.1 was not provided to the Finance Parties.
502. On 14 September 2009 Mr Clohessy sent an email to Mr Nagle seeking a meeting with Mr Jon Sutton and Mr Peter Deans 'to discuss some of the issues Westgem is facing with Salta at present'.[335] In his email Mr Clohessy addressed the issue of the Project's cost and stated:

We believe [Salta's] constant attempts to cast doubts over the project's cost is more about pressuring the borrower to pay additional funds over and above the contract price and or mitigate the level of liquidated damages they already face. Whilst Luke believes that costs are under control, clearly the final cost has come under pressure for a number of reasons not the least of which is Salta's refusal to meet its obligation to work with the borrower to achieve cost savings. You may remember this was part of the rationale both for using Salta and also part of the strategy for getting the Bank into occupation on time. In addition variations requested by the bank as tenant and Luke's desire to deliver a higher standard finish has been the other driver of any increased project cost.

Mr Nagle's September 2009 Cost to Complete assessment

503. On 17 September 2009 Mr Nagle, with assistance from Mr Leber, prepared a 17 page Credit Risk Summary.[336] The summary set out brief details of Mr Saraceni and Mr Pourzand, the Project, the MOFA and the history up to the first Cost Overrun. Mr Nagle recorded that since July 2009 RBB had received new information from both Westgem and Salta regarding the status of provisional sums, further agreed cost variations, and outstanding cost variations yet to be approved and that RBB had undertaken a cost review and recommended an increase in the construction cost estimate by $17 million bringing the revised construction cost estimate to $260 million. Mr Nagle set out in a table the key elements of the construction costs to highlight the variations between the figures in RBB's July review and the figures in their September review. Mr Nagle provided the following summary:[337]

RBB considers that the proposed construction cost estimate of $260 [million] to be the minimum forecast position for the Project. RBB cannot guarantee that further cost variations will not arise in the future, however the recommended position is based on the information to hand and the adoption of increased contingencies given recent experience.

It should be noted that this cost assessment is based only on construction costs. We are undertaking an additional review of soft costs and the interest provision. It is likely that the soft cost budget will need to increase and we are seeking the Borrower's input into this process. In addition, we note that the current cashflow forecast includes provision for capitalised interest to 30 June 2010 (estimated practical completion date for Salta and the current facility expiry date).

While the financiers do not have a funding commitment past this date, we note that under the terms of the Agreement to Lease, the Rent Commencement Date is 120 days after Practical Completion. This 120 day period in which interest will need to be serviced or capitalised is not covered in current funding. Based on fully drawn debt of $316 [million] at current margins, this represents an additional funding cost of circa $3 [million] for the 120 day period.

504. Mr Nagle included in the Credit Risk Summary a table described as a 'Cost to Complete Assessment'. I observe that the table might have been described more accurately as a Cost Overrun Assessment as that was the issue to which the contents of the table were directed. The table was as follows:

Although not identified as such in the table, I infer that the figure of '$150,791' was the Cost to Complete.

505. Immediately following the 'Cost to Complete Assessment' table Mr Nagle recorded that the forecast increase in 'Project Costs reported by RBB constituted a Cost Overrun under the terms of the financing documentation' and referred to Westgem's obligation to meet the Cost Overrun within five days of demand and to the fact that the Financiers were not obliged to provide further funding until such time as the Cost to Complete did not exceed the Undrawn Commitment of the Facility.

Notice of second Cost Overrun given

506. On 18 September 2009 Mr Nagle sent a letter to Mr Saraceni in which he gave notice to Westgem that Bankwest had determined that there was a Cost Overrun of $17 million and made a demand for payment of that amount within five Business Days, that is, by 25 September 2009.[338] Mr Nagle attached a copy of RBB's report of 14 September 2009 to the letter of 18 September 2009.
507. On 18 September 2009 Mr McDonald of BOSI, Mr Don Galbraith (Head of Business Credit - Risk Management Division at Bankwest) and Mr Mark Wlossak of CBA discussed the possibility of appointing the consultancy business 333 Advisory Pty Ltd as investigating accountants in respect of the Project and made contact by telephone with Mr Berrick Wilson of 333 Advisory to discuss a possible retainer. 333 Advisory was a consultancy business associated with the insolvency accounting firm KordaMentha, an association, which as will be seen, was of concern to Mr Saraceni, Mr Pourzand and Mr Clohessy.

Westgem's response to notice of second Cost Overrun

508. Mr Clohessy responded to the Financiers' demand for payment of the second Cost Overrun on Westgem's behalf by sending an email to Mr Nagle in the evening of 18 September 2009. Mr Clohessy wrote:[339]

As per our various communications Westgem does not agree with the Banks' QS in this regard for a number of reasons not limited to but including, credits which have not been accounted for, the deduction of LD's due from the builder and specific items listed in the calculation such as the re-measure of the structure and general variations not yet agreed to.

To that end you are aware we have 3 of our QS going over the numbers in fine detail and hope to have additional information in due course.

509. In opening senior counsel for Westgem referred to Mr Clohessy's statement to the effect that Westgem had three quantity surveyors going over the numbers in fine detail and stated that Mr Clohessy might have been 'over‑egging the pudding'.[340]
510. As will be seen from the communications between Westgem and the Finance Parties to which I refer below until the end of November 2009 Westgem's position was that there was a further Cost Overrun but it was not as much as $17 million.

Meeting of the Financiers and Westgem

511. On 21 September 2009 there was a meeting between representatives of Westgem (Mr Saraceni, Mr Clohessy and Mr Pourzand) and representatives of the Financiers (Mr Galbraith, Mr Nagle, Mr Leber, Mr Wlossak, Mr Deans and Mr Nathan). Mr McDonald of BOSI participated in the meeting by telephone. According to Mr McDonald, whose evidence I accept, the following discussion took place:[341]

(a) Mr Saraceni said words to the effect that Salta was to blame for the problems on site and that it was making spurious claims that were not legitimate and that were getting people agitated.

(b) Mr Saraceni said the banks' numbers were wrong - the Quantity Surveyor was not taking into account credits when deciding the amount of the Cost Overrun; and he did not agree with the banks' numbers and that the true Cost Overrun was not as large as the banks were saying.

(c) Mr Saraceni said replacing Salta with another builder was a solution for Westgem.

(d) Mr McDonald said words to the effect 'you [being Westgem] keep challenging the banks' figures and saying that the Quantity Surveyor was not doing their job properly by not taking into account credits, but what we do know is that we had a starting point, there has been a validated Cost Overrun already which has been determined and paid by you, and here we are now a month or so later with another Cost Overrun, and so I think our guys are closer to the numbers and what you are'.

(e) Mr Saraceni said that there was a prospect of takeout financing, that CBA was looking favourably on a takeout, and that he could sell other assets within his portfolio that would give him the liquidity to reduce the debt.

(f) Mr McDonald said words to the effect that 'if you [being Mr Saraceni and Mr Pourzand] do not have any cash liquidity, you could fix the Cost Overrun in the interim by providing the banks with security until you get the cash that was needed'.

(g) Mr Saraceni said words to the effect of 'yes we can, but why would I if I do not have to'.

(h) Mr McDonald said, 'because that is what you signed up to under the contract'.

(i) Mr Saraceni said words to the effect of 'not when you have not taken into account adjustments for credits in the cost to complete'.

(j) Mr McDonald said words to the effect of 'I am sympathetic to Westgem's issues with Salta, but that does not stop you from providing additional security to remedy the determined Cost Overrun'.

512. In addition there was a discussion about the possibility of appointing 333 Advisory as an Investigating Accountant and that 333 Advisory was a 'different brand' to the insolvency accounting firm KordaMentha to which it was related. Mr Saraceni said something that gave Mr McDonald the impression that he was accepting of the appointment of 333 Advisory. Notwithstanding Mr McDonald's evidence about Mr Saraceni's attitude towards the appointment of 333 Advisory, given statements made subsequently by and on behalf of Mr Saraceni about the appointment of 333 Advisory, I doubt that as at 21 September 2009 he was accepting of the appointment.
513. Although it does not appear from Mr McDonald's account of the 21 September 2009 meeting I find that at this meeting Mr Saraceni made a statement to the effect that Westgem was unable to pay $17 million in respect of the Cost Overrun. I make this finding on the basis that in a letter sent on 25 September 2009,[342] Bankwest recorded that a statement to that effect had been made and there was no complaint to the effect that was not so. Further, Westgem's inability to pay $17 million explains why there was a discussion at the meeting of the provision of security until the necessary cash could be raised.

Financiers' strategy in light of second Cost Overrun

514. Bankwest formulated a strategy for dealing with the consequences of the second Cost Overrun with which BOSI was generally comfortable. The strategy involved the following elements:[343]

(a) informing Westgem that the Financiers did not support Westgem's proposed strategy of withholding payments to Salta and that, subject to the satisfaction of conditions, the Financiers would pay the September 2009 progress claim;

(b) the conditions on which the financiers would pay Salta's September 2009 progress claim were: receipt of a legal opinion from Deacons with respect to the Financiers' right to pay, execution of new unlimited joint and several guarantees and indemnities from all existing personal and corporate guarantors, and an undertaking from Westgem and the guarantors to provide to the Security Trustee effective second ranking mortgage security over acceptable securities having net equity of $50 million by no later than 30 November 2009;

(c) issuing a letter of default to Westgem on 25 September 2009 if the second Cost Overrun was not met by that date; and

(d) appointing an investigating accountant.

515. On 24 September 2009 a meeting of Bankwest's Executive Credit Committee was held. Mr Nagle, Mr Leber and Mr Nathan provided a report about Westgem to the meeting. The minutes of the meeting record the following:[344]

[Mr Ross Griffiths] commented that building needed to be completed but to consider whether the developer and the builder were needed. Builder is more important than the developer to the Bank. Developer to be made to understand the position and not to be confrontational with the builder as a result. Fall back position if extra security is not provided is to be considered and in this case the developer is to be exited. [Mr Peter Deans] supported this view and noted that leverage with the developer related to all the other facilities provided by BWA.

Bankwest appoints 333

516. On 25 September 2009 Bankwest appointed 333 Advisory to provide advice in relation to the Project. One of the tasks to be undertaken by 333 Advisory was to prepare a report to be used to inform the Financiers of the current status of the construction aspects of the Project, the cost to complete construction of the Project and to determine whether there had been a Cost Overrun.
517. On 25 September 2009 Bankwest gave notice that it had appointed Berrick Wilson of 333 Real Estate Pty Ltd as an independent consultant to advise and report to the Financiers.[345]
518. For the purpose of this judgment I will refer to the two 333 entities collectively as 333.

Westgem's September 2009 drawdown request

519. On 25 September 2009 Westgem submitted Drawdown No 18 to fund a payment to Salta of $10,884,401.56 plus GST and to fund payment to consultants of $289,314.48 plus GST. The request for payment was refused but a further request to fund the payment to Salta was acceded to on 16 October 2009 but no drawing was permitted in respect of the consultants' fees.

Westgem's protests the second Cost Overrun determination

520. On the afternoon of 25 September 2009 Mr Deans, Mr Nathan and Mr Pavisich of Bankwest met with Mr Saraceni and Mr Clohessy. At the beginning of the meeting Mr Saraceni and Mr Clohessy were angry that 333 had been appointed by Bankwest. They said the appointment was unnecessary and was an overreaction. They were concerned about the reputational damage that might flow from the appointment of 333 because of the association with KordaMentha. Mr Pavisich's evidence, which I accept, was as follows:[346]

[Mr Saraceni and Mr Clohessy] spoke with raised voices saying words to the effect of '[the appointment is] unnecessary' and 'it is an overreaction'. They were very animated and abusive. Luke Saraceni said words to the effect 'I am going to throw the keys across the table. I am going to go and sit on a beach and watch you guys finish the building. I will spend the rest of my money suing you' and 'if you send 333 to level 50, I'll throw them out of the window'.

521. Later on 25 September 2009 Bankwest gave notice that if the Cost Overrun was not paid in full on 25 September 2009 this would result in a breach of the Project undertaking specified in cl 15.2(9) of the Facility Agreement and an Event of Default.
522. On 28 September 2009 Mr Clohessy sent a lengthy email to Mr Jon Sutton (managing director of Bankwest) and Mr Peter Barnes of CBA.[347] In that email Mr Clohessy complained about Bankwest's management of the MOFA and in particular about the second Cost Overrun. Mr Clohessy complained a 'breach notice' had been given before Westgem had the opportunity to provide Mr Sanders with details of credits due to Westgem. He also complained about the appointment of 333 and the association with KordaMentha and the potential that the appointment would damage 'the Project's reputation'. Mr Clohessy also complained about Bankwest's letter of 25 September 2009. Mr Clohessy provided the following summary of Westgem's position:[348]

We understand the size of this project in the current financial environment places it firmly in the spotlight, in addition Cost Overruns and speculation re the Builder's financial position make for a very nervous financier. Further we expect scrutiny and welcome constructive participation by other stakeholders in the project. I think this has been clearly demonstrated by the good working relationship which has quickly developed with Quentin's team. There are good reasons why this relationship is working and to the previous one under Bankwest control was not, namely we acknowledge their expertise and experience and perhaps more importantly I think they have opted for a cooperative approach rather than the previous adversarial one. Importantly the lines of communication are clear and the number of individuals involved small.

Unfortunately on the lending side it is the complete reverse, we are dealing with 2 lenders one of which clearly would prefer not to be in the deal and with the CBA takeover of Bankwest adding an additional level of credit overseeing Bankwest. Effectively we now have the boards of 3 banks, 3 credit departments and innumerable parties having input into every aspect of the project funding. We also have this absurd "Chinese wall" mentality between the bank as tenant and lender which makes communication even more difficult where effectively every ripple becomes a wave and every wave a tsunami.

Just one example of this is the first 'Cost Overrun', the fact is most of the original increase was due to two things, first increased costs to accommodate requests for variations from the tenant and second changes made by Luke to improve the building. The balance was as a direct result of Salta's refusal to assist to obtain cost savings as promised on items which had not been finalised when construction commenced. This was done in an effort to progress the project and with Bankwest's full knowledge. Notwithstanding this the word Cost Overrun sends shockwaves throughout the three banks because the communication is just not working. I might also add of the $13m additional cost, $6.5m in cash was injected by the borrowers and they provided an additional $16m security for the balance of the $6.5m lent by Bankwest. Strangely whenever the subject comes up your credit people act as if the bank had to inject additional funds. This is not to say we did not appreciate the cooperation to make it happen though.

523. Mr Clohessy went on to set out the concerns held by Mr Saraceni and Mr Pourzand that their reputation, and the reputation of the Project, would be damaged by the appointment of an investigating accountant with a reputation for dealing with distressed real estate assets. Mr Clohessy concluded his email with the following remarks:

At the very time when Luke and his staff need to be focused intently on delivery of this project for the bank as the tenant the proposal to engage a full blown IA by a party whose involvement can only be seen as damaging in our view is clearly not in the interest of all parties.

To complete this project we do need the Banks assistance but in a cooperative constructive manner which we believe is now happening on the tenancy side but not on the lending side.

Luke believes he has acted honourably and fairly with the Bank, when there was pressure on to get the AFL signed Luke made it happen despite the fact we believe BOSI were acting unconscionably at the time. When Salta attempted to screw the Bank on the IFO, Luke against direct instructions from Bankwest staff to issue a cost plus contract to Salta refused because he knew it had the potential to severely damage the Bank both financially and with respect to timing. Luke's staff continues to assist the Bank in relation to the Bank now undertaking the IFO beyond what is contractually required.

We have undertaken to continue discussions in good faith on Tuesday with Alan Pavasich and Peter Deans but believe the disputed issue of Cost Overruns is being used to engineer a default under the MOFA and that if litigation and damages are to be avoided it is imperative to discuss these issues with you personally prior to that time.

October 2009

Westgem's Financial Statement No 7.2

524. On 1 October 2009 Westgem prepared Financial Statement No 7.2.[349] It contained a projected contract sum of $250,052,313. This sum included an allowance for contingencies of $5 million. Financial Statement No 7.1 was not provided to the Finance Parties nor to Mr Gowdie whose role I describe in the next paragraph.

Mr Gowdie appointed and commences review

525. 333 retained Mr John Gowdie as a consultant to assist in reviewing the Project. Mr Gowdie was an experienced construction and project manager. He was a director and the principal of Gowdie Management Group Pty Ltd, a company that had a staff of 17 and provided a range of programme, project management and construction services to the development, engineering and construction industry. In early October 2009 Mr Gowdie met with Mr Luke Saraceni and Mr Frank Saraceni and other members of Westgem/Saracen Properties' team working on the Project. Mr Gowdie was provided with a work space within Saracen Properties' office.
526. Commencing in early October 2009 Mr Gowdie undertook a detailed review of the Project. This involved an analysis of a substantial volume of documentary material, detailed discussions with Mr Frank Saraceni, Mr Simpson, Mr Artelaris, Mr Merson and Mr Carmichael and others involved with Westgem and Saracen Properties and attendance on site. The steps taken by Mr Gowdie for the purposes of his review were set out in detail in his witness statement.[350] His evidence as to the work undertaken by him was not challenged in cross-examination and I accept it. It is on the basis of this evidence that I make the finding that Mr Gowdie undertook a detailed review of the Project. It is unnecessary to set out each step in the review process.
527. Mr Gowdie was a substantial contributor to reports produced by 333 for the Financiers to which I refer in later paragraphs. Mr Gowdie was primarily responsible for the Cost to Complete analysis incorporated in the 333 reports.

Financiers' 2 October 2009 proposal and negotiations

528. On 2 October 2009 Mr Nagle sent a draft letter to Mr Saraceni and Mr Clohessy setting out a proposal that would enable the Project to continue with the support of the Financiers.[351] In summary the proposal was as follows:

(a) Westgem would be required to continue with work on the Project in accordance with the Salta Building Contract;

(b) Westgem would be required to cooperate with 333;

(c) additional guarantees for $50 million would be required;

(d) additional securities with a value of at least $50 million would be required; and

(e) the Cost Overrun would be required to be remedied by 31 January 2010.

529. On 2 October 2009 Mr Pavisich spoke separately to Mr Saraceni and Mr Clohessy. Each of them told Mr Pavisich that Mr Saraceni was 'comfortable to move forward' on the basis of the proposal set out in the letter of 2 October 2009 but Mr Pourzand was not because he was not prepared to provide an additional guarantee up to $50 million.[352]
530. On 4 October 2009 emails were exchanged between Mr Clohessy and Mr Pavisich and Mr Nagle. In Mr Clohessy's email to Mr Nagle and Mr Pavisich, he wrote:[353]

Steve and Alan

I need some clarification.

I have not heard from Luke's solicitors yet and as you know Luke has advised Alan he and Hossean have only agreed to consider the bank's proposed terms if the guarantees given are limited to the amount of the banks QS's stated Cost Overrun i.e. $17m.

There are a couple of other points I would like to make.

Luke does not accept a breach has occurred, his position is if and when the cost to complete is determined by your QS after the investigation by [333] and it is not paid by the borrower as per the MOFA a breach will have occurred.

The letter suggests you can take seconds over all the borrower's assets currently encumbered to CBA and Bankwest, I was of the understanding it was to be over assets which gave you an additional $50m not all per se (albeit this might be all but not necessarily)

Alan and I discussed the banks would reserve the right to complete a review of all terms of the MOFA terms upon the completion of the report by 333 however the letter indicates this is regardless of the outcome.

Surely the report would have to indicate some breach. Are you suggesting just accepting the terms of your proposal gives the banks that right.

Please note these are my thoughts and not the borrower's response.

531. Mr Pavisich responded to Mr Clohessy's email by an email of his in which he wrote:[354]

Hi Mark

In response to your email.

- I have not heard from Luke since Friday night where Luke advised he would meet with Hossean on Sunday to see if he could get an agreed way forward on the indicative terms of the banks letter. Luke confirmed while he believed Hossean could agree to the other terms the additional $50m gtee was not acceptable. We need confirmation one way or the other if the proposed way forward is acceptable to both sponsors. I asked Luke if Hossean would not move forward as per our letter did he think that an additional $17m gtee supported by $50m net equity in second mortgages would be acceptable. I advised this variation has not been discussed with anyone internally or with BOSI and may not even be possible so the current letter should also be considered as possibly the bank's final position. Let me know if there is one change to the indicative terms is acceptable so that I can discuss it with both banks.

- I think Luke (and Hossean) should get legal advice re the breach. Luke has acknowledged that there is a cost over-run he just questions the amount. The Bank's QS confirmed a cost over-run and the amount was requested from the Borrower within the required 5 days. The indicative terms outline is a way forward where the Bank agrees to reserve rights pending a IA review and what is required to make the next progress payment.

- Trying to keep this within the group was our thinking for the seconds from CBA/Bankwest mtge properties but do not need all of them if we get to $50m net equity with some of the properties.

- The Banks have the ability now to take action under the documents but deem it more appropriate to keep the project moving forward while getting a better understanding of all issues through the IA review before putting forward what is required. As the letter advises we are reserving our rights until certain things occur, including the outcome of the IA review.

Mark I would like to find a way forward but as I have confirmed BOSI will not seek credit approval until in principal [sic] agreement is reached.

Please let me know if Luke & Hossean are prepared to move forward on the indicative terms as per the letter issued. If not but are prepared to subject to the same terms but reducing the J & S [guarantee] to $17m then I can discuss this internally and with BOSI to determine if it will be acceptable.

Please call me on mobile if you need clarification of any of the above.

532. Mr Pavisich gave evidence,[355] which I accept, to the effect that it appeared to him that Mr Saraceni was 'chopping and changing his position as to whether there was or was not a Cost Overrun' and that Mr Saraceni had said to him that there was a Cost Overrun but it was not $17 million. Mr Pavisich said that he made the suggestion that Mr Saraceni obtain legal advice on the Cost Overrun issue because he wanted to make sure that the message got through to him that the MOFA contained a process for determining Cost Overruns and there were potentially serious consequences if the Cost Overrun was not remedied. Mr Pavisich also gave evidence, which I accept, to the effect that he had a conversation with Mr Saraceni or Mr Clohessy at around this time in which he said to them words to the effect that 'if you do not find a resolution to the Cost Overrun, regardless of the amount, you run the risk of losing control of the Project' and 'you can keep arguing about the second Cost Overrun but if it keeps going on this way and we may need to appoint receivers to get the building completed. I am here to help you, but if the banks appoint, it is out of my hands'.[356]

Westgem counter-proposal 5 October 2009

533. On 5 October 2009 Mr Clohessy sent an email to Mr Pavisich in which he put a counter-proposal to that contained in the Facility Agent's letter of 2 October 2009. Mr Clohessy stated:[357]

Luke advises that following further discussions with Hossean their position is as follows;

They believe a Cost Overrun has not been reasonable [sic] determined under the MOFA given the estimates do not include credits due to the borrower.

Notwithstanding they will agree to provide additional guarantees of $17M together with additional second mortgages to the value of 50 million over properties to be agreed. The determined Cost Overrun if any to be repaid by January 31st 2010. In addition they agreed to provide Real Estate 333 all reasonable information as per our discussions to assist in the review requested by the Banks.

534. Mr Clohessy's email of 5 October 2009 repeated what had been said to the Finance Parties on Westgem's behalf on many occasions since 18 September 2009 and was repeated on subsequent occasions, that was, that Westgem did not accept the second Cost Overrun in the amount of $17 million had occurred because 'credits' had not been taken into account.

Financiers' revised 9 October 2009 proposal

535. On 9 October 2009 Bankwest sent a further letter to Westgem setting out a revised proposal.[358] The significant revision was that the additional guarantees were to be joint and several guarantees limited to $17 million as opposed to $50 million. The additional securities to be provided were, however, to have an aggregate net equity of at least $50 million. The Financiers referred to this letter as the 'reservation of rights letter'.
536. Mr McDonald of BOSI sought approval for entry into an agreement in terms of Bankwest's letter dated 9 October 2009 by completing a document entitled 'Request for Variation from Terms of Sanction' that was addressed to 'Lloyds International Credit Sanctioning'. In a section of this document entitled 'Proposal' Mr McDonald set out his view of the proposed agreement. It provides an insight as to how the Financiers viewed the negotiations with Westgem at that date.[359]

It is the Financier's view that that we must keep the Builder on site and make immediate payment for the amount which has been currently certified ($10,884,40), pending the outcome of the adjudication which may require the balance of the Builder's claim to also be paid. In consideration of the potential Cost Overrun identified, we have negotiated the following position with Westgem that needs to be satisfied before processing the current payment:

1. Each guarantor under the facility grants a further guarantee in favour of the Security Trustee, limited to $17,000,000 (this is in addition to the existing guarantees which are limited to $40,000,000 plus Cost Overruns relating to the project).
2. Each transaction party undertakes to provide additional second mortgage security over property owned by the transaction parties to a value of $50,000,000 (determined by the Financiers in their sole discretion), by 31 October 2009.
3. The actual Cost Overrun (if any) determined by 333 Real Estate will be final and any amount identified is to be paid from the Borrower's resources by no later than 31 January 2010. Assuming compliance with this requirement, the additional guarantee support (including the collateral security) will then be released.

Therefore, subject to the provisions outlined above, we are looking to waive the cost to complete test and continue funding works completed as certified by the Financiers' QS, or as directed under any adjudication.

537. On 13 October 2009 Mr Clohessy told the Financiers' representatives that Mr Saraceni and Mr Pourzand would not accept the terms set out in the Facility Agent's letter of 9 October 2009.[360]

Ongoing negotiations

538. Later on 13 October 2009 there was a meeting between Mr Saraceni, Mr Pourzand, Mr Clohessy, Mr Leber, Mr Nagle and Mr Pavisich. Based on Mr Pavisich's evidence, whose recollection had been refreshed by reference to a contemporaneous file note prepared by Mr Nagle and to which Mr Pavisich, had made some amendments,[361] I find that at the meeting Mr Saraceni and Mr Pourzand repeated their contention that there had not been a Cost Overrun in the amount determined by Mr Sanders. They said that Westgem's quantity surveyors estimated that the project construction cost was $248 million and that on this basis a Cost Overrun of $5 million was evident. Mr Saraceni said that the estimate of $248 million included provision for liquidated damages. He objected to the Financiers' cost estimate of $260 million on the basis that it did not take into account contract 'credits'. Mr Saraceni and Mr Pourzand said that they would contribute $5 million towards funding that week.[362] Mr Saraceni and Mr Pourzand said that they disagreed with the scope of the work to be undertaken by the investigating accountant. Mr Pourzand said that he did not accept the terms that had been offered by the Financiers and described them as offensive and suggested that if his position was unacceptable then the financiers should appoint receivers immediately. Mr Saraceni said that Westgem would make its cost estimates available for review and consideration by the Financiers' quantity surveyor. No agreement was reached at this meeting but the parties agreed to consider a position that involved the following elements:

(a) Westgem would make available its quantity surveyors' information to the Financiers' quantity surveyors to enable them to undertake a further review of the cost to complete.

(b) Mr Saraceni and Mr Pourzand would contribute $5 million immediately by way of $3.4 million cash contribution and a contribution of $1.6 million by way of a return of the bank guarantee.

(c) Mr Saraceni and Mr Pourzand would abide by the revised cost to complete figure advised by the Financiers' quantity surveyors.

(d) should the Financiers' cost to complete estimate exceed $5 million, the guarantors would provide additional guarantees and second ranking mortgage securities to cover the Cost Overrun short fall by three times by no later than 31 October 2009.

(e) Mr Saraceni and Mr Pourzand would undertake to fund any Cost Overrun by 31 January 2010.

(f) The Financiers would release the additional securities provided upon payment of the Cost Overrun.

Decision to apply default interest rate

539. On 15 October 2009 a meeting of Bankwest's Executive Credit Committee was held. At that meeting the members of the committee received an oral report from Mr Nagle, Mr Nathan, Mr Pavisich and Mr Wlossak about Westgem. The minutes of the meeting recorded:[363]

ECC members noted despite [Westgem's] reluctance to agree negotiated terms the Banks had little choice but to agree to make the builder payments to keep the project moving forward. It was also noted that charging of default interest should focus [Westgem's] attention on finding an agreed way forward.

540. On 16 October 2009 Bankwest sent a letter to Westgem giving notice that the default rate of interest would be applied with effect from 25 September 2009.[364]

Westgem agree in principle to accept 333 determination

541. On 16 October 2009 Mr Clohessy sent a memorandum to Mr Leber, Mr Pavisich and Mr Nagle in which he confirmed that Westgem maintained that no Cost Overrun had been reasonably determined in accordance with the terms of the MOFA and proposed terms to approach the resolution of the Cost Overrun issue. Among the points made on Westgem's behalf Mr Clohessy stated:[365]

As you are aware from both Westgem's written correspondence and our various discussions Westgem rejects the Lender's stated position that it is in breach of the MOFA dated 23 April 2008. It remains their position that no Cost Overrun has been reasonably determined pursuant to clause 17.22. The Bank's QS in his report of 14th of September 2009 states that the cost to complete of $260 million 'excludes credits proposed by Saracen but not yet received.'

Westgem is now in a position to present those credits to the Bank's QS for verification. If the QS is in agreement with Westgem's cost to complete or determines a higher figure the Cost Overrun will be paid within 5 working days and or they will request the bank considers alternative arrangements satisfactory to all parties. In the interim the bank has the sponsor's personal guarantees for Cost Overruns which should provide the lenders sufficient comfort until this issue is sorted amicably.

In anticipation of the lenders being of the view that this position varies from our advice to Alan Pavisich on 5 October 2009 which was negotiated in good faith, we would say that the Lenders' proposed agreement of 9 October 2009 goes significantly beyond what was contemplated in our various discussions. Westgem also acknowledges that the proposal put forward by Alan was done so by him on a best endeavours basis on his part. Accordingly the position now put forward by the lenders is not acceptable. Notwithstanding this Westgem has fully cooperated with the Banks' IA's in relation to determining the cost to complete and will do so until the issue is resolved.

In relation to the Cost Overrun previously determined in July 2008 of $13.5 the sponsors paid $6.5m by way of cash contribution and Bankwest advanced $6.5m as a short-term bridging facility with principle payments spread over a 9 month period with the final payment in May 2010. They are now in a position to make early repayment and thank the Bank or its indulgence in this regard.

...

In Westgem's view the issue of cost to complete and the builder's actions are related issues but the latter is of significantly greater urgency, if I have learnt one thing in 20 years financing construction projects the developer and the lender need united relationship when dealing with the builder. Salta have clearly attempted to damage this relationship and turned the building contract into a cost plus contract and this has intensified since their loss of the IFO work. Both the banks and Westgem's legal and professional resources need to be focused on achieving the best outcome under the building contract and side deed. Clearly bringing the builder to account has a significant impact on the issue of cost to complete. (emphasis supplied)

542. I find that by 16 October 2009 Westgem had agreed in principle that it would accept the cost to complete determination made by 333, when it was made, and if on the basis of that determination there was a Cost Overrun, then it would pay the Cost Overrun within 5 days or negotiate alternative arrangements with the Financiers. The basis for this finding is Mr Clohessy's email of 16 October 2009 and in particular the passage emphasised in the quoted paragraphs of the email set out above. The context in which Mr Clohessy sent his email included the appointment of 333 and the review of the Project that was then being undertaken by Mr Gowdie and read in that context Mr Clohessy's reference to the 'Bank's QS' was a reference to Mr Gowdie.

Westgem seeks legal advice

543. On 23 October 2009 Mr Clohessy sent an email to Mr Saraceni and Mr Pourzand suggesting that they obtain legal advice from the law firm Lavan Legal regarding Bankwest's default and penalty notice. Mr Clohessy commented that, '... we need to fast track the determination of the cost to complete and resolve the current impasse'.[366] Subsequently Mr Clohessy provided various relevant documents to Mr Stevens, a partner of Lavan Legal to enable him to provide advice.

Westgem's October 2009 drawdown request

544. On 23 and 28 October 2009 Westgem requested a drawing to pay Salta $14,040,047 plus GST and consultants' costs of $415,660.62 plus GST. On 29 October 2009 Bankwest made available a drawing of $14,040,047 plus GST to pay Salta.
545. On 26 October 2009 Westgem requested that the Financiers pay 'soft costs' of $415,000. This request was refused. Mr McDonald stated in an email to Mr Nagle that BOSI would not fund anything other than construction costs while a Costs Overrun subsisted.[367] In an email from Mr Pavisich to Mr McDonald sent on 27 October 2009, Mr Pavisich observed:[368]

... [Westgem] must realise that their failure to deal with the default has consequences for our funding of the project. Hopefully the next cost to complete report will allow common sense to prevail and get the customer back to the table.

If the non-funding of soft costs begins to affect the completion of the project then we need to have another look.

Westgem's updated costs summary

546. On 26 October 2009 Mr Simpson sent an updated project costs summary to Mr Sanders that estimated the construction costs to be $250,452,362.[369] This summary included a deduction of approximately $4.2 million as a negative variation for the tunnel but included an allowance for the tunnel in the sum of $4.3 million as part of a total allowance for risk in the sum of $12.1 million. The summary also included a figure for 'Contingency' in the amount of $5 million. On the basis of the figures contained in Mr Simpson's updated project costs summary, the estimated construction costs had increased by approximately $7 million since 4 September 2009 when Mr Frank Saraceni had provided Mr Sanders and Mr Nagle with forecast contract sum of $243 million. In his evidence Mr Gowdie referred to a calculation shown to him by Mr Merson of certain 'risk items' that Mr Gowdie referred to as the 'Merson Cost to Complete Risk Analysis'. Mr Gowdie said that the risk items after deduction of 'credits' totalled $12.1 million. I infer from the allowances for risk of $12.1 million made in both the updated project costs summary sent by Mr Simpson to Mr Sanders and the 'Merson Cost to Complete Risk Analysis' that the latter document was an iteration of the former if not the same document.

Mr Sanders provides advice on credits

547. On 29 October 2009 Mr Sanders sent a letter to the Financiers stating that his forecast total construction cost remained at $260 million as advised on 14 September 2009 as CSAs 17, 22 and 23 had removed work from the scope of Salta's contract but had not effected project savings as the works specified in the CSAs 'will/maybe required at a later date ...'.[370]

CBA demands repayment of Pakwest facility

548. On 30 October 2009 CBA gave notice to Pakwest requiring immediate repayment of its cash advance facility provided pursuant to a Facility Agreement dated 1 August 2007.[371] This facility did not relate to Raine Square. The amount owing under the facility was in the realm of $18 million. CBA offered to renew the facility and set out the terms of the offer which it required be accepted by 6 November 2009. Mr Clohessy protested in strong terms in an email to Mr Pavisich, Mr Nagle and Mr Leber.[372]

November 2009

333 draft 4 November 2009 Cost to Complete summary

549. On 4 November 2009, 333 provided Mr Nagle with a draft of a table in which Mr Gowdie had summarised the component elements of the Cost to Complete calculations of RBB, Westgem and Salta and compared them with his own analysis.[373] At that stage Mr Gowdie's forecast of the construction costs was $262,435,939. In relation to Contract Sum Adjustment 22 and 23 Mr Gowdie noted, 'These items have been fully deducted by the Superintendent from the Salta contract, however work is still required to complete these items or Salta are to submit a credit variation for the work. The risk is that Salta will have a very different view of the applicable credit to the work.'[374]

Discussions and investigations about credits

550. On 4 November 2009 Mr Gowdie sent an email to Mr Frank Saraceni and other members of the Saracen Properties staff stating that he would like to discuss a number of items.[375] These included the provisional sum allowance for the tunnel, the design and costing of the Pavilion and CSA 22 and 23. In relation to CSA 22 and 23 Mr Gowdie observed, 'while these are deducts from Salta some of this work still needs to be undertaken and you are also waiting for Salta's view of the credit on these items. I would like to discuss'.[376] Mr Gowdie commented, 'I know we have discussed some of this before and some of it at length, however I need to reinforce my view in some areas'.
551. Mr Frank Saraceni sent a copy of Mr Gowdie's email to Mr Carmichael. In a responsive email Mr Carmichael expressed the following view:[377]

Obviously John is attacking any perceived weakness from our position and has taken note of the fracas on site with Gallaghers as a point in question, adding fuel to the fire of Salta's statement regarding our management of the post contract situation.

Please do not leave Paul or Rob on their own with John at any time. I have already witnessed accounts whether they should have kept their mouths shut altogether and said nothing. They are liable to say anything which may shoot us in both feet. John is no fool and despite his laid-back and laissez-faire appearance he knows what he is doing and what the bank has briefed him to do - thoroughly!!

(The fracas on site with Gallaghers was a reference to a dispute between Salta and its concreting subcontractor Gallaghers that had resulted in Gallaghers withdrawing its labour from site. Paul was Mr Paul Simpson and Rob was Mr Rob Merson.)

552. Mr Carmichael concluded his email with this statement:

I apologise if this appears to be somewhat longwinded but in order for John to give the Bank some comfort he has to be told the absolute truth, not deals being done on site as he has already. We have nothing to fear and we must be transparent in everything we tell him otherwise we will be over $260m before you know it or even more ($265m). Seems to ring a bell!!!

553. On 5 November 2009 Mr Gowdie met with Mr Frank Saraceni, Mr Artelaris, Mr Merson and Mr Simpson. Mr Gowdie's evidence of what was discussed at that meeting, which I accept, was as follows:[378]

(a) Mr Gowdie raised the topic of the tunnel with Mr Frank Saraceni and his colleagues. Mr Gowdie was told that all work required to complete the tunnel had been allowed for in a provisional sum of $4.3 million and that Westgem had allowed for a contingency of $500,000. He was told the design for the tunnel was substantially complete, that there was a lump sum contract for the construction of the tunnel was expected to commence in March 2010. He was told that the necessary survey work had been completed and that there was an access agreement with the Public Transport Authority and that the Public Transport Authority had agreed to the design. Mr Gowdie asked for copies of the lump sum contract for the construction of the tunnel and for copies of the relevant regulatory approvals but these were not provided to him. Mr Gowdie's evidence, which I accept, was that he subsequently discovered that the design to the tunnel was not complete and that a survey had not been undertaken.

(b) There was a discussion of credits that Westgem maintained were due in its favour from Salta. Mr Gowdie was not given a detailed explanation of those credits nor anything to substantiate the amounts claimed to be due to Westgem.

554. I interpolate that what was said to Mr Gowdie about the cost of the tunnel was inconsistent with the estimated cost of the tunnel contained in Financial Statement No 6 - $7 million.
555. On 10 November 2009 Mr Clohessy sent an email to Mr Nagle, Mr Pavisich and Mr Leber recording his understanding that RBB and 333 had assessed the Cost to Complete at $260 million and $262 million respectively but that neither assessment took into account the credits Mr Frank Saraceni maintained should be taken into account or liquidated damages and asked for clarification as to the position.[379]
556. On 10 November 2009 Mr Nagle sent an email to Mr Alex Frankl regarding the construction of the Podium and asked whether the cost of the construction of the Podium remained Westgem's obligation or whether Bankwest as tenant had adopted the financial commitment.[380] Mr Nagle did not receive a substantive response until 24 November 2009 when Mr Frankl sent Mr Nagle an email stating:[381]

We are working through this issue and it is tracked in our weekly meetings with Westgem and Salta. There is an acknowledgement from Westgem and Salta respectively that a credit is due against this deduction in their scope of work. We are not in a position to advise the exact split in dollars attributable to Westgem and Bankwest as tenant at this time.

557. On 10 November 2009 Mr Frank Saraceni sent a letter to Mr Sanders and enclosed a 'Credits List' that itemised 'Savings/deductions to $260M budget' (the list included the Podium 'shell & core' referred to in Contract Sum Adjustment 22 but did not include the blinds).[382] The total allowed by Mr Saraceni in respect of items of work was $7,280,494 to which he had added liquidated damages of $2.1 million. Implicit in Mr Saraceni's calculations was an acceptance of the proposition that the cost to complete exclusive of credits that he maintained should be allowed in respect of items of work, as distinct from the liquidated damages, was approximately $252.7 million. On the basis of this figure there would have been a Cost Overrun of $9.3 million.
558. On 11 November 2009 Mr Nathan sent an email to Mr Nagle and Mr Pavisich asking, in effect, whether Bankwest 'knew' whether the credits Mr Frank Saraceni said should be taken into account were legitimate matters requiring a reduction to the cost to complete and whether they had been considered by RBB in arriving at the $260 million construction cost forecast.[383]
559. On 11 November 2009 Mr Frank Saraceni sent Mr Gowdie an email to which he attached the list entitled 'Credits List Raine Square savings/deductions to $260M budget'[384] sent to Mr Sanders the previous day. Mr Gowdie's evidence, which I accept, was that this was the first occasion on which he had received any documents identifying the credits claimed by Westgem.[385] Mr Gowdie described the credits as 'very high level and [lacking] any detail'.
560. Shortly after receiving the list Mr Gowdie met Mr Frank Saraceni and other members of the Saracen Properties team. Mr Gowdie told Mr Frank Saraceni that he had concerns about the 'credits'. These included: that the credits related to items of work that would be removed from Salta's scope of work but which still needed to be undertaken by another builder to achieve completion so that although the items were potentially credits against work to be performed by Salta they were not credits for the Project and could not be treated as deductions to the cost to complete; he was concerned that the credits had already been taken into account in the Merson Cost to Complete Risk Analysis and he, Mr Gowdie, did not want to 'double-count' any allowances for credits; and, to the extent to which the credits related to items that remained within Salta's scope of works, he had not been provided with evidence that substantiated that the credits had been agreed by Salta.[386] Mr Gowdie was, however, prepared to make allowances for some of the credits, in particular in respect of the cost of the Pavilion.
561. On 12 November 2009 Mr Carmichael sent an email to Mr Gowdie in which he stated that:[387]

Independently, I believe that at least $10.00m can be reduced from your bottom line without any difficulty and believe me by the time I am through checking their paperwork, they might suddenly wake up and realise what fools they have been.

562. On 20 November 2009 Mr Frank Saraceni sent a letter to Mr Gowdie in which he referred to his recent conversations with Mr Gowdie and stated that 'not all credits have been formally forwarded and discussed to date'.[388] Mr Frank Saraceni added:[389]

The credits as listed in my recent correspondence dated 10 November 2000 were only the credits as were known at the time that the RBB estimate of $260M issued on 14 September 2009. I acknowledge that all parties were also at that time and since being distracted and placed under much unnecessary pressure by some major contractual and cash flow control issues with respect to the Builder's unjustified and aggressive contractual manoeuvrings. We however were always concerned that bona fide credits were not been given due and fair consideration.

We also confirm that since that time we have been pursuing numerous other credits due under the contract and attach a further list with estimates of values. The contractual status of these credits is also sound and have not been formally issued as this process has similarly being interrupted as noted above. Further some of these credits are still being reviewed or finalised through the overall value estimates are a product of our investigations to date and we believe sufficiently accurate.

563. The list of credits attached to the letter of 20 November 2009 amounted to $4,200,000. None of the credits were included in Mr Frank Saraceni's 10 November 2009 list. The credits included the 'IFO Co‑ordination fee' of $1.8 million. Mr Gowdie's evidence, that I accept, was that he had been told by Mr Frank Saraceni that Westgem would honour the payment to Salta of $1.8 million in respect of the IFO fee and Westgem had included it in its own cost to complete calculation.
564. Mr Gowdie was not prepared to make any allowance against the cost to complete for the credits in the list attached to Mr Frank Saraceni's letter of 20 November 2009. He considered that the 'credits' were 'figures on a page' with no backup or substantiation. Mr Gowdie told Mr Frank Saraceni that the credits had not been substantiated.[390]
565. Mr Gowdie had also determined that he was not going to allow a credit against the construction costs for liquidated damages as the recovery of liquidated damages was too far in the future and might depend upon the outcome of protracted litigation and were very uncertain. He excluded from his analysis of the cost to complete all amounts - whether payable to Salta as delay costs or recoverable from them in the form of liquidated damages - which would only crystallise after practical completion and which would likely be resolved only after litigation or some other form of dispute resolution.[391]
566. My impression of Westgem's reliance on 'credits' that should have been taken into account in calculating the Cost to Complete is that it involved generalised assertions that, with the very limited exception of the Podium credit ultimately allowed by Mr Gowdie, did not withstand detailed scrutiny. The 'credits' were a smokescreen used by Westgem to obscure increases in the construction cost forecasts of which Westgem was aware, or at least which it was concerned would occur.

333's forecast cost to complete

567. On 13 November 2009 333 sent a formal report to the Financiers in relation to the Project. The report contained a table based on the 4 November 2009 draft Cost to Complete analysis containing Mr Gowdie's revised calculation of the cost to complete being $260.93 million. In relation to Contract Sum Adjustment 22 the following note was included in the report:[392]

CSA 22 contains a $1.7m deduction in relation to the Lvl 1 Podium to suit Tenant requests. The deduction is based on a figure produced by Rider Levett Bucknall. This figure is yet to be agreed with the contractor, therefore the full amount is not being credited. The tenant may well require a contribution to the fit out due to the works credited and this will be a negotiation between Westgem and the tenant, however this will be out [sic] part of the non integrated fit out which does not form part of our brief. The supply and installation of blinds - while it has been taken from the Contractor's scope, the item still needs to be purchased and installed.

18 November 2009 proposal

568. On 18 November 2009 Bankwest sent Westgem a further revision of the letter first prepared on 2 October 2009 and revised on 9 October 2009 setting out the terms upon which the Financiers were prepared to resolve the issue of the second Cost Overrun.[393] I reproduce the provisions of the 18 November 2009 letter on which Westgem's case focusses later in these reasons. The principal commercial terms proposed in the letter may be summarised as follows:

(a) Westgem would be obliged to co-operate with 333's review.

(b) The guarantors would be obliged to acknowledge the occurrence of both the first Cost Overrun and the second Cost Overrun.

(c) Westgem would procure the provision of additional securities in favour of the Financiers with a net equity of $50 million by 14 December 2009.

(d) Westgem would not permit Cost Overruns to exceed $17 million and Westgem would pay the Cost Overruns by 31 January 2010.

(e) Upon payment of the Cost Overrun the Financiers would release the additional securities.

(f) The Financiers would be entitled to review the terms of the MOFA and propose amendments to it after receiving a report from 333, and if the amended terms could not be agreed within five business days, give not less than 60 days notice requiring Westgem to repay the money owing under the MOFA.

Although not a term proposed in the letter of 18 November 2009 the letter recorded that if an executed copy of the letter was not signed and returned by no later than 23 November 2009 that would constitute an Event of Default.

Westgem seeks legal advice

569. On receipt of Bankwest's letter of 18 November 2009 Mr Clohessy sent an email to Mr Saraceni and Mr Pourzand suggesting that it was an opportune time to discuss the 'issue' - by which I infer he meant the second Cost Overrun issue - with Mr Stevens of Lavan Legal - the firm of lawyers whom Mr Clohessy had consulted.
570. On 24 November 2009 Mr Clohessy sent an email to Mr Stevens attaching a copy of Bankwest's letter of 18 November 2009 and asking whether it would be possible to meet with Mr Stevens the following afternoon.[394]

Bankwest's concern about lack of response from Westgem

571. On 24 November 2009 Mr Nathan sent an email to Mr Pavisich in which he recorded that the Financiers had required a response to the 18 November 2009 proposal by 23 November 2009. Mr Nathan went on to observe:[395]

... and as such technically we can exercise our rights any time now. Steve indicated that in his discussions with Mark Clohessy he is of the view that the conditions will be accepted albeit they will try to drag out the time frames. If you want Steve and myself to go see Clohessy/Saraceni to rattle the cage a bit let me know.

Westgem's response to Financiers' 18 November 2009 proposal

572. On 24 November 2009 Mr Clohessy spoke to Mr Nagle and told him that Mr Luke Saraceni and Mr Pourzand would agree the position and put forward the additional mortgage security but that they would challenge the Financiers' right to charge default interest and fees.[396]
573. Later on 24 November 2009 Mr Clohessy sent an email to Mr Nagle and Mr Luke Saraceni in which he stated:[397]

Steve my apologies for not responding sooner, as you know Luke was in China until Friday last week and so we have had limited time to meet since his return other than to meet our undertakings to 333 Real Estate in regards to cost to complete and financial matters. I meet with both Luke and Hossean today and will provide a response no later than tomorrow. Both Luke and Hossean are committed to providing the additional security as requested. There are a couple of issues we would like to raise with the Bank's letter however this will not delay provision of the additional security.

574. On 25 November 2009 Mr Clohessy had a discussion with Mr Pavisich. I accept Mr Pavisich's evidence about this discussion.[398] It was to the effect that he and Mr Clohessy talked about some minor queries Mr Clohessy had in relation to the terms of the 18 November 2009 letter. In addition Mr Clohessy raised two issues. First he contended that Westgem was not in default when the second Cost Overrun was determined because Mr Sanders did not take into account credits due to Westgem. Mr Pavisich responded to this contention by pointing out that Mr Saraceni had acknowledged that Westgem was in default though not in the amount determined by the Facility Agent. In the course of cross‑examination Mr Pavisich explained that the discussion about the existence of a default took place in the context of Mr Clohessy seeking to persuade the Financiers that default interest should not have been applied when it was.[399] Mr Clohessy's second issue was the amendment fee that the Financiers proposed to charge. Mr Pavisich said the Financiers could raise the margin or line fees if that was Westgem's preferred 'way to go'. Mr Clohessy said that Westgem was keen to remedy the default and would return the 18 November 2009 letter the following day.
575. On 26 November 2009, 333 produced a further report for the Financiers. The cost to complete forecast contained in this report was the same as that contained in the 13 November 2009 report, that is, $260.93 million.
576. On 26 November 2009 Mr Clohessy sent a further email to Mr Nagle and Mr Saraceni.[400] Before sending the email to Mr Nagle, Mr Clohessy had sent a draft of it to Mr Saraceni and Mr Pourzand and by way of an explanation of the proposed email stated:[401]

Luke and Hossean please see my draft response to Steve Nagle, it is a very weak attempt to keep our options open to later challenge the imposition of penalty interest and the additional 500k fee. I am concerned that to argue at this point or refuse to sign may put you at risk of them taking harsher action. Please let me know urgently are you wish to proceed as we are past their deadline for acceptance.

577. I infer that Mr Saraceni and Mr Pourzand approved the terms of Mr Clohessy's email to Mr Nagle because on 26 November 2009 Mr Clohessy sent an email to Mr Nagle in the terms of the draft sent to Mr Saraceni and Mr Pourzand in which he stated:[402]

Steve

As mentioned in my previous email the borrowers acknowledge that both the bank's QS and 333 Real Estate have now completed their respective reviews of the cost to complete and whilst they are still of the view that there are still additional credits which have not been taken into account which should be deducted from the final cost to complete accept a Cost Overrun has been determined. They also believe the imposition of penalty rates should not have applied until the Bank had reasonably determined it taking into account credits due to the borrower.

Notwithstanding this as per my memo of 16th of October in response to the Bank's correspondence of 9 October they are prepared to provide the additional security requested and I will detail the proposed properties by following email later today.

I mentioned yesterday to Alan that we were confused re 3.3(1) where it appears to be asking for guarantees on the first Cost Overrun of $12.9 million notwithstanding the borrower paid $6.5 of it. As per my request yesterday could you please have Deacons explain the interpretation of this clause. Alan confirmed with respect to clause 3.3(2)(a) that you will only be taking security over CBA and Bankwest assets (acceptable to you) only to a total of $50 million.

In the interim I will have the acknowledgement executed and returned.

578. Mr Pavisich was cross-examined at some length, by reference to the first paragraph of Mr Clohessy's email of 26 November 2009, about whether he understood Westgem to have accepted that a Cost Overrun of $17 million had occurred. The substance of Mr Pavisich's evidence was that he had a recollection that Mr Saraceni or Mr Clohessy had said to him something to the effect that Westgem accepted that there had been a $17 million Cost Overrun. He was unable to recall when this was said and in particular whether it was said before or after 1 December 2009, being the date on which the 18 November Letter Agreement was executed on Westgem's behalf. I formed a positive impression of Mr Pavisich as a witness. He impressed me as an honest witness who did his best to recall the events about which he was giving evidence (not an easy task given the events occurred approximately nine years earlier) and to answer questions put to him in cross-examination without any attempt at evasion. I have, however, reservations about the reliability of Mr Pavisich's recollection of a statement that one or other of Mr Saraceni or Mr Clohessy had said that Westgem accepted that there was a Cost Overrun of $17 million and am not prepared to rely on Mr Pavisich's evidence in this respect. In part my reservations are based on the absence of any mention of this statement in Mr Pavisich's witness statement and, in part, because my impression is that the focus of Mr Pavisich's efforts was to find a way of resolving the problem caused by the second Cost Overrun rather than the detail of the quantum. I think it is likely that Mr Pavisich's recollection of the statement he attributes to Mr Saraceni or Mr Clohessy is an honest but mistaken combination in his mind of: the statement by Mr Saraceni that there was a Cost Overrun; the statement in Mr Clohessy's email of 16 October 2009 to the effect that Westgem would accept 333's determination of the Cost Overrun; and the acknowledgement contained in the 18 November Letter Agreement of a $17 million Cost Overrun.

Westgem's November 2009 drawdown request

579. On 26 November 2009 Westgem requested a drawdown to fund a payment to Salta of $12,367,880.57 plus GST. On 30 November 2009 a drawing of $12,367,880.57 plus GST was made to enable Westgem to pay Salta.

18 November 2009 Letter Agreement

580. On 27 November 2009 Mr Clohessy sent Mr Nagle an email in which he stated:[403]

Steve, as discussed Luke has signed document which is with Hossean, due to Hossean placing a larger share of the equity he requires a document to be prepared by his solicitor to be signed by Luke which I was hoping to have today however Luke is in Karratha with the Premier so I have not been able to finalise. Can I say as per my previous email they are committed to providing security and returning the acknowledgement, there is no attempt to stall or delay. Hossean is adamant he wants the documents completed. I would also like a response from Deacons re my query on guarantees.

December 2009

581. On 1 December 2009 the 18 November 2009 letter was signed on behalf of Westgem and the guarantors (the 18 November Letter Agreement).

Professor O'Donovan's advice to Westgem

582. On 3 December 2009 Mr Stevens sent Mr Clohessy a copy of Professor O'Donovan's memorandum of advice dated 25 November 2009.[404] In an accompanying email Mr Stevens commented 'You will see that based on the information available, from a technical perspective the chances are not considered great in terms of taking the Banks on'.[405] Mr Stevens asked whether Mr Clohessy wanted him to 'draft something up to the Banks to at least get them to slow down and think more about the situation?' Mr Clohessy replied that nothing was required at that stage.[406]

Variation to 18 November 2009 Letter Agreement

583. On 22 December 2009 Mr Pavisich and Mr Nathan prepared a strategy paper for the Executive Credit Committee of Bankwest.[407] In summary the recommendations contained in the paper were as follows: the Financiers should accept the registered second mortgage securities being proposed by Westgem even though 333's assessment was that the upper equity limit of the securities was $44.5 million and that $3.1 million should be released to Mr Pourzand in certain circumstances; the Financiers should pay $356,000 in consultants' fees and a further payment of $392,000 should be paid on the provision of the additional securities; Westgem's proposal for the deferred payment of the second Cost Overrun should be accepted; the project progress claims be paid to Salta subject to the provisions of the Building Contract and the Builder's Side Deed; and that the Building Contract and Builder's Side Deed should be reviewed by counsel to determine the bona fides of Salta's view of its position.
584. On 24 December 2009 the 18 November 2009 Letter Agreement was varied at the request of Mr Saraceni and Mr Pourzand because they were unable to pay the $17 million required to meet the second Cost Overrun by 31 January 2010. Mr Clohessy proposed that the second Cost Overrun be paid by instalments: $5 million on 31 January 2010, $5 million on 28 February 2010 and $7 million on 15 March 2010 (later extended to 25 March 2010).[408] The proposal was approved on 24 December 2009.[409] The Financiers agreed to accept additional securities with an upper value of $44 million rather than $50 million.

January 2010

Provision of additional securities

585. On 28 January 2010:

(a) The First Additional Securities were executed in favour of the Security Trustee. These were the additional securities contemplated by the 18 November 2009 Letter Agreement and which should, in accordance with paragraph 3.3 of that agreement, have been provided by 14 December 2009. The First Additional Securities and the First Additional Security Providers are listed in appendix 1, table B.

(b) Westgem and the First Additional Security Providers entered a deed with the Finance Parties entitled 'Deed of consideration and acknowledgment (Additional Mortgages) - Multi-Option Facility Agreement - Raine Square' (the First DCA). Among other matters, the First DCA recorded that Westgem had agreed to pay a fee of $500,000 to the Financiers in consideration of them not exercising their Reserved Rights (as defined in the 18 November Letter Agreement).

February 2010

Payment of first tranche of second Cost Overrun

586. On 2 February 2010 $5 million was paid on Westgem's behalf in respect of the second Cost Overrun. The second payment of $5 million that was due on 28 February 2010 was not made. There was no agreement to waive the payment or extend the time for payment. By 14 April 2010 a total of $6,977,000 had been paid in respect of the second Cost Overrun.

Westgem's Financial Statements No 8 and 8A

587. On 1 February 2010 Westgem prepared Financial Statement No 8 and the following day prepared Financial Statement No 8A.[410] Financial Statement No 8 identified the projected contract sum as $261,228,193 and Financial Statement 8A identified the projected contract sum as $259,578,193. Financial Statement No 8 included a 'Contingency balance' of $500,000 and Financial Statement No 8A included a 'Contingency balance' of $1,500,000 but did not include $2,650,000 of work that was included in Financial Statement No 8 as 'Works to be carried out post Practical Completion'. Neither Financial Statement No 8 nor Financial Statement No 8A was provided to the Finance Parties.

Cost to Complete - construction costs

588. Various estimates of the construction costs were contained in the evidence and I have referred to them in the course of setting out my factual findings. For the purposes of this litigation Westgem retained an experienced quantity surveyor Ms Anne Connolly to express opinions on a number of issues regarding construction costs and these opinions were recorded in a report prepared by Ms Connolly,[411] and in a report entitled 'Cost Expert Conclave Joint Report',[412] prepared jointly by Ms Connolly and Mr Peter Byford, a construction expert retained by the Financiers.
589. One of the questions on which Ms Connolly was asked to express an opinion is what costs would have been incurred by Westgem to complete the 'Works' on the assumption that Salta had not terminated the Salta Building Contract in February 2010. For the purposes of answering this question Ms Connolly was asked to adopt a definition of 'Works' that excluded, among other items, the tunnel. Ms Connolly's answer to that question was to the effect that the total construction costs would have been in the range of $248,235,566 to $260,203,165.[413] As a result of conferral between the experts Ms Connolly revised her opinion as to the range to $255,577,337 to $256,680,022.[414] These figures included allowances for deductions in respect of liquidated damages of $7.5 million and they did not include any allowance for the IFO Cooperation Fee or - as I have said - for the tunnel. Even if the only adjustment that was made to Ms Connolly's figure was to add back the cost of the tunnel at $4.3 million (being the figure for the tunnel included in Westgem's 26 October 2009 forecast), Ms Connolly's range increases to $259,877,337 to $260,980,022.
590. In the table below I set out the construction costs forecasts made between June 2009 and 2 February 2010 and include Ms Connolly's figures for comparison purposes.

591. All of the figures were estimates and to arrive at them judgments were required about events that were by their nature uncertain ‑ Mr Gowdie described calculating the cost to complete any project as a 'forward looking estimate that involves judgment based on experience and is dependent on the nature, and extent and quality of the information at hand'.[415] In the case of Ms Connolly's estimate there was uncertainty because she was working on the hypothesis that Salta had continued working on site as opposed to working on the basis of historical information.
592. In my view, it may be concluded with some confidence that on 18 September 2009 the amount required to be expended on construction costs to achieve Practical Completion of the Project was at least $260 million. This conclusion may be sustained by reference to the estimates prepared by Westgem for its own internal purposes - in particular Financial Statement No 8 and Financial Statement No 8A estimates, considered independently of the estimates prepared by RBB and 333, but when the estimates are considered in combination they provide powerful support for the conclusion that the construction costs were at least $260 million. In reaching this conclusion I have not attached decisive significance to Ms Connolly's estimate but have relied upon it as providing confirmation of what may be drawn from the other estimates.

Breaches alleged

593. The breaches alleged in respect of the second Cost Overrun were expressed in substantially the same terms as the first Cost Overrun breaches.
594. Westgem alleged that Bankwest did not:[416]

(a) make any inquiries of Westgem so at to afford it a reasonable opportunity to provide information in relation to whether a Cost Overrun had occurred;

(b) give any or any reasonable consideration to the terms of the MOFA as to how a Cost Overrun was to be determined;

(c) give any or any reasonable consideration to whether RBB's calculation of the cost to complete had been performed adequately in accordance with the MOFA.

595. Westgem alleged the second Cost Overrun had not, in fact, occurred. In this respect Westgem's case repeated the substance of the allegations made in respect of the first Cost Overrun, that is, Bankwest adopted an incorrect construction of the Cost to Complete definition and there was no certification of the amount determined by RBB of the likely cost to Westgem of achieving practical completion under the Building Contract. Westgem pleaded that the Cost to Complete did not in fact exceed the Undrawn Commitment of $133,875,921 but did not adduce evidence in support of this plea.
596. Westgem alleged that Bankwest had not reasonably determined the second Cost Overrun had occurred and in support of this allegation relied on the same facts as were relied on for the purposes of the other alleged breaches.
597. As with the conduct relied upon to constitute breaches of the first Cost Overrun Westgem rolled up the conduct relied for the second Cost Overrun breaches and pleaded that it involved:[417]

(a) Bankwest breaching the Code Conduct Term because Bankwest failed to act fairly and reasonably and in an ethical manner and failed to have any proper regard to the terms of the MOFA;

(b) the Financiers breaching

(i) the Cost Overrun Term;

(ii) No reliance on events caused by own conduct;

(iii) the Cost Overrun Consultation Term

(iv) the no Event of Default term and the reasonable grounds term.

Consideration of claims as developed in closing submissions

Second Cost Overrun determined in accordance with MOFA

598. Westgem relied on four propositions to make good the allegation that Bankwest did not determine the second Cost Overrun in accordance with the terms of the MOFA. For the reasons developed below I do not accept the propositions relied on by Westgem.
599. Westgem's first proposition was that the Cost to Complete component of the Cost Overrun was determined by reference to the amount required to be expended on the construction costs required to achieve Practical Completion of the Project rather than, as Westgem contended, the amount required to be expended in order to achieve Practical Completion under the Salta Building Contract. For the reasons given earlier I do not accept Westgem's construction of the Cost to Complete provision and do not accept that in calculating the Cost to Complete by reference to the construction costs that would be required to achieve Practical Completion of the Project, Bankwest failed to determine the Cost to Complete and thus the second Cost Overrun in accordance with the terms of the MOFA.
600. Westgem's second proposition was that Bankwest did not properly determine the cost to complete the Project because it took into account the contingency allowance of $5,339,061 included in Mr Sanders' 14 September 2009 report. Westgem contended that the amount should not have been included in Mr Sanders' calculations because it was not a likely cost. For very similar reasons to those I have given for rejecting the proposition that Bankwest was wrong to take account of the contingency in Mr Sanders' July 2009 construction cost forecast, I reject the contention that Bankwest was wrong to take account of the contingency of $5,339,061 in Mr Sanders' 14 September 2009 report. I will not repeat all of my earlier reasoning on the contingency issue. Mr Sanders explained why he had allowed the contingency in his 14 September 2009 report. On the basis of that explanation I am satisfied that Mr Sanders made the allowance to reflect what he considered to be the 'likely costs' of achieving Practical Completion of the Project. Whilst direct comparison between the figures is difficult because of differences in approach in presenting the figures, the fact that both Mr Frank Saraceni and Mr Simpson included allowances for contingencies of $5,739,061 and $5 million respectively, in the Westgem September 2009 construction cost forecast and the Westgem October 2009 construction cost forecast reinforces my view that taking account of Mr Sanders' allowance for contingencies as forming an element of the likely costs of construction involved no departure from the terms of the MOFA.
601. Westgem's third proposition was that Bankwest purported to determine the Cost Overrun by reference to the difference between Mr Sanders' construction costs forecast of $260 million and the revised project budget of $243 million rather than by reference to the contractual concept of Undrawn Commitment. The same argument was raised by Westgem in relation to the first Cost Overrun and I repeat the observations I have made earlier in these reasons about that argument. Mr Nagle's calculation of the second Cost Overrun is evidenced by the Credit Risk Summary prepared by him on 17 September 2009 and, in particular, by the 'Cost to Complete assessment' shown in tabular form and to which I have referred earlier. That table did not contain the same level of detail of the Cost to Complete as was contained in Mr Nagle's July 2009 paper but it included the essential integers required to determine a Cost Overrun - the Undrawn Commitment of $133,791,000 and (though not expressly identified as such) the Cost to Complete of $150,791,000 giving a Cost Overrun of $17 million. Moreover, as the Financiers submitted, the first Cost Overrun was determined in circumstances in which any increase in construction costs would result in a Cost Overrun because there were no savings or reductions in other likely costs that could be offset against the increase in construction costs and the Facility Limit remained the same. The same circumstances prevailed in September 2009 and any increase in construction costs would result in a Cost Overrun for the same reasons.
602. Moreover, although Westgem challenged Bankwest's assessment of the existence of the second Cost Overrun on the basis that an increase in construction costs resulted in a Cost Overrun, that was, in fact, the way in which in September 2009 Westgem itself regarded an increase in the construction costs. In opening senior counsel for Westgem, referring to the comparison made between the original construction budget and the construction cost forecasts, said 'Both sides are using that as the jumping off point' meaning that both sides treated an increase in construction costs as an event that resulted inevitably in a Cost Overrun.[418]
603. Westgem's fourth proposition advanced to make good the allegation that Bankwest did not determine the second Cost Overrun in accordance with the provisions of the MOFA was that Mr Nagle did not determine the Cost Overrun by reference to the cost of performing the works under the Salta Building Contract at the time the MOFA was executed but by reference to additional works that had been included by variations. For the reasons explained earlier I consider the Cost to Complete had to be calculated by reference to the likely construction costs to be expended to achieve Practical Completion of the Project at the time the determination of the Cost to Complete was made not by reference to the cost of completing the work falling within Salta's scope of work under the Salta Building Contract at the time the MOFA was executed.

Second Cost Overrun reasonably determined

604. In its closing submissions Westgem advanced three reasons why Mr Nagle's determination of the Cost to Complete had not been 'reasonably determined'.
605. First, Westgem contended that Mr Nagle did not read the terms of the MOFA but 'blindly accepted' the conclusions set out in Mr Sanders' report and failed to notice an arithmetical error in Mr Sanders' calculations. The error was admitted - it involved an accidental omission of a line item in Mr Sanders' summary of the items generating the increased construction costs - and was explained by Mr Sanders in his witness statement.[419] I do not accept that Mr Nagle did not read the relevant terms of the MOFA. I infer from the references to the relevant definitions and terms of the MOFA in his 27 July 2009 paper and the 17 September 2009 Credit Risk Summary that he had read the relevant terms of the MOFA. In the course of opening senior counsel for Westgem stated that the arithmetical error '[didn't] really go anywhere in the case'.[420] Mr Sanders was not cross‑examined about the error.
606. The second and third reasons overlap - the second reason rested on Westgem's contention that Mr Nagle did not take into account - by which Westgem meant failed to make an allowance in Westgem's favour - Contract Sum Adjustment 22, and the third reason was that it should have been obvious to Mr Nagle that Mr Sanders had failed to consider Contract Sum Adjustment 22 because his report was expressed to be 'up to CSA 21'. There is also an overlap between these reasons and Westgem's contention that Bankwest breached the Cost Consultation Term because Mr Nagle failed to consider Contract Sum Adjustment 22.
607. I am satisfied that Mr Nagle did not fail to 'reasonably determine' the Cost to Complete by not allowing a 'credit' in respect of Contract Sum Adjustment 22.[421]
608. Before commenting on each credit claimed by Westgem some overarching points may be made. Westgem's claims in respect of these credits did not rise above the level of assertion. Westgem called no evidence to establish that they were credits that Mr Nagle was obliged to have taken into account for the purpose of making a reasonable determination of the Cost to Complete. Westgem adduced no evidence to establish that reductions in the construction costs were actually achieved in the amounts claimed in the credits.
609. Further, it was reasonable for Mr Nagle to take a cautious approach and not to make an allowance in respect of the credits. The good sense in this approach was amply demonstrated by Westgem's equivocation in respect of the credit for the blinds - removing the installation of the blinds from Salta's contract, 12 days later informing the blinds subcontractor on a confidential basis that the blinds might remain within Salta's contract and ultimately leaving the installation of the blinds within Salta's contract.
610. Turning now to the specific credits claimed - objectively it was reasonable not to allow the credit claimed in respect of Podium works for the following reasons:

(a) The amount claimed was based on an 'indicative estimate' prepared by Westgem's quantity surveyors on the basis of information provided by Westgem. The figure had not been agreed with Salta. There was thus no certainty about the quantum.

(b) Second, the only justification for the credit was to be found in RLB's letter of 7 September 2009 attached to Contract Sum Adjustment 22. The justification was expressed as follows:

We understand that the previously documented works to the office and pavilion areas on this level have been significantly reduced in scope and will now be substantially undertaken by the tenant as part of their fit-out works.

Westgem itself provided no explanation for this credit directly to Mr Sanders or to Mr Nagle. There was no documentary evidence to confirm that Bankwest as tenant had agreed to undertake the work removed from Salta's scope. The credit was advanced on the basis of a consultant's unconfirmed understanding of a 'significant' reduction in scope. Importantly, there was nothing to suggest that the work would be paid for by Bankwest as tenant or that Bankwest (as tenant) would not require Westgem to fund the payment for the work out of the Facility. Objectively it was unlikely that Bankwest as tenant would agree to pay for work that Westgem had previously agreed to undertake. The significance of the absence of any written confirmation about these two important aspects of the 'credit' is reinforced by the fact that when Mr Nagle subsequently made inquiries with the 'fit-out team', he was told that the obligation to pay for the work rested with Westgem as part of its 'base-build' obligations.

(c) The paucity of information provided in support of the 'Podium' credit acquires greater significance when seen in the context of the concern expressed by Mr Sanders to Mr Frank Saraceni about 'things falling through the gaps of who is paying for what (see Mr Sanders' email to Mr Frank Saraceni of 5 August 2009)[422] and that both Mr Sanders and Mr Nagle had independently of each other sought information from Westgem about the credits. In those circumstances it was not unreasonable to expect a clear and cogent justification for the credit to have been provided.

611. Similar points may be made in respect of the credit claimed in respect of the window blinds. This credit was presented as an estimate, the value of which was to be confirmed by the subcontractor. Thus, there was no certainty in relation to the amount. More fundamentally no explanation was provided as to the basis upon which the window blinds were being removed from Salta's scope of works. There was nothing in Contract Sum Adjustment 22 to suggest that the blinds were not required to complete the Project. There was no basis for Mr Nagle to conclude that the blinds were no longer required or that they would not have to be paid for out of funds drawn down from the Facility. The credit sought in respect of the blinds was not a credit that had been referred to by Mr Frank Saraceni in the Westgem September 2009 construction cost forecast or in any communications preceding Contract Sum Adjustment 22. Further, as referred to earlier, ultimately Westgem did not maintain its claim for a credit in respect of the blinds and it is difficult to see on what basis it could ever have been contended by Westgem that Mr Nagle should have allowed this credit when determining the Cost to Complete or that he acted unreasonably in failing to allow a credit.
612. In my view Mr Sanders' reasons for concluding that the asserted credits should not be taken into account - essentially because there was uncertainty as to whether any 'credits' had been agreed and there was uncertainty as to the amounts - were cogent and convincing.[423]

No failure to consult or take information into account

613. In its closing submissions Westgem did not develop its case in respect of breach of the Cost Overrun Consultation term beyond asserting that Bankwest breached the term because it did not consider Contract Sum Adjustment 22 before determining the second Cost Overrun.[424] In the light of the factual finding that Mr Nagle did read and consider Contract Sum Adjustment 22 before determining that the second Cost Overrun this aspect of Westgem's case must fail.
614. Westgem did not seek any other specific factual findings that might establish the allegation that there was a failure by Bankwest to afford a reasonable opportunity to Westgem to provide information as to whether a Cost Overrun had occurred or that Bankwest failed to reasonably consider any such information. Contrary to the premise underlying Westgem's breach of the Cost Overrun Consultation Term - that is that Bankwest did not consult Westgem about costs - it was Bankwest that had been pressing for information which Westgem had not provided. At the risk of unnecessary repetition, Mr Nagle had been pressing Mr Clohessy for further information that addressed 'the real concerns that current reporting indicates further increases in costs' since his email of 17 August 2009.
615. Westgem had the opportunity to provide information to Bankwest. Mr Frank Saraceni provided the Westgem September 2009 construction cost forecast to Mr Nagle and Mr Sanders and this was evaluated by Mr Sanders. Mr Sanders and Mr Nagle pressed Westgem for further information about credits and it was in response to those requests for information that Contract Sum Adjustment 22 was provided. For the reasons discussed above Contract Sum Adjustment 22 lacked supporting detail and was of limited utility. Further, Mr Sanders discussed his 14 September 2009 report with Mr Frank Saraceni.
616. In the period following the giving of notice of the second Cost Overrun and the execution of the 18 November Letter Agreement there were extensive communications between Westgem and the Finance Parties about the second Cost Overrun and there is ample evidence that the information provided by Westgem in the course of those exchanges was considered, and, in particular, was considered by Mr Sanders and Mr Gowdie, who provided advice to Bankwest.
617. No evidence was adduced by Westgem to suggest that there was further relevant information that could have been provided to Bankwest but which it did not have an opportunity to provide and there was no evidence that the consideration that was given to the information that was in fact provided was not reasonable.

RBB had certified Cost to Complete

618. Westgem contended that the Financiers breached the MOFA because the Cost to Complete upon which the second Cost Overrun was based, was based on calculations that had not been certified as required by cl 1.1(33) of the MOFA. I reject this contention for the reasons given for rejecting the same argument when raised in respect of the first Cost Overrun.

Cost to Complete

619. In support of its pleas that the second Cost Overrun had not in fact occurred Westgem pleaded that it would establish that at 17 September 2009 the Cost to Complete did not exceed the Undrawn Commitment but at trial it did not attempt to do so. The largest component of the Cost to Complete - and the most controversial - was the likely construction costs. As has been seen Westgem's complaints about the reasonableness of Bankwest's determinations of the Cost to Complete focussed on the approach adopted to making the determination. In essence Westgem alleged 'process unreasonableness' that embraced, on its case, a failure on Bankwest's part to apply the terms of the MOFA on their proper construction.
620. I have found that the Cost to Complete was $260 million, that is, that the likely cost to Westgem under the Building Contract (as I have construed that term) of achieving Practical Completion (as I have construed that term) would be $260 million. The consequence of this finding is that even if Westgem has established the second Cost Overrun breaches those breaches would have been of no causative significance.

Bankwest acted fairly reasonably and in an ethical manner

621. Westgem submitted Bankwest's conduct in respect of the second Cost Overrun constituted a breach of the Code Conduct term for the same reasons that it amounted to unconscionable conduct in contravention of s 12CC(1) of the ASIC Act. For the reasons explained below Westgem has not established that the Finance Parties engaged in unconscionable conduct in respect of the second Cost Overrun. For the reasons already given, the Code Conduct Term was not a term of the MOFA.

An overview of Westgem's case

622. In broad terms there were three strands to Westgem's unconscionable conduct claim in respect of the second Cost Overrun. The first strand revolved around the determination of the second Cost Overrun itself and the Financiers' adherence to the view that the second Cost Overrun had occurred. Westgem argued that the Financiers' conduct was unconscionable because, so it argued, immediately after the second Cost Overrun had been determined Mr Nagle had doubts about whether he should have allowed a credit in respect of the reduced scope of the Podium work and subsequently, in November 2009, he knew that he should have made a such an allowance because Mr Frankl had informed him by email on 24 November 2009 that some credit was due.
623. The second strand of Westgem's claim was the contention that the Financiers applied 'extreme commercial pressure' on Westgem and the guarantors to accept the terms of the 18 November Letter Agreement. Westgem contends the pressure was constituted by the application of the default interest rate; the application of 'leverage' to Mr Saraceni, Mr Pourzand and their interests manifested by CBA's requirement that the Pakwest facility be repaid or be renewed on terms less favourable to Pakwest than before; the refusal to pay soft costs; Mr Pavisich's insinuation that the banks might appoint a receiver; and Mr Nathan's willingness to 'rattle the cage' should that be required.
624. The third strand of Westgem's claim was the contention that the terms of the 18 November Letter Agreement included terms that were not reasonably necessary for the protection of the Financiers' legitimate interests. In particular Westgem points to:

(a) The requirement that the guarantors acknowledge that the first and second Cost Overruns had occurred in circumstances in which the first Cost Overrun had been disputed but paid and the second Cost Overrun continued to be disputed.

(b) The requirement for the provision of additional securities with net equity of at least $50 million was disproportionate to the Cost Overrun of $17 million.

(c) The requirement to pay an amendment fee of $500,000 which Westgem contended bore no resemblance to the costs incurred by the Financiers as a consequence of the second Cost Overrun.

(d) The right conferred on the Financiers to review the terms of the MOFA and propose amendments after receiving a report from 333, and if the amended terms could not be agreed within five business days, give not less than 60 days notice requiring Westgem to repay the money owing under the MOFA.

(e) The statement in the letter of 18 November 2009 that if the letter was not signed and returned by 23 November 2009 that omission would, of itself, constitute an Event of Default.

Doubts about the occurrence of second Cost Overrun not evidence of unconscionable conduct

625. I have found Bankwest acted reasonably in making the determination of the Cost to Complete component of the second Cost Overrun and conformably with that finding my assessment is that in discharging its responsibilities as Facility Agent, Bankwest acted conscientiously in the determination of the second Cost Overrun. I repeat my earlier observations in relation to Mr Nagle's concern from mid-August onwards to obtain information from Westgem and the time pressures under which he was required to operate.
626. Westgem characterised Mr Nagle's inquiries with the 'CBA fit out team' and Mr Frankl about the credits claimed in Contract Sum Adjustment 22 as indicative of doubts on his part as to whether he should have allowed the claimed credits as deductions from RBB's construction cost forecast. In my view the further inquiries made by Mr Nagle about the credit claimed by Westgem in respect of the Podium are not to be taken as evidence of unconscionable conduct but rather a conscientious approach to his responsibilities. Mr Nagle's inquiries were necessary because the information that accompanied Contract Sum Adjustment 22 was, on its face, incomplete and thus unreliable. The uncertainty surrounding the credit for the Podium works was highlighted by the statement by Mr Frankl in his email of 24 November 2009 that he was not in a position to advise 'the exact split in dollars attributable to Westgem and Bankwest as tenant at this time', so that even at that stage the quantum of the credit was unknown.
627. Two further points may be made. First, confirmation on 24 November 2009 from Mr Frankl that a credit in respect of the Podium works, in an amount that had still to be determined, does not have any bearing on the reasonableness of Mr Nagle's determination of the cost to complete on 18 September 2009 on the basis of the information then available to him. Second, on the basis of the 333 cost to complete analysis of 13 November 2009 there was a Cost Overrun of $17.93 million - 333's cost to complete was $260.93 million after making an allowance of $1.2 million in respect of the Podium work. Westgem had agreed to accept 333's determination - in those circumstances it cannot be said that the Financiers were unconscionable in relying on a lesser figure than the one determined by 333 which Westgem had agreed to accept.
628. As explained earlier in these reasons the Cost to Complete and Cost Overrun provisions of the MOFA were part of the mechanism by which the Financiers were able to protect their commercial interests and manage risk. I am satisfied that by declaring that there had been a Cost Overrun of $17 million and thereafter maintaining that this had given rise to an Event of Default the Financiers were doing no more than relying on their contractual rights to protect their legitimate commercial interests. There was no evidence sufficient to support a finding the Finance Parties did not genuinely hold the view that there had been a Cost Overrun of $17 million or that they were otherwise being disingenuous or dishonest in maintaining the position that there was a Cost Overrun in this amount that had given rise to an Event of Default. I am satisfied that the Finance Parties believed that they were entitled to take the position they adopted, and in doing so they were not acting unconscionably. In my view the determination of the second Cost Overrun was the result of a bona fide analysis under the MOFA, I do not accept that in such circumstances (even assuming Westgem was successful on its claims that such an analysis was incorrect) that Westgem is able to establish that the conduct of the Financiers departed so markedly from community standards such as to be offensive to conscience.[425]

'Extreme commercial pressure'

629. I do not accept Westgem's characterisation of the Finance Parties' conduct towards Westgem and its guarantors in the period between the occurrence of the second Cost Overrun and the execution by Westgem of the 18 November Letter Agreement as the 'application of extreme commercial pressure', but leaving that question of characterisation aside, the Finance Parties did not act unconscionably.
630. I do not doubt that in appropriate circumstances the application of commercial pressure may be viewed as unconscionable. But whether that pressure will rise to such a standard must be considered in light of what prevailing community standard would consider to be pressure that goes against conscience. Such considerations must be tempered by an understanding that in the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure.[426]
631. Westgem's unconscionability claim relies on a number of aspects of the Finance Parties' conduct which Westgem contended either constituted unconscionable conduct or evidenced a willingness to adopt unconscionable tactics, but it overlooks three important matters. First, even though, the Financiers were not obliged to do so, (because the existence of an unpaid Cost Overrun was a condition precedent to drawdowns under the MOFA), the Financiers did permit Westgem to drawdown on the Facility to meet Salta's progress claims, albeit with some delay in respect of the September payment. Secondly, the Facility Agent and the Financiers did not disregard Westgem's protests about the amount of the second Cost Overrun and the 'credits'. They gave those protests genuine and serious consideration. Mr Nagle made his own inquiries in relation to the Podium works, Mr Sanders assessed the credits claimed in Contract Sum Adjustment 22 in October 2009 and determined that none should be allowed and 333 undertook a review of the Project. In the course of his detailed investigation Mr Gowdie discussed the credits with Mr Frank Saraceni and considered the detail of them, whilst he was prepared to allow a credit for the Podium works, the effect of his analysis was that there was a Cost Overrun of $17.9 million. Thirdly, the Financiers were prepared to negotiate and did negotiate with Westgem over the terms upon which they were prepared to grant further financial accommodation to Westgem.
632. The statutory prohibition on unconscionable conduct does not operate to prevent parties from relying on their legal rights nor from making commercial decisions that suit their interests. It was not unconscionable for the Financiers to rely on their contractual right under the terms of the MOFA to apply the default interest rate and to refuse a drawdown request for 'soft costs'.
633. Likewise it was not unconscionable for CBA as Bankwest's parent company not to renew Pakwest's finance facility on the same terms if it was under no obligation to do so.
634. Against the background of Mr Saraceni's threats to walk away from the Project and to sue the Financiers, it would be unrealistic to expect that the Financiers would not take steps to protect their interests and record their intention to do so in robust language - it was legitimate for them to do so. Mr Pavisich's insinuation that a receiver might be appointed if agreement could not be reached in relation to the second Cost Overrun was a statement of the obvious made in the context of robust commercial discussions. Moreover, if Mr Saraceni had acted on his threat to walk away from the Project, the appointment of a receiver would have been inevitable.
635. In the course of cross-examination it was put to Mr Pavisich that he and others had sought to bully and intimidate Westgem into signing the 18 November Letter Agreement. Mr Pavisich rejected the accusation and said that in his dealings with Westgem he had 'always tried to do the right thing, to get this building completed with them in place',[427] and that he had worked with Westgem to find a solution.[428] In the discussions and negotiations in the period between September 2009 and March 2010 Mr Pavisich was the main point of contact between the Financiers and Westgem about the second Cost Overrun. He communicated directly with Mr Clohessy and, to a lesser extent, with Mr Luke Saraceni. Based on the content and tenor of his email communications and his account of his conversations, my impression is that Mr Pavisich adopted a reasoned approach in his discussions with Mr Clohessy and Mr Saraceni. His approach was not one that could be characterised as bullying or intimidatory. Whilst self-evidently it was a generalised response to a generalised accusation of bullying and intimidation I accept Mr Pavisich's evidence that he tried to do the right thing and worked with Westgem to find a solution.

The terms of the 18 November Letter Agreement were not unconscionable

636. The 18 November Letter Agreement was an agreement that extended Westgem's time to pay the second Cost Overrun in circumstances in which it had been unable to pay in accordance with the terms of the MOFA. The 18 November Letter Agreement recorded this accommodation in Westgem's favour.
637. Two further observations about the wider commercial context may be made. First, the 18 November Letter Agreement must be seen in the context of the bargain struck by Mr Saraceni and Mr Pourzand embodied in the MOFA by which they assumed the risk of Cost Overruns. No doubt as experienced property developers they had made an assessment of the likelihood of that risk materialising and their ability to deal with the risk if it did materialise. If their assessment was wrong (or if they were simply unfortunate in relation to events beyond their control) and were unable to deal with the consequences of a Cost Overrun when it occurred, that was their commercial misfortune which arose as a consequence of a commercial agreement willingly entered into by them in the expectation of profits. The second observation, while no doubt trite, still needs to be made, it is simply that in business one party's commercial disadvantage is often another party's commercial advantage and the statutory prohibition of unconscionable conduct is not intended to prohibit a business from enjoying the benefit of its contractual counterparty's commercial disadvantage. Neither is it intended to relieve a party of the consequences of entering a deal that, as events unfold, turns out badly. As the High Court has made clear the prohibition against unconscionable conduct is concerned with conduct that is against conscience - it is a high threshold. It is not a panacea for all commercial failings, to be applied in favour of the party thought most deserving of sympathy.
638. Turning to the terms of the 18 November Letter Agreement the first provision on which Westgem focussed was as follows:[429]

[E]ach Guarantor acknowledges that all Cost Overruns, including the Cost Overruns in the amount of $12,921,000 and $17,000,000 as set out in the notice to the Borrower dated 18 September 2009 sent by the Facility Agent for and on behalf of the Finance Parties, form part of the Guaranteed Money (as that term is defined in the Guarantees) for which each Guarantor is liable in accordance with the terms of that Guarantor's Guarantee;

639. Westgem was seeking an accommodation from the Financiers in the form of time to pay the second Cost Overrun. It was doing so against the background of Mr Saraceni having threatened to sue the Financiers. In proposing the terms on which they would accommodate Westgem it was legitimate for the Financiers to attempt to limit the potential for further disputes by seeking an acknowledgement from the guarantors that the Cost Overruns formed part of the 'Guaranteed Money'. It was not in the Financiers' interests to accommodate Westgem yet remain exposed to the risk of being sued by it. It was understandable that the Financiers wanted a measure of certainty and the (limited) protection from action that an acknowledgement of the occurrence of the Cost Overruns by the guarantors provided. It must be remembered also that by 16 October 2009 Westgem had agreed in principle to accept the outcome of the 333 determination of the cost to complete. Westgem may not have accepted that the second Cost Overrun had occurred in the sense that its directing minds, Mr Saraceni and Mr Pourzand, had not been positively persuaded of the existence of a Cost Overrun but it had agreed to accept 333's assessment by way of a compromise.
640. The requirement for an additional $50 million of security was recorded in the 18 November 2009 letter as follows:[430]

[E]ach Transaction Party undertakes, and by their execution of this letter hereby gives the undertaking (Undertaking), to provide to the Security Trustee, by no later than 14 December 2009:

(a) valid and enforceable second ranking mortgages over all land owned by the Transaction Parties that is currently mortgaged in favour of the Bank of Western Australia Ltd or the Commonwealth Bank of Australia, and which land is acceptable to the Financiers (in their sole and absolute discretion) (Additional Mortgages); and/or

(b) any other security or credit support acceptable to the Financiers in their sole and absolute discretion (Additional Credit Support),

which is to act as additional security for repayment of the Facility. The aggregate of the net equity value (as determined by the Financiers in their sole and absolute discretion) in the properties the subject of the Additional Mortgages and the Additional Credit Support must be at least $50,000,000.

641. In discussions about the terms upon which the second Cost Overrun might be settled the value of the security sought by the Financiers was not a contentious issue. In his email to Mr Pavisich of 5 October 2009 Mr Clohessy indicated that Mr Saraceni and Mr Pourzand accepted that the Financiers required an additional $50 million of security. The absence of any controversy about the term at the time it was negotiated undermines Westgem's claim that it constituted or evidenced unconscionable conduct. In my view it was legitimate for the Financiers to ensure that they had adequate security and for them to the sole arbiters of the adequacy of the security.
642. Westgem relies on the amendment fee of $500,000 - approximately 3% of the accommodation of $17 million - as evidence of unconscionable conduct on the part of the Financiers. Westgem adduced no evidence of the fees charged by financiers generally for financial arrangements of the nature contemplated by the 18 November Letter Agreement. Westgem paid an establishment fee of $1 million to Bankwest for the facilities established by the MOFA. No objection was made to the $500,000 fee at the time it was charged, though, as noted in the course of stating the factual background to the second Cost Overrun, there was some discussion between Mr Clohessy and Mr Pavisich about the possibility of reducing the establishment fee and increasing line fees. The proposition that the fee of $500,000 is evidence of unconscionable conduct, or constituted unconscionable conduct is not made out.
643. The provision that conferred a right on the Financiers to require amendments to the MOFA after the Financiers had considered 333's report was as follows:[431]

The Transaction Parties also agree that, in consideration of the Finance Parties not immediately exercising the Reserved Rights pursuant to the terms of this letter as they are entitled to do in accordance with the Facility Agreement, the Financiers may review the Multi-Option Facility and the conditions of the Multi-Option Facility, including, without limitation, pricing, the Cost to Complete and the Security for the Multi-Option Facility after the report, or any interim report, of the Independent Consultant from 333 Real Estate Pty Ltd (IC Report) has been provided to the Facility Agent. Following a review by the Financiers of the IC Report:

(1) the Facility Agent may give a notice to the Borrower stating that the Financiers require amendments to the Multi-Option Facility. The Borrower and the Facility Agent agree to negotiate in good faith for a period of 5 Business Days from the date of service of that notice (Negotiation Period) to determine those amendments; and

(2) if the amendments required by the Financiers are not agreed by the end of the Negotiation Period, the Facility Agent may give a notice to the Borrower under which it nominates a date (being not less than 60 days from the date of service of that notice) (Nominated Date) by which the Financiers require the Borrower to pay to the Facility Agent the Secured Money In full.

644. Westgem described this term, which, in effect, conferred on the Financiers a unilateral right to vary the terms of the MOFA, as an 'extraordinary term'. In a practical sense it gave the Financiers a right to terminate the MOFA even if the second Cost Overrun was remedied and Westgem had complied with the terms of the 18 November Letter Agreement. Mr Pavisich accepted that the provision gave the Financiers an 'extraordinary amount of power' over Westgem and added '... it basically says, you know, we can do what we like once we get the report'.[432]
645. The rights conferred by cl 5.2 must be assessed in the commercial context that existed when the agreement was negotiated. Two matters are of particular relevance. First, on the basis of my findings, the Financiers were entitled to terminate the MOFA in November 2009, and demand repayment of all monies outstanding. Second, the Financiers wanted 333 to undertake a thorough review but it was not in their interests for the work to be further delayed. From the Financiers' perspective it was not unreasonable for them to press for the right to renegotiate the terms of MOFA once the Independent Consultant's review was completed. If the Independent Consultant's report had been available before the extension of time for payment of the $17 million was subject to a binding agreement, it would have been open to the Financiers to renegotiate the MOFA at that stage in the light of the report and if renegotiated terms could not be agreed, the Financiers could have demanded immediate payment of all monies then outstanding. It was not unreasonable for the Financiers to want to reserve the right of review.
646. A difference between exercising the accrued right to terminate before the 18 November Letter Agreement was concluded on 1 December 2009, as opposed to exercising the rights under cl 5.2(2) was, of course, that in the latter instance, assuming Westgem did not remedy the Cost Overrun, the Financiers would have obtained the benefit of the additional $50 million security. This is not sufficient, however, to characterise the provision in cl 5.2(2) unconscionable.
647. Westgem's acceptance of cl 5.2(2) of the 18 November Letter Agreement is indicative of Westgem's weak bargaining position. Mr Pavisich acknowledged the reality of the situation in which Westgem found itself in November 2009 - he accepted that in a practical sense Westgem needed 'to go along with the bank' and reach an agreement.[433] Looked at in isolation the provision was a 'bad bargain' from Westgem's perspective - it constituted a serious risk that even if the default was remedied, Westgem could be required to accept revised terms or repay the borrowed funds. The provision must be seen, however, as part of the consideration for the Financiers' making further financial accommodation available to Westgem so it could overcome the difficulty created by the second Cost Overrun. Whilst it constituted a risk, it was a risk that Mr Saraceni and Mr Pourzand, as experienced commercial operators in a disadvantageous commercial position, were prepared to take in order to obtain the benefit of the accommodation the Financiers were prepared to offer in respect of the second Cost Overrun. The fact the Financiers were able to take advantage of Westgem's inability to pay the second Cost Overrun and secure for themselves the opportunity to improve their commercial position was not unconscionable. In any event the Financiers did not invoke the right conferred by cl 5.2(2).
648. Mr Pavisich was cross-examined extensively about the paragraph in the 18 November 2009 letter that asserted, in effect, that if its terms were not accepted by 23 November 2009, there would be an Event of Default. The paragraph read as follows:[434]

Please acknowledge your consent, acknowledgment. agreement and acceptance of the terms of this letter, and the provision of the Undertaking, by signing the attached copy and returning it to us by no later than 23 November 2009, failure to do so will constitute an immediate Event of Default (in addition to and without limiting or affecting in any way any subsisting Event of Default, including the Cost Overrun Default).

649. A failure to sign the copy of the letter by 23 November 2009 was not capable of amounting to an Event of Default and the statement that it would do so, should never have been made. It appears to have been an ill-conceived attempt to put pressure on Westgem to accept the terms offered. That said, it does not advance Westgem's unconscionability claim because there is no evidence that Mr Saraceni, Mr Pourzand or Mr Clohessy took any notice of the statement or that it affected their decision-making in anyway. I infer from the fact that the letter was not signed until 1 December 2009 that either they did not appreciate what was being said in that paragraph of the letter or if they did, they simply ignored it. I suspect the latter alternative is more likely than the former.
650. Westgem's unconscionable conduct claim based on the terms of the 18 November Letter Agreement faces the further difficulty that Westgem sought and obtained legal advice in relation to the 18 November 2009 letter. Westgem did not challenge the terms it identified as unconscionable when the letter was presented to it.

A final point

651. Any force in Westgem's unconscionable conduct claim is blunted by Westgem's knowledge recorded in Financial Statement No 7 that its internal construction cost forecast made in August 2009 put the (construction) cost to complete at $263 million giving rise to a Cost Overrun of more than $17 million. Despite being obliged to do so (cl 15(9) and (10) of the MOFA) Westgem did not share this forecast with Bankwest.

652. Westgem's misleading or deceptive conduct claim in respect of the second Cost Overrun rests upon its claim that that the second Cost Overrun had not occurred at 18 September 2009 and that thus Bankwest's assertion of the existence of the second Cost Overrun was misleading or deceptive. The finding that the second Cost Overrun had occurred means that the misleading or deceptive conduct claim fails.

Financiers' positive defences to the second Cost Overrun claims

653. As with the first Cost Overrun claims the Financiers raised a wide range of positive defences to Westgem's second Cost Overrun claim which involve some factual and legal complexity. As I have concluded that Westgem's second Cost Overrun claims fail on a number of levels it is unnecessary to address the Financiers' positive defences. I will, however, address one of the Financiers' positive defences, their estoppel by deed defence.