James Woodward Neale v Bank of Western Australia Ltd; Bank of Western Australia Ltd v James Woodward Neale [2014] NSWSC 315 (24 March 2014)

Supreme Court of New South Wales Decisions

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James Woodward Neale v Bank of Western Australia Ltd; Bank of Western Australia Ltd v James Woodward Neale [2014] NSWSC 315 (24 March 2014)

Last Updated: 25 March 2014

Supreme Court New South Wales

Case Title:	James Woodward Neale v Bank of Western Australia Ltd; Bank of Western Australia Ltd v James Woodward Neale
Medium Neutral Citation:	[2014] NSWSC 315
Hearing Date(s):	3, 4, 5, 6, 10,11, 12, 13, 17, 18, 20, 21, 24 & 28 February 2014
Decision Date:	24 March 2014
Jurisdiction:	Equity Division - Commercial List
Before:	Hammerschlag J
Decision:	Judgment for Secured Global Opportunity Ltd against Mr Neale and J.W. Neale Pty Ltd (Receivers and Managers appointed) for $31,552,497 as at 3 November 2013. Order for possession of 35 Fox Valley Rd Wahroonga NSW. The proceedings brought by Mr Neale and J.W. Neale Pty Ltd (Receivers and Managers appointed) dismissed
Catchwords:	FINANCIAL SERVICES - ss 12CA(1) and 12CB(1)(a) and 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) - EQUITY - CONTRACTS - s 7(1) of the Contracts Review Act 1980 (NSW) - CODE OF BANKING PRACTICE - whether bank misleadingly or deceptively represented that it would lend forever - whether bank misleadingly, deceptively or unconscionably procured its customers to hedge interest obligations under a loan - whether bank misleadingly, deceptively or unconscionably procured its customers to agree to facility terms including interest at Overdue Rates - whether bank acted contrary to Code of Banking Practice - whether provisions of facility agreements were unjust in the circumstances relating to them at the time they were made or are unenforceable penalties
Legislation Cited:	Uniform Civil Procedure Rules 2005 (NSW). Civil Procedure Act 2005 (NSW) Australian Securities and Investments Commission Act 2001 (Cth) Contracts Review Act 1980 (NSW)
Cases Cited:	International Skin Care Suppliers Pty Ltd v Commonwealth Bank of Australia [2013] NSWSC 1768 Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 ACCC v C G Berbatis Holdings Pty Ltd & Ors [2003] HCA 18; (2003) 214 CLR 51 The Commonwealth v Verwayen (1990) 170 CLR 394 Wardley Australia Ltd & Anor v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 Helton v Allen [1940] HCA 20; (1940) 63 CLR 691 at 712 Rejfek v McElroy [1965] HCA 46; (1965) 112 CLR 517 Watson v Foxman (1995) 49 NSWLR 315 David Securities Pty Ltd v Commonwealth Bank of Australia [1990] FCA 148; (1990) 23 FCR 1 Accom Finance Pty Ltd v Mars Pty Ltd [2007] NSWSC 726; (2007) 13 BPR 24,729
Category:	Principal judgment
Parties:	James Woodward Neale - First Plaintiff J.W. Neale Pty Ltd (Receivers and Managers appointed) - Second Plaintiff Commonwealth Bank of Australia trading as Bank of Western Australia Ltd - First Defendant Brett Stephen Lord - Second Defendant Stephen James Parbery - Third Defendant Secured Global Opportunity Limited - Fourth Defendant
Representation
- Counsel:	Counsel: JW Neale - First and Second Plaintiffs - (self-represented) P Dowdy - First to Fourth Defendants
- Solicitors:	Solicitors:JW Neale - First and Second Plaintiffs - (self-represented) Norton Rose Fulbright - First to Fourth Defendants
File Number(s):	2011/211735; 2011/401621 Consolidated

JUDGMENT

INTRODUCTION

1. HIS HONOUR: Under a facility agreement dated 17 March 2008, varied on 21 April 2008, 30 September 2008 and 16 April 2010, the Bank of Western Australia ("Bankwest") lent and advanced $19,770,000 to Mr James Woodward Neale and his company, JW Neale Pty Ltd.

2. As security for the loan, Mr Neale mortgaged to Bankwest:

(a) his 10 acre property, fronting on Avon Road and Beechworth Roads, Pymble ("Avon Rd");

(b) his 2 acre property situated at 35 Fox Valley Road, Wahroonga ("Fox Valley Rd"); and

(a) (c) his industrial property situated at 6-10 Yatala Road, Mt Ku-ring-gai ("Yatala Rd").

3. On 23 June 2011, Bankwest appointed Messrs Brett Stephen Lord and Stephen James Parbery as receivers to Avon Rd and Yatala Rd. They sold Yatala Rd on 13 October 2011. Avon Rd has not been sold.

4. By Summons and accompanying Commercial List Statement sued out of the Court on 13 December 2011, Bankwest commenced proceedings against Mr Neale, seeking judgment for $22,584,097 and an order for possession of Fox Valley Rd.

5. In December 2008, the Commonwealth Bank of Australia acquired Bankwest from the Halifax Bank of Scotland. Bankwest's business and all its rights and obligations were transferred to the Commonwealth Bank. The Commonwealth Bank has assigned the claim against Mr Neale and his company to Secured Global Opportunity Ltd ("SGOL").

6. By Amended Commercial List Statement filed on 16 December 2013, SGOL, as assignee of the Commonwealth Bank's claim, seeks judgment against Mr Neale and his company for $31,552,497 as at 3 November 2013, and an order for possession of Fox Valley Rd.

7. By Defence filed on 10 January 2014, Mr Neale and his company admitted all of the allegations in the Amended Commercial List Statement.

8. During the hearing, they sought leave to withdraw the admission as having been made in error. Mr Neale says that he always intended to challenge both the base and penalty interest rates charged by Bankwest and included in the debt claimed.

9. The admissions operate for the benefit of SGOL and may not be withdrawn except with the consent of SGOL or by leave of the Court; see Part 12, rule 12.6(2) Uniform Civil Procedure Rules 2005 (NSW). Under section 56 of the Civil Procedure Act 2005 (NSW) when exercising this discretion the Court must seek to give effect to the overriding purpose of the Act and of the rules of court, which is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.

10. Mr Neale says that the admissions were made as a result of an error on the part of his then solicitors, who did not act in accordance with his instructions. He went so far as to assert from the bar table that he had been defrauded by SGOL's solicitor into making the admissions, an assertion for which no foundation was shown.

11. He accepts and admits that the debt is $22,059,199. SGOL is thus entitled to judgment for this amount on his admission in any event.

12. SGOL opposed the withdrawal of the admission, but took the position that if leave was granted to withdraw it, it would seek leave to amend its claim, to increase it to what it says is the actual present debt, which is closer to $38,000,000. If the withdrawal is not permitted, it is content to have judgment for the lesser amount claimed by it.

13. The parties were at issue whether there had in fact been any error by Mr Neale or his solicitors. There was no affidavit by his solicitors, although they had asserted in emails not long after the filing of the Defence, that there had been an error. The absence of an affidavit might be explained by the breakdown in the relationship between Mr Neale and his then solicitor Ms Teffaha, who wrote that she did not want to deal with Mr Neale anymore. If there had been an error, it may well have been forensic, in that Mr Neale may have been content to admit the debt and rely on his cross-claim for damages.

14. In my view, the course most likely to conduce to the quick, cheap and just resolution of the true issues was not to rule on the application immediately, but (though there was a presently standing admission) to permit Mr Neale in the hearing to fully motivate his challenges. If he established them, this would be a decisive consideration favouring permitting him to withdraw the admission. If he failed to establish them there would be no warrant to permit withdrawal. In proceeding this way, the Court would determine his challenges on the merits, without any risk to him of the quantum presently claimed, increasing.

15. I informed the parties, and there was no demur, that I would deal with the application for leave to withdraw the admissions as part of this judgment.

16. By Amended Commercial List Cross-Claim Statement filed on 19 July 2012, Mr Neale brings a cross-claim against Bankwest for damages and other relief.

17. Bankwest's proceedings were preceded by proceedings ("the earlier proceedings") brought by Mr Neale. By Summons issued on 29 June 2011, Mr Neale moved for an injunction restraining Bankwest from appointing receivers to Avon Rd. The application was dismissed by Bergin CJ in Eq on 1 July 2011. On 18 August 2011, Mr Neale filed a Statement of Claim seeking amongst others, declarations that the amount owing to Bankwest was $18,300,000, and that interest was accruing on that amount as at 1 May 2010 at the rate of $3163 per day. On 30 September 2011, Mr Neale moved the Court for an injunction restraining the auction of Yatala Rd, by receivers appointed by Bankwest. The application was dismissed, with indemnity costs, by Ward J (as Her Honour then was). In both applications, Mr Neale appeared without legal representation. Although the earlier proceedings have been consolidated, and are being heard together with the proceedings brought against Mr Neale, the earlier proceedings no longer have utility. All live questions fall for determination in the later proceedings.

18. On 22 November 2013, I fixed the trial to commence on the first day of the new Court term, 3 February 2014. The hearing occupied 14 hearing days. Over 3000 pages of documents were tendered.

19. Mr P Dowdy of counsel, appeared for the Commonwealth Bank and SGOL.

20. In their dealings with Bankwest, and in the hearing, little or no distinction was drawn between Mr Neale and his company. Mr Neale always represented himself and his company. References to Mr Neale should be taken to comprehend both him and his company.

21. At various times during the life of the proceedings Mr Neale has been legally represented. He informed me from the bar table that he has consulted no less than 15 firms of solicitors. It is apparent that he fell out with some of them. From the bar table he made allegations of dishonesty on the part of some of them. Solicitors who have appeared for Mr Neale include, Mr J Mahony, Mr T Hall and most recently, Ms S Teffaha of Levitt Robinson. Counsel have included Mr M S Jacobs QC, Mr W Muddle SC, Mr D Neggo and Mr R Notley.

22. I gathered that during the hearing Mr Neale was receiving, gratis, advice from Mr Mahony, and to a lesser extent, from Mr A W Street SC. However, Mr Neale was unrepresented in Court. With leave, he appeared for his company.

23. Where proceedings, especially complex commercial proceedings, are prosecuted by unrepresented parties with no legal training, as in the present case, difficulties are almost invariably encountered, not least of all with respect to the articulation of issues, cross-examination and submissions. The Court strives to alleviate the difficulties, for example, while maintaining balance, by granting latitude to the unrepresented party and endeavouring to articulate the issues which the unrepresented party appears to wish to raise. I gave extensive latitude to Mr Neale, and endeavoured to assist in the articulation of issues it appeared to me he wished to, and could permissibly, raise; however, rather than alleviating the difficulties, it exacerbated them.

24. Mr Neale fervently holds the conviction, to the point of preoccupation, perhaps even obsession, that once the Commonwealth Bank had taken over Bankwest, it set out on a deliberate course of targeting Bankwest's customers, including himself, with the intention of harming them by fraudulently forcing them into default and selling them up at an undervalue. I will refer to this as the "deliberate destruction strategy".

25. Mr Neale believes that in his case, the deliberate destruction strategy was implemented by the Commonwealth Bank fraudulently procuring low valuations of the properties mortgaged by him to Bankwest, so as to make him default by putting him in breach of loan to value ratio (LVR) covenants in his facilities, and by withholding advances so as to deny him resources to obtain redress. He believes that valuers knowingly participated in the deliberate destruction strategy.

26. He says that as part of the deliberate destruction strategy, Yatala Rd was deliberately sold at a significant undervalue, and that the same strategy is being adopted with respect to Avon Rd.

27. Mr Neale says that he was the largest trader of derivatives in Australia for many years. He describes himself as quite sophisticated as a borrower from banks, having done it all his life. He says he has been a director of a bank, an options member of the stock exchange and a member of the futures exchange. He says that he has lent his own money out on mortgages. He says he has been chairman of 140 strategic planning sessions, and years ago, his highest achievement was being appointed by the Prime Minister. He describes himself as an expert in the field of financial calculation. He describes himself as a retired property developer, a semi-expert or enthusiastic amateur property developer and land banker. He says that he has lectured at university.

28. He also describes himself as a diagnostician. He says that as a diagnostician, he "got to the top of the world, not just Australia".

29. He says that he has diagnosed both "the what" it is the Commonwealth Bank has done, and "the why" it has done it. He maintains that the accuracy of his diagnosis can be conclusively proved mathematically.

30. Elements of this proof are, as I understand it, that the Commonwealth Bank acquired Bankwest for less than the value Bankwest's shareholders' funds and, as a result, was compelled to depress the value of Bankwest's underlying assets, and that the Commonwealth Bank viewed Bankwest as a competitor and sought its destruction.

31. Mr Neale's present diagnosis was not his original one. His original diagnosis was that the Commonwealth Bank had acted to take advantage of provisions, described as a claw-back arrangement, in the agreement by which it acquired Bankwest. The claw-back arrangement provided for a reduction in the purchase price payable by the Commonwealth Bank for the shares in Bankwest, if the value of a Bankwest asset was determined to be less than that reflected in a draft balance sheet upon which the initial purchase price was based. These provisions are described in International Skin Care Suppliers Pty Ltd v Commonwealth Bank of Australia [2013] NSWSC 1768 at [578] and following. Mr Neale informed me that he had read the judgment and concluded it was correct and had thereafter made a different but now accurate diagnosis.

32. He spoke repeatedly of a class action that he wished to bring, describing himself as a doctor who had to push to the front of the queue to help other victims of the Commonwealth Bank's behaviour, of a Senate inquiry which had failed to provide an avenue for redress, and of the failure of the fraud squad to react to his complaints. He spoke of the failure of all arms of government, including the judiciary, to provide an avenue for redress of these complaints.

33. Months before the trial, Mr Neale foreshadowed seeking leave to amend to plead the deliberate destruction strategy. A motion for leave to amend was filed, but on 11 November 2013, Mr M S Jacobs QC then appearing for Mr Neale, consented to its dismissal because a proposed pleading which had been prepared was inadequate.

34. On 16 December 2013, Ms S Teffaha, solicitor of Levitt Robinson appeared, seeking an adjournment of the then scheduled hearing, on the basis that Mr Neale was expecting to receive a preliminary expert report, which would support his contentions. I declined to grant the adjournment, but said that if Mr Neale received such a preliminary report, it was open to him to make a further application to the Duty Judge during the court vacation. No such report saw the light of day, and no such application was made until during the hearing.

35. At a directions hearing on 20 December 2013, at which Ms Teffaha appeared, I confirmed the hearing date and made the usual order as to hearing.

36. The only application which was made to the Duty Judge during the Court vacation was an application made on 9 January 2014 by Levitt Robinson for leave to withdraw from the proceedings, essentially on the ground that there had been a breakdown in the relationship between Mr Levitt and Mr Neale. Mr Neale denied any breakdown. Lindsay J refused that application on the same day. However, on the first day of the trial, the application was renewed, based on fresh material. At this point, Mr Neale did not oppose Levitt Robinson being given leave to withdraw, which they then did, and he continued unrepresented.

37. Early in the hearing, Mr Neale foreshadowed seeking leave to amend, so as to plead the deliberate destruction strategy, and as part of it the sale of Yatala Rd at an undervalue. He indicated that he was receiving the assistance of a valuer, Mr Lupton, who would give evidence. Mr Lupton had valued Yatala Rd in December 2011. I observe that the sale of Yatala Rd is pleaded in Mr Neale's cross-claim, on the basis that the sale constituted a trespass, not because it was at an undervalue. No further report (draft or final) from Mr Lupton was produced.

38. Some days into the hearing, Mr Neale moved his application for leave to amend. He brought in a proposed Amended Commercial List Cross-Claim Statement. I refused leave to amend. The proposed pleading was inadequate and objectionable, not least of all because some of the issues it sought to raise were non-justiciable. It is not necessary to deal in detail with its inadequacies, because, even with an adequate pleading, I would have refused leave. No factual underpinning of any kind, let alone any sufficient to conclude that the deliberate destruction strategy had any prospect of being established, was produced.

39. More than this, there were a number of considerations which seemed to me, at least on their face, to contra-indicate Mr Neale's now diagnosis of the deliberate destruction strategy.

40. Firstly, Mr Neale submitted that one motive of the Commonwealth Bank to contrive default was that the "penalty interest rate", which would in that event be payable, would yield a significant profit to it. This is inimical to the existence of a motive to impair the value of the asset. Secondly, in the case of Mr Neale, as will appear below, the term of his facility expired, entitling Bankwest to repayment without the necessity for any additional default whether in respect of LVR covenants or otherwise and contrived or otherwise. Thirdly, as will also appear below, the bank was prepared to extend the period on conditions which included an increase in the loan to value ratio in recognition of the fact that the security was viewed as being worth less. This is inimical to the existence of a motive to contrive default. Fourthly, no rational basis was given why the Commonwealth Bank would, to its own detriment, seek destruction of its subsidiary's assets.

41. Mr Neale says that he is entirely without liquid financial means. The amendment would have necessitated the adjournment of the trial for a lengthy period, whilst the debt continues to accrue interest, and SGOL's ability to recover it from the security correspondingly diminishes. Mr Neale lacks the resources to pay the costs that would inevitably have been thrown away by an adjournment. Moreover, he had every opportunity to bring such an application earlier, but did not do so. To have allowed the amendment would have been inimical to the achievement of the facilitation of the just, quick and cheap resolution of the real issues in the proceedings as required by s 56 of the Civil Procedure Act: see Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175.

42. Despite the fact that the deliberate destruction strategy was not part of his pleaded case, and an acute awareness on his part that his attempt to introduce it had failed, Mr Neale continually returned to the topic, sometimes engaging in lengthy soliloquies about it.

43. My attempts to impress upon him that this was not permissible were entirely unsuccessful. Mr Dowdy put that Mr Neale was deliberately flouting my rulings. There is substance in this submission.

44. Mr Neale made it clear that his real case is the deliberate destruction strategy case, and on a number of occasions, said that without it, his case was dead. In one of his written submissions, he submitted that "The real defence is a reprisal by CBA and also a source of wrongful profit by CBA". As an indication of his preoccupation with the deliberate destruction strategy thesis, at some point, he conveyed to me, that he was not aware of what had been pleaded in his cross-claim.

FACTUAL BACKGROUND

45. I turn to the facts.

Events leading to the first facility

46. For about 30 years, Mr Neale has owned Avon Rd. It is in the vicinity of Avondale Golf Course and Pymble Ladies College. By all accounts, although it is in a prime location, as a development site, Avon Rd is attendant with complexity and difficulty. It was designated by the Department of Planning as a site appropriate for development. There has been a lengthy, but to date still unsuccessful, process of seeking development approval. I was informed from the bar table that its planning status is the subject of proceedings currently pending in the Land and Environment Court and being prosecuted by SGOL.

47. On 13 June 2007, the Family Court of Australia ordered Mr Neale to pay to his former wife, Carol Joan Neale, $6,950,000 of which $500,000 was payable by 1 November 2007, and the balance of $6,450,000 by the earlier of 1 April 2008 or the completion of the sale of Avon Rd.

48. Mr Neale borrowed money from Challenger Bank to pay the first instalment. As security for the loan, he mortgaged to Challenger Bank two properties owned by him, one known as "Glendon" at Bendemeer ("Glendon") and the other at Lake Coila ("Lake Coila").

49. At the time of the Family Court orders, Mr Neale was indebted to Macquarie Bank for $8,750,000, secured by mortgage over Avon Rd. He needed funds to pay the second and much larger instalment to his former wife.

50. Mr Ward Wescott of Balmain NB Commercial Mortgages Ltd, a finance broker, was according to Mr Neale, a long time and trusted friend. Mr Neale approached Mr Wescott to assist in refinancing the Macquarie Bank debt, obtaining further finance to pay his former wife and to provide some working capital to fund costs associated with the development of Avon Rd. Mr Wescott approached a number of financial institutions, including St George Bank and Bankwest. Bankwest was represented by Mr Mario Caleite, whose designation was Director Property Finance. Mr Wescott prepared a credit submission, seeking finance for a loan term of "18 months - with provision for possible extension or role into JV development loan".

51. Under cover of a letter dated 25 January 2008 signed by Mr Caleite, Bankwest made a written financing proposal ("financing proposal") to Mr Neale contemplating a loan of $19,000,000 for a term of 18 months, at an interest rate of BBSY plus a margin of 1.65% per annum, principal to be repaid at the end of the term. BBSY is a published Bank Bill interest rate.

52. The covering letter required payment of a mandate fee of $5000 to enable Bankwest to commence due diligence activities and to seek formal credit approval. The $5000 mandate fee was not paid by Mr Neale until 27 February 2008. The reason for the delay was not explained. The letter made it clear that it was not an offer of finance and that the terms and conditions of any formal offer may be different to those set out in the financing proposal.

53. The financing proposal stated that a condition precedent to the advance would be the entry into of an agreement in form and substance satisfactory to Bankwest which agreement would:

either be subject to our General Terms for Business Lending version September 2006 or will be a facility agreement prepared by our solicitors (emphasis added).

54. At the top of each page of the financing proposal, appeared the words "THIS IS NOT AN OFFER OF FINANCE".

55. Mr Caleite prepared a Credit Risk Submission dated 12 March 2008 seeking approval for the loan.

56. Mr Neale says that in about January 2008, he met Mr Caleite and Mr Wescott and showed them over Avon Rd. Avon Rd is not far from the North Shore Line and there is a railway bridge nearby. He says that on the railway bridge a conversation ("the railway bridge conversation") to the following effect took place:

Neale: It's costing me a fortune to transfer this loan from Macquarie to you and it's only for 18 months - can't we make it longer than that?

Caleite: Not really - that's what Ward applied for - we want to see how it goes. If it's successful we'll lend to you forever - you know - as long as it stays successful. Also it would have to go to credit and we have to meet your settlement deadline.

Neale: I'm not worried about this application being refused - after all the Minister called the site in - what I'm worried about is that they'll protract the approval or put conditions on which I will have to take time to consider and argue. I don't want to be having those negotiations in the context of a bank deadline. You know that I don't have any other resources to pay you back - I'd have to either refinance or sell the site.

Caleite: Well you've got a lot of equity in Fox Valley Rd and your two rural properties are unencumbered. If you were negotiating an approval with the Department we would certainly consider extending the loan and we would be able to take extra security if that was necessary.

57. Mr Caleite denies that at this or at any other time did he say to Mr Neale that the bank would "lend to him forever" or "would lend to him forever as long as it's successful".

58. Mr Wescott denies that at this meeting or at any meeting he heard Mr Caleite says words to the effect attributed to Mr Caleite.

The first facility

59. By facility letter dated 17 March 2008, Bankwest offered to lend Mr Neale $19,000,000 as set out in attached facility terms. The letter stated:

The terms and conditions for the Facilities are set out in the following documents:

• this Offer Letter and the attached Facility Terms; and
• our General Terms for Business Lending dated December 2007

60. The facility letter was sent to Mr Wescott, who on sent it to Mr Neale on 18 March 2008.

61. The facility terms provided that the Facility Expiry Date was 18 months from the date of drawdown.

62. Under the heading "Facilities" and the subheading Interest Rate, the facility terms stated:

BBSY plus a Margin of 1.65% per annum. Please contact us if you would like to enter into an interest rate swap to fix payments in relation to interest

63. Under the subheading "Repayment", the facility terms provided that the Outstanding Amount was repayable on the Facility Expiry Date.

64. They provided that the advance was to be disbursed as follows:

Application of funds	Amount
Re-finance existing Macquarie Bank facility	$ 8,750,000.00
Second and final Family Court payment to Carol Joan Neale	$ 6,450,000.00
Working capital to fund continued costs associated with development of Pymble properties	$ 800,000.00
Capitalised interest	$ 3,000,000.00
TOTAL	$19,000.000.00

65. Under the heading "Conditions Precedent" and the subheading "Interest rate risk management", they provided:

The Borrower must provide evidence of a Risk Management Strategy whereby no less than $10,000,000.00 of the facility limit is hedged for the term of the facility.

66. Paragraph 3.2 of the facility terms recorded that Bankwest was pleased to offer an interest rate Risk Management Facility, comprising interest rate swaps, interest rate caps, floors and collars and interest rate swap options or any combination of them as appropriate.

67. Paragraph 6.7, entitled "Finance Undertakings", provided that the borrowers must ensure a loan to value ratio (LVR) of <55%.

68. Under the heading "Status Report", Bankwest required a report setting out the progress of negotiations for the future development of Avon Rd, an initial report being due 6 months from the date of the initial drawdown and a second report within 14 days of the first anniversary of the drawdown, with a full review to be conducted by the bank at that point.

69. The condition precedent that the borrowers hedge not less than $10 million of the facility limit was introduced by Bankwest for the first time in the facility letter. Mr Neale took umbrage to it. He conveyed his unhappiness to Mr Wescott.

70. Mr Neale says that he called Mr Caleite to complain about the fixing of interest rates and was told that he did not think that it could be changed.

71. Mr Neale says he asked Mr Wescott to call Mr Caleite. According to Mr Wescott, Mr Neale said:

Ward, I will accept the new hedging requirement but I want you to go back to the Bank and point out to them that with my background in financial markets I am very well able to arrange my own hedging and they better not try to rip me off on the cost of the hedge.

72. Mr Wescott says that he may have called Mr Caleite to complain on Mr Neale's behalf, but cannot now recall whether he did. Mr Neale says that he was told by Mr Wescott that Mr Caleite advised against trying to change the interest rate condition. Mr Wescott says that Mr Neale informed him that he had decided to hedge the full amount, notwithstanding that Bankwest did not require this. Mr Wescott says that later Mr Neale conveyed to him that his motivation for so doing was to endear himself to the bank. He in turn conveyed to Mr Neale that he considered this was not a logical way to proceed. Mr Neale proceeded in any event to hedge the full amount.

73. The facility letter referred to Bankwest's General Terms for Business Lending dated December 2007. Mr Neale asked Mr Wescott to obtain these, which he did. He sent them to Mr Neale by email on 19 March 2008, stating:

Jim: As promised, General Terms for your bedtime reading. Cheers, Ward.

74. Later that day, Mr Neale sent the terms to his solicitor, Mr Michael Battersby, of Bateman Battersby Lawyers, under cover of an email in which he said:

I'm sending this "just in case" and so you'll have it if necessary. I intend to read it myself. I usually have issues with the powers available to the bank if they perceive "potential default" and there will be other like matters.

75. Mr Neale's oral evidence was that he read the General Terms but not carefully.

76. Mr Neale signed his acceptance of the facility letter on 19 or 20 March 2008. Mr Wescott returned the signed copy to Mr Caleite under cover of an email dated 20 March 2008 which stated:

I attach an electronic copy of the signed offer letter, undated as per your request.

The major covenant by Jim in accepting your unexpected hedging requirement, which was not part of the earlier negotiations, is that he be totally satisfied with the price of the hedging arrangements quoted. Considering Jim's background as a market maker in the Sydney Options Market, he is very well aware of hedging techniques, and would be quite able to arrange his own hedging via the Futures Exchange.

I trust this is acceptable.

77. On 28 March 2008, Mr Battersby wrote to Mr Neale relevantly as follows:

I note your advices that you are currently negotiating with Bankwest for an amendment to your loan so that the interest rate is not a variable interest rate attached to bank bills but is a fixed rate of interest. I expect that this may result in that bank issuing to you an amended letter of loan offer.

In respect to the mortgage documentation, I note your advices that you have concerns regarding the definitions of "Material Adverse Effect" and "Potential Event of default" and also have concerns as to the representations warranties, general undertakings, positive undertakings and negative undertakings required to be made by you pursuant to Memorandum 9390023. I note your advices that you will discuss these concerns directly with Bankwest and I await your advices in that regard.

I confirm my advices to you that the mortgage documentation is security for the loan documentation including the bank's General Terms of Business Lending (December 2007) document. I note that you hold a copy of this document and have instructed me not to provide you advice in respect to it.

The 21 April 2008 variation and the hedging of interest

78. Mr Neale did not pay the instalment due to his former wife by 1 April 2008, and was required to pay her interest of $50,000 for the delay. In an email dated 16 April 2008 to Mr Wescott, he asserted that the delay had been "introduced" by Mr Battersby and Bankwest.

79. The anticipated payout figure for Macquarie Bank increased, because that institution claimed an early repayment fee of $532,000 which Mr Neale unsuccessfully tried to negotiate. The result was that a reallocation of funds to allow for settlement was required. Bankwest agreed to reduce the amount allocated to capitalised interest from $3,000,000 to $2,700,000 because of the effective fixing of the interest rate. The amount available for working capital was reduced from $800,000 to $518,000.

80. This necessitated a variation to the facility, which was effected by letter dated 21 April 2008 signed by Mr Caleite and signed by Mr Neale on 1 May 2008. This letter enclosed amended facility terms reflecting the reallocation of funds, but was otherwise not materially different from the earlier facility terms.

81. The hedging of the interest obligations was achieved by the execution of agreements between Mr Neale and Bankwest's then related company, Bank of Scotland Plc on the terms published by the International Swaps and Derivatives Association (or ISDA).

82. It did not take long for Mr Neale to assert to Mr Wescott that Bankwest was dishonest. In an email dated 10 June 2008 to Mr Wescott, he complained that Bankwest were not dealing honestly in the fixing of the interest rates for the swaps but accepted the rates "not because I think the position is correct or even truthful but because there is some chance that an adjudicator might accept it". Either way, Mr Neale accepted the interest rates for the swaps.

83. On 1 May 2008, an initial drawdown of $16,088,541 was made by Mr Neale.

84. From the borrowed funds Mr Neale made the required payment to his former wife and Macquarie Bank was paid out.

85. At this time, Yatala Rd was mortgaged to Challenger Bank to which Mr Neale owed $520,000. Through Mr Wescott, Mr Neale approached Bankwest to increase his facility by $770,000 to refinance the amount he owed to Challenger, to provide additional working capital of $180,000 and to increase the interest provision under the facility by $70,000. On 22 September 2008, Mr Caleite recommended that the facility be varied.

The 30 September 2008 variation

86. By letter dated 30 September 2008, Bankwest offered to vary the existing facilities. The letter attached new facility terms to replace the earlier ones. The letter stated relevantly:

From the date of acceptance of this Offer Letter the terms and conditions for all additional Facilities provided to you under this Offer Letter, and the terms and conditions for all existing Facilities are set out in:

• this Offer Letter and the attached Facility Terms; and
• any additional terms and conditions referred to in the Facility Terms; and
• our General Terms for Business Lending dated December 2007. Note these General Terms may differ from your current General Terms. If so, please read the new terms provided to you with this Offer Letter.

87. Under the proposed amended facility terms, the facility expiry date remained 1 November 2009. The LVR was <53%. The facility terms reiterated the requirement for a status report within 14 days of 1 November 2008 and a further report on 15 May 2009 with a full review to be conducted by the bank at that point.

88. Mr Neale signed acceptance of this facility letter on 3 October 2008.

89. On 14 January 2009, Mr Neale executed a mortgage over Yatala Rd in favour of Bankwest.

Events leading up to default

90. On about 16 April 2009, Mr Wescott produced a document entitled Status Review incorporating information provided by Mr Neale. The report was submitted to Bankwest sometime around 17 April 2009. It included a facility overview recording that the loan term was 18 months to November 2009. It contained a factual summary of progress towards Avon Rd being "construction ready" in 6 months. It described as future targets the engagement of a joint venturer builder who would invest money in relation to Avon Rd, completing discussions with Ku-ring-gai Council and determining the size and mixture of dual occupancies, subject to funding being approved submitting an application for development approval ("DA") to Ku-ring-gai Council and, subject to acceptable availability of a builder, commencing construction of approximately 35 dwellings for sale or rental.

91. By this time Mr Neale had apparently reached agreement on a joint venture ("JV") with a builder, Mr Rocco Falcomata of Falco Projects.

92. On 3 June 2009, Mr Caleite commented in a document apparently prepared for the bank panel which was to review the facility, that the Status Report indicated the borrower's intention to construct units for rent with a JV for each building to be with separate builders and that, at that point, it was difficult to see how such a funding proposal would fit within Bankwest's current development guidelines and that the borrower should be advised accordingly.

93. On 18 June 2009, Mr Mark Foden, an Assistant Relationship Manager, wrote to Mr Wescott informing him that the report had been through the Review Panel and noting a number of comments from the Panel, including that there would be no additional Bankwest funding beyond present limits and that Bankwest would be seeking refinance of the facility on or prior to its November 2009 expiry.

94. On about 30 July 2009, Mr Wescott, on behalf of "Jim Neale/Rocco Falcomata JV" submitted a credit submission to Bankwest seeking an extension the loan for 18-24 months and a further advance of $14,446,000 for construction (which would have increased the total borrowings to $34,216,000).

95. Mr Wescott says that before making the submission, he said to Mr Neale that whilst he knew Mr Rocco Falcomata well and he was a competent property developer in a small way, he did not have the track record or financial muscle to undertake the project of the size he was putting up to the bank and could not expect the bank to be impressed with his involvement and further Mr Neale had not yet put in an application to the Minister for a DA, and that all in all, he did not think that Bankwest was going to view the proposal favourably. Mr Neale did not agree.

96. On 10 August 2009, Mr Caleite formed the view that Bankwest could not support the submission. It was decided to call a meeting with Mr Neale and Mr Wescott. Mr Caleite says he called Mr Wescott and told him that Bankwest was not going to lend any more money to him and wanted to be repaid on 1 November 2009. A meeting took place on 10 August 2009 in the boardroom of Bankwest at which Mr Neale, Mr Wescott, Mr Nick Bennett of Balmain, Mr Cran Mallin (a Bankwest State Manager), Mr Foden and Mr Caleite were present.

97. By all accounts, the meeting became somewhat unpleasant. It is clear that the bank conveyed that it did not intend extending the facility. Mr Neale raised the question of the amount of working capital that still remained to be drawn under the current facility. According to Mr Neale, he begged the bank to tell him why there was so little money available for him to progress his projects. Mr Mallin responded that this was not the main issue of the discussion and that the purpose of the meeting was to come up with a strategy on why Bankwest should extend the loan term beyond 1 November 2009, if Mr Neale could not repay by that date. Mr Neale thumped the table and Mr Mallin said the meeting was closed. However, the meeting continued, focussing on the issue of the potential extension of the loan and the conditions including prepayment of interest which might apply.

98. On 12 August, Mr Caleite wrote to Mr Neale as follows:

Dear Jim,

Commercial Advance Facility: 100-128924-5

Facility Limit: $19,770,000.00

Present Outstanding Balance: $18,745,482-95

Expiry Date: 1st November 2009

I refer to the meeting at our Office on Monday 10th August 2009, and recent communications between the Bank and Balmain NB in respect of the approaching expiry of your Commercial Advance facility.

The purpose of this letter is to confirm the Bank's position.

The Bank is not in a position to provide any additional funding in excess of the present Facility Limit;

In the first instance, the Bank seeks full repayment of the facility on or prior to its expiry date;

In the event that you are unable to effect full repayment of the facility on or prior the expiry date, you should note that consideration of any extension of the facility expiry date will be subject to the provision of cleared funds on deposit to cover the required extension period plus a three month buffer. By way of example, a six month extension will require nine months interest capacity on deposit by 1st November 2009;

TheBank has issued instructions for an uptodate valuation of the Pymble development site. The Bank seeks yours & your consultants assistance in satisfying any information requests originating from the Bank's valuer. The cost of the valuation will be charged to your facility;

The Bank will provide you with a reconciliation of the facility which summaries the undrawn working capital & capitalised interest components of the facility.

As previously communicated to Balmain NB, you should be aware that we are required to report back to the Bank's Credit Department by 31st August 2009, providing them with an update on:

1. Reduction of the facility balance via the sale of non encumbered real estate;

2. Status of refinance of the facility on or prior to its 1st November 2009 expiry date;

3. Status of / progress achieved in progressing the planning process;

4. Status of discussions with JV & equity providers.

In summary, the Bank seeks repayment of your facility on or prior to its expiry date, which requires your commitment to address the matters raised earlier. Subject to your commitment via evidence satisfactory to the Bank, the Bank is willing to work with you. Trusting that this clarifies the Bank's position.

99. Mr Neale responded by email on 19 August 2009. He complained about the identity of the valuer which he understood the bank intended to appoint. He went on to say relevantly that:

I am prepared to enter into binding agreements with Bankwest now to sell first Fox Valley Rd and then, if Bankwest thinks it necessary, Avon Rd provided Bankwest will fund me for 12 months to get the DAs. I am prepared to give further comfort to Bankwest in the meantime.

I will, as well as the above, attempt to refinance, enter JVs and borrow money for interest.

100. Bankwest responded by instructing different valuers (LandMark White) and Mr Neale responded in turn, expressing appreciation for the bank's prompt and constructive response.

101. On 6 October 2009, Mr Neale emailed Mr Caleite with a request for the release of funds to pay certain development expenses for Avon Rd.

102. On 9 October 2009, Mr Foden emailed Mr Wescott as follows:

Ward,

I will try & keep this brief & to the point.

1). Drawdown request:

The Bank is agreeable to the release of the remaining working capital funds relating to the development costs for Pymble.

Per the previous summary that I have provided, following the payment of LandMark White's valuation fee an amount of $258,751-89 is available.

An establishment / extension fee will apply to the proposed extension of the BankWest loan post its 1/Nov/2009 expiry, a fee of 10,000 is proposed for same.

Allowing for this, an amount of $248,751-89 will be made available to Jim.

To be clear, post the above, all of the available funding for the purpose of meeting the present & future development costs for Pymble will have been drawn.

BankWest will not be providing any further funding, now or in the future, to meet any further development costs relating to Pymble.

The meeting of any further costs relating to Pymble will be Jim's responsibility.

In closing, to enable me to forward a request to advance the $248,751-89 to Jim, please respond in writing, by return email, that Jim has been made fully aware of this position.

For the purpose of confirmation:

2). Margin above BBSY moving forward:

Margin to be increased to 2.75% (including trail).

3). Interest in advance for 6 months:

An amount of $625,000 has been assessed as being required - factoring in The increase to the interest rate margin & a bit of a buffer for expected increased cost of funds / BBSY.

103. The same day, Mr Wescott on sent this email to Mr Neale under cover of the following email:

This is the email, to which they would appreciate your acknowledgement in writing.

In this banking environment, the 2.5% margin going forward as actually fair to on the low side of what is going on in the totality of the Australian banks at this time.

With your acknowledgement in hand, I am expecting that credit to go through pretty much immediately.

104. The same day, Mr Neale replied to Mr Caleite and Mr Wescott by email containing his signature, as follows:

I acknowledge receipt of the following emails which have advised me of the terms on which the bank is prepared to extend the facility and to make the requested payment.

Would you please make the funds available as soon as possible as I am obliged to pay the architect on Monday next.

It would assist me if the extension fee were to be debited to the extension and not to the funds available for Avon Rd.

105. On about 20 October 2009, Mr Caleite together with Mr Martin Lee, Senior Manager Credit and Mr Mallin, prepared a Credit Deterioration Report seeking approval for a 6 month extension for the facility.

106. On 26 October 2009, given the impending expiry of the loan, Mr Foden sought approval for a 1 month extension to 1 December 2009, which extension was approved on 27 October 2009. A further extension to 1 January 2010 was approved on 7 December 2009, and yet a further extension to 28 February 2010 was approved on 11 February 2010.

107. In a Credit Risk Facility Amendment dated 21 December 2009, Mr Foden and Mr Caleite recommended an extension of the facility to May 2010, to provide Mr Neale time to achieve a master plan approval for Avon Rd, which was then anticipated by March 2010. It was anticipated that such approval would result in an increase in valuation of the properties and an enhanced likelihood of Mr Neale being able to repay the facility by the extended date. At this time, LandMark White had apparently provided an up to date valuation of Avon Rd, which they valued "As Is" $20,680,000, down from the valuation at the time of the initial facility of $33,200,000. They recommended an LVR, in relation to the extension, of <79%.

108. By letter dated 9 February 2010, signed by Mr Caleite, Bankwest offered Mr Neale a variation to the existing facilities. The letter was in the following terms:

VARIATION OF FACILITIES

We refer to our Offer Letter dated 17 March 2008, Letter of Variation dated 21 April 2008, Letter of Variation dated 30 September 2008 and to any variation letters (together the "Agreement").

We are pleased to advise that we have agreed to vary your existing Facilities. Please find attached new Facility Terms which, once you have accepted it, will replace the Agreement.

From the date of acceptance of this Offer Letter the terms and conditions for all additional Facilities provided to you under this Offer Letter, and the terms and conditions for all existing Facilities are set out;

• this Offer Letter and the attached Facility Terms; and
• any additional terms and conditions referred to in the Facility Terms; and
• our General Terms for Business Lending dated December 2007. Note these General Terms may differ from your current General Terms. If so, please read the new terms provided to you with this Offer Letter.

We invite you to accept our offer to provide the Facilities to you by signing and returning the enclosed copy of the Facility Terms. Please note this offer will expire on 19 February 2010.

109. The attached Facility Terms included a facility expiry date of 1 May 2010 (extended from 1 November 2009), an interest rate of BBSY plus a margin of 3% per annum and interest for the period from 2 November 2009 to 1 May 2010 to be paid in advance via a deposit of $630,000, to be deposited as to a minimum of $380,000, no later than 24 December 2009 and the balance ($250,000) by no later than 28 February 2010.

110. The amended facility required a second mortgage over Glendon and Lake Coila. It provided for an LVR of <79%.

111. The terms of the variation offered by Bankwest were set out by Mr Wescott in a letter to Mr Neale, dated 11 February 2010.

112. By email dated 18 February 2010, Mr Wescott requested Mr Caleite for a one week extension for acceptance of the offer to enable Mr Neale to obtain legal advice. On 19 February 2010, Mr Neale emailed Mr Caleite, asserting amongst other things, that the valuers had been instructed on an improper basis to cut the value of his securities in half or worse.

113. Mr Neale signed acceptance of the variation on 22 February 2010 and faxed it to Mr Caleite on 22 February 2010.

114. Mr Neale paid the first interest instalment required by the 9 February 2010 letter but did not pay the balance of $250,000 on time. As at 26 March 2010, it had not been paid. On that day, a number of emails were exchanged. Mr Neale's position was that he was trying to make the payment but could not discover an account number in which to make it. In one email to Ms Elise Cockerill, of Bankwest, and various others, Mr Neale said:

I note that our several enquiries of Mark, Mario and Elise have been unable to discover an account number to enable us to credit Bankwest with the available $250,000 which has been languishing in the lender's account since December last. Last time we did this in the sum of $380,000 I am advised that the sum was paid by cheque. I have therefore requested that the lender transfer the money to my credit union account and I will pay it to Bankwest

as required.

115. Mr Neale's evidence was that the account number contained a hyphen, which he should have omitted, which rendered it incapable of accepting a telegraphic transfer. Mr Caleite gave evidence (which I accept) that at no time before this email or at all, did Mr Neale ever make an enquiry of him as to where he could deposit the amount or suggest that it was available to be paid to Bankwest In the normal course, any credit would be deposited into the main and only loan account, through which the facility for his company and himself was conducted. The amount was deposited on 12 April 2010.

116. Mr Neale gave somewhat unclear evidence explaining the delay up to the point at which he maintained he was trying to but could not deposit the amount. He said he attributed it to difficulties encountered in borrowing the funds from some other person.

117. The second mortgages he was to provide over Glendon and Lake Coila were never provided. The extension was thus never formalised but, in practical terms, Mr Neale received the benefit of it anyway because Bankwest forbore from taking any action until well after the proposed extended expiry date.

118. Sometime around March 2010, control of Mr Neale's account was transferred to Mr Phillip Bryant, Senior Manager Credit & Asset Management. Mr Bryant apparently met with Mr Neale on 30 March 2010, at which time Mr Neale apparently requested that Bankwest consider extending the facility to the end of the year, to allow further time to obtain the necessary planning approvals for Avon Rd and to conduct a marketing campaign for the property. Mr Bryant told Mr Neale that he needed a strategy paper.

119. In an email dated 7 April 2010, amongst others, Mr Bryant said:

To assist me in preparing the strategy paper can you please provide details on the following by Wednesday, 14 April 2010:

•  Cash flow showing estimated working capital requirements (including interest and consultants fees) to achieve planning approval showing source of funds. Any extension will require interest to be fully paid in advance. At present I am prepared to consider recommending an extension to 31 Dec 10 if such an extension can be funded.

•  Time line indicating best estimate as to when planning approvals (masterplan/DA) will be achieved including remaining milestones to be achieved in the planning process.

•  Outline of your proposed sales strategy for Pymble and any other assets eg does Pymble strategy change once planning approvals achieved.

•  Confirmation that you are now able to provide second ranking securities over Lake Coila and Bendemeer properties and if not what steps (and timing) still need to be achieved to allow the security to be taken.

If you have any queries we can discuss tomorrow.

120. There were discussions between Mr Bryant and Mr Neale about the fact that Mr Neale was being charged default interest. On 16 April 2010, Mr Bryant emailed Mr Neale saying relevantly:

As discussed this morning I have to get approval to forego charging default interest rates to your account subject to the then approval of the extension of the facility. I will send you a separate letter on this matter which you will need to sign and fax or email back to allow me to progress. The default rate of interest is currently 18.01%.

121. On 16 April 2010, Mr Bryant wrote to Mr Neale as follows:

FACILITIES·- DEFAULT INTEREST

1. We refer to the facilities provided to J W Neale Pty ltd ['the Company') and Mr J W Neale comprised by the following documents:

(a) our Offer Letter dated 17 March 2008 addressed to the Company and Mr Neale (the Letter of Offer);

(b) the Offer Letter has been varied by the variation of facility dated 21 April 2008 (and signed 1 May 20080 (the First Variation) and the variation of facility dated 30 September 2008 (and signed 3 October 2008 (the Second Variation). The Offer Letter and variations incorporated the terms set out in the Bank's Business Lending Terms and Conditions (December 2007 edition) (the Terms).

(together, the "Facilities")

2. Defined terms in the Offer Letters apply in this letter.

Default under Facilities

3. We note that each of the Facilities expired on 1 November 2009 and that the Company and Mr Neale failed to repay the Facilities on that date. The Company and Mr Neale's failure to repay the Facilities amounted to an Event of Default under clause 16.1(a) of the General Terms and pursuant to clause 16.3 of the General Terms interest has accrued at the Overdraft Rate on the Total Amount Outstanding since 31 July 2009. Interest continues to accrue on the Total Amount Outstanding at the Overdue Rate.

Payment of interest

4. Without prejudice to its rights, Bankwest confirms that the Company and Mr Neale are not presently required to pay that part of the interest that has accrued at the Overdue Rate that is in excess of interest that accrues in the normal course on the Facilities.

5. However, the Company and Mr Neale must pay all such accrued interest on demand by Bankwest from time to time. The Company and Mr Neale must continue to pay all interest accruing in the normal course in accordance with each Facility.

Reservation of right by Bankwest

6. Bankwest hereby reserves all of its rights, powers and remedies in connection with the occurrence of the Event of Default referred to in this letter (and any other Event of Default which has procured or which may occur at any time).

Nothing in this letter or the transaction which it contemplates, nor any action or inaction or any other conduct by Bankwest or the Company or Mr Neale, operates as:

(a) a waiver, variation, abandonment, release or discharge, or as an estoppel precluding enforcement, of any of Bankwest's rights, powers or remedies under the Facilities (including, in connection with an event of default or potential event of default) which remain and continue in full force and effect; or

(b) without limiting paragraph (a) (above), an election or affirmation by Bankwest with respect to any right power or remedy contemplated by the Facilities (for example, if the Facilities provide that Bankwest has a right to terminate the Facilities because of an event of default the fact that Bankwest fails to do so or delays in doing so does not mean that Bankwest has elected to abandon its right to do so).

7. Any right, power or remedy of Bankwest may only be waived, varied, abandoned, released or discharged expressly in writing. Without limiting the previous sentence, an election or affirmation by Bankwest with respect to any right, power or remedy contemplated by the Facilities, must be evidenced expressly in writing.

Please sign below to confirm your acknowledgement and agreement to the terms of this letter and. return to us.

122. On or about 20 April 2010, Mr Neale signed his acceptance and an "internal extension" to 31 July 2010 was then approved.

123. On 21 April 2010, Mr Neale emailed Mr Bryant, amongst others, expressing his concern that his alleged default arose out of incorrect calculations for his debt. Mr Bryant responded by on 22 April 2010, in the following terms:

I was not able to respond yesterday as I was out of the office.

Apologies for the delay in the review of the interest calculation but I have requested it be reviewed by the appropriate area to ensure an accurate result. At the moment they have a bit on but I hope to have the review back tomorrow. Will revert as soon as I do.

I note your concern that your default arises out of prior non payment of interest. The principal issue/default is that your facility has expired.

This will only be corrected by securing approval to an extension or through repayment.

124. In an email dated 22 April 2010, Mr Neale wrote to Mr Bryant that Bankwest had agreed to extend the facility and, that he had relied on it and had gone ahead at enormous expenditure of time and money, to provide his remaining unencumbered properties as security for further borrowings which he had paid to Bankwest.

125. On the same day, Mr Bryant, responded as follows:

I see the status of your facility as follows.

The Bank agreed to extend your facility to 1 May but the approval lapsed because you were unable to meet specific terms by their due dates. I am aware that this was due to the difficulties you experienced in producing the titles for you unencumbered properties and would have been frustrating.

Because the approval did lapse we now have to seek a new approval which entails undertaking a review of your facility. The further borrowings that you raised have been applied to service your facility and ensure it is within limit.

It should be noted that the term of the lapsed approval was only to 1 May 2010 and we would be going through the process of review to seek a further extension in any case. Especially as planning approval remains outstanding.

On completion of the review I will draft terms that I consider will be

acceptable to the Bank's Credit (not CBA) and seek (you)(sic) agreement. Assuming we can agree terms for the extension of your facility the terms will then be submitted to Credit for approval.

126. At about this time, Bankwest sent to Mr Neale a Commercial Advance Statement containing information about the state of their account. The document disclosed a Facility Expiry Date of 29 July 2010 and stated that "On 23 May 2010 your Commercial Advance Facility rolled". It disclosed that the current rollover period was 30 days to 22 June 2010.

127. On 5 May 2010, Mr Bryant emailed Mr Neale as follows:

Due to the expiry of your facility you were charged default interest for the following periods:

2/12/09 to 6/12/09 inclusive

2/3/10 to 11/4/10 inclusive

The extra interest paid totalled $294,313.83. Attached are supporting calculations showing the amount of default interest paid for these dates and the amount of interest that would have been paid at the non default margin.

As discussed as part of the approval to extend your facility I will also be seeking approval to reverse the extra interest paid due to the default rate. I can not guarantee I will be able to secure approval but if I can it is likely that the Bank will reserve its rights to charge the default rate of interest for the above periods if the facility is not repaid by expiry.

128. Sometime around May 2010, Mr Neil Herbert took over from Mr Bryant.

129. On 28 May 2010, Mr Neale emailed Mr Herbert that he was aggressively marketing Avon Rd and to support his contention about the deficiencies of the valuation which Bankwest procured from LandMark White and paid for with his money. He enquired as to how Mr Herbert was going in advocating an extension until the end of the year and the reversal of penalty interest rates. On 19 August 2010, Mr Neale sent Mr Herbert a status report on his efforts to sell property including Avon Rd.

130. On 22 August 2010, Mr Neale emailed Mr Herbert an updated status report.

131. On 24 August 2010, Mr Herbert emailed Mr Neale as follows:

I refer to our telephone discussion today.

As you are aware, your loan facility has expired and, as a consequence, the facility is in default. Without prejudice to the Bank's rights, all of which are reserved, I have been endeavouring to obtain approval for the following:-

an extension of loan term to late December 2010;

refund of default interest previously charged, subject to claw-back

provisions should you not repay the facility in full by the new maturity date in December 2010; and

an increase of $130k (so that there is sufficient head-room in the

facility to allow for interest capitalisation).

The submission has not been approved, but neither has it yet been declined.

Frankly, it is having a difficult passage. To assist with the Bank's risk assessment, the Bank will be appointing an independant property expert, Marshall Property Partners, to review the progress of your Pymble site with the DOP and also the sales/marketing strategy for your properties. I will be contacting James Marshall, the firm's principal, today to obtain a fee estimate. The fee will be for your account. I expect that he will contact you within the next couple of days.

Your loan account rolls over again today and, although the Bank is entitled to charge the Overdue Rate (presently 18.26% pa) I have arranged for the interest rate charged to be at BBSY + 3% until 22 September.

Please note that:-

The Bank continues to reserve its right to retrospectively charge

interest at the Overdue Rate - currently 18.26% pa.

The "roll-over" is not an extension of the facility maturity date but,

rather, simply an internal administrative function so that the lower

interest rate is charged.

All the Bank's rights are reserved.

132. On 26 August 2010, Mr Neale sent an update on his marketing endeavours.

I attach the most recent updates to my marketing endeavours.

I am meeting with Mr T in a few minutes and the Chinese buyer's solicitor early tomorrow. On both occasions we will be discussing money.

My strategy, commenced today, is to formally advise all agents and potential buyers for FVR and Avon Rd that the prices being discussed are in the ball park and I will do one of two things by the end of September;

1. Accept an unconditional offer at any time to remove the property for sale or

2. Accept the best offer in play at the end of September.

I believe this will get final bids from Meriton and Walker.

In view of these developments I again request that Bankwest does not divert money from my account which would otherwise progress the DAs on the sites I am trying to sell. An alternative would be for the bank to use its undoubted expertise to evaluate my progress or pay a small amount to one of their consultants.

I find your legal threats rather intimidating and I note that you "reserve your rights". I will have to write you a letter in similar terms. I have a point of view too. Basically I believe that if the banks improperly force me to sell my sites which I have owned for 30 years without a DA when I am entitled to have a DA, then I should recover the difference from the banks.

133. On 27 August 2010, Mr Herbert emailed Mr Neale as follows:

Thank you for this latest update. Please continue to keep me informed of developments. As we have discussed previously, the end of Sept is a key milestone date for you.

With regard to Marshall's Property Partners ("MPP"), since receiving your email I have revised the scope of the work that the Bank has asked MPP to undertake. This has resulted in a reduction in the fee estimate from $25k + GST to $10k + GST. To put the quantum of the fee into perspective, it equates to about 2 days interest on your facility. I do hope that this demonstrates that the Bank is sensitive to your desire to limit costs.

James Finney from MPP, who is familiar with your sites and has met you previously (in 2002?), will contact you shortly. He is targeted to have his work complete by the end of next week. I request that you please grant him access to yourself and your sites and that you provide him with all the information that he requests. Rather than being "destructive" as you say, MPP's remit is to provide the Bank with an independant view of your marketing strategy and, if appropriate, to suggest changes that wil assist you achieve a sale within the limited time available before the end of this calendar year. Their engagement can only be positive and is absolutely necessary if I am to be successful in obtaining a term extension.

Responding to your assertion that the Bank is making legal threats, I wish both to reject the assertion and apologise if you felt in any way intimidated by the Bank reserving its rights. The Bank's reservation of its rights is not in any way meant to be a threat, nor is it meant to intimidate. It is normal practice for the Bank to reserve its rights, especially when a variation of terms is being considered at a time when the borrower is in default of his or her obligations. In such circumstances it is important that a borrower not think that emails or other correspondence constitute a pattern of behaviour that would indicate that the Bank has waived its rights. Rather than being threatening or intimidating, I would remind you that the Bank has provided you with significant forebearance to date, notwithstanding that your facility terminated many months ago.

Furthermore, the Bank has continued to afford you interest rate relief in order to ease your cash flow position. The Bank could have acted under its security at any time following a default but, instead, it has allowed you to remain in control of the sale process. I respectfully submit that the Bank has been extraordinarily patient and more than reasonable in all its dealings with you.

All the Bank's rights are resaved.

134. Later that day Mr Neale responded:

I am confused about the status of my loan extension.

These fees were debited to my account by the bank without saying what the money was spent on. The accounts themselves are of course totally unhelpful in that regard. I assumed they were for the loan extension.

Did I pay for a loan extension or not?

I don't have time to provide minute details, however I will be in receipt of a written offer tomorrow from Mr T. (according to his agent) and the second Chinese purchaser following our meeting today has contacted my solicitor and called for contracts at a price to be finally negotiated but within the range previously discussed.

I've had a discussion with James Finney and although I accept that unlike most consultants he does actually carry out developments himself and is therefore well qualified to carry out the task you have requested of him, I think it is ridiculous to spend this money at a time when you could read the offers and contracts instead.

(The reference to Mr T is apparently a reference to a Mr Triguboff, a developer builder)

135. Still later that day, Mr Herbert responded:

You should not be confused. At no time has the Bank given you any reason to think that your facility has been extended. An extension requires approval by the credit department and formal documentation ... a process that I am certain you are familiar with. My communications to you have all been very clear that approval for an extension has not been obtained as yet.

The legal costs have been incurred by the Bank in the course of its risk assessment and in considering taking action in terms of the facility documents. The Bank is entitled to recover these costs from you.

I note that you quite correctly acknowledge that James Finney is well qualified to undertake the work that he has been engaged to do. I am glad that we are in agreement.

If you secure an unconditional contract for the sale of any one of the security properties at a price sufficient to repay Bankwest's principal and interest in full before 31 Dec 2010 I would be prepared to immediately review the need for MPP's involvement.

It is entirely in your hands at present. I wish you well with the so-called "Mr T". If, as you expect, an offer is forthcoming, you should let the Bank know the details before you make a decision. Please also let James Finney have full details.

All the Bank's rights are reserved.

136. Marshall Property Partners, who had been appointed as foreshadowed by Mr Herbert in his email of 24 August 2010, reported on 3 September 2010. They recorded that on 23 March 2010 the Department of Planning had written to Mr Neale informing him that his application for Avon Rd did not adequately address the Director General's Environmental Assessment requirements issued on 11 February 2009. Mr Neale had retained Sheridan Planning to prepare a report seeking to address those concerns, and on 23 March 2010, the Department of Planning ("DOP") had written to Mr Neale saying that it had reviewed the submission and was not satisfied that it adequately addressed the requirements issued on 11 February 2009.

137. Marshall Property Partners stated that the list of requests for further information was substantial and the further information had not yet been re-lodged. They stated that they were told by Mr Neale that this would happen shortly. They expressed the view that Mr Neale did not have the required experience or financial resources to professionally manage a major project application of this scale. They stated that if they were to take control of the application process, they would allow six months and require a budget of $400,000-$500,000 for consultants to adequately deal with the DOP approval process.

138. On 10 September 2010, Mr Neale sent Mr Herbert a Status Report. He also said:

I attach status report as promised.

Following our discussion I will write to you to apply for an extension of time to get a DA. I think the available evidence from offers supports my contention that Bankwest actually has 2 to 3 times as much security as its valuations suggest.

I am doing everything possible to sell 35 FVR.

(FVR is a reference to Fox Valley Rd).

139. On 28 September 2010, Mr Neale emailed Mr Herbert as follows:

I have new interest in both FVR and Avon Rd from a client of Balmain who is at least known to have money. I've sent all the information off yesterday and today but have not as yet met the client.

I do not understand why there isn't enough money left in the facility to get me through to the New Year. But I suspect it is caused principally by the debit interest of $331,077.39 on 6/4/10 on top of the $58,267.20 debited on 12thApril2010.

I understood from you and Phil that the bank was reserving its rights in relation to penalty interest and I expected that it would not debit the account until my application for extension had been properly considered.

I would like to see James Finney's report as he seemed to be very impressed with the site.

I am extremely concerned that the information I have sent you in the last half dozen emails has not been acknowledged. My financial performance has not been properly explained by me previously and it is imperative that the decision-makers (who are unknown to me and only accessible through you) understand my position.

140. Mr Herbert replied by email on 29 September 2010.

141. Mr Neale responded:

It's a pity you didn't return my phone call. Exchanging emails seems to be less productive and only provokes· the bank into causing me and my project even more financial harm.

I am unclear as to why my facility does not have enough undrawn funds to get me through to next year. Is the $330,000 debit I referred to in the nature of penalty interest?

Would you let me know how my application for an extension to the end of the year is going - especially as I have just paid $10,000 in the interests of supporting that case. I do not believe the bank is treating me fairly by withholding it.

You have asked some good questions in your email about the marketing campaign and I will respond to them in that context (see below). There is a good deal of specific information in my recent status reports which support those answers.

142. On 12 October 2010, Mr Herbert emailed Mr Neale as follows:

I understand that you have spoken to Jeslyn at Bankwest Service Quality and asked that I make telephone contact with you. I apologise but I am unable to call you as I am out of the office this week. Instead, I will endeavour to address the questions you have raised with me.

I refer to recent emails wherein you have asked the following:

1. Whether you should direct $50,000 from your remaining funds to your loan account.

2. Whether the application for a term extension has been approved.

3. Whether the $330,000 charged to your commercial advance account is in the form of a "penalty".

Responding to these questions in the same order:-

1. Please deposit the $50,000 into your commercial advance account (I am unable to give you the account number as I am out of the office this week but I am certain you have it in your records). Interest will be charged to your account next on Monday 18 October and I ask that you please make the deposit prior then.

2. The application for a term extension has not been approved. Your commercial advance expired on 1 November 2009. The event of default as a consequence of the facility not being repaid by that date has not been remedied.

3. At no time has Bankwest charged any penalty. From 1 November 2009 Bankwest has been entitled to charge interest at the Overdue Rate in terms of the Loan Agreement. Interest has been charged at the Overdue Rate from time-to-time in that period but for the great majority of the time Bankwest has, whilst reserving its rights to charge interest at the Overdue Rate, charged interest at BBSY+3%. I believe you are completely aware of this.

143. On 19 October 2010, $60,000 was paid into Mr Neale's account.

144. By 23 June 2011 no DA had been obtained for Avon Rd.

145. On 23 June 2011, Bankwest appointed receivers to Avon Rd and Yatala Rd.

146. On 23 June 2011, Bankwest made demand of Mr Neale and his company for payment of $20,741,998.36 as at 22 June 2011.

147. On 13 October 2011, the receivers sold Yatala Rd to SDT Pty Ltd for a purchase price of $635,000.

SALIENT PROVISIONS OF THE GENERAL TERMS FOR BUSINESS LENDING

148. The General Terms for Business Lending dated December 2007("the General Terms") referred to in the various facility letters contain the following provisions.

149. Clause 10.1(e) provides relevantly:

All payments to us under the facility documents must be made...in full without set off or counter claim...

150. Clause 16.1(a) provides:

An Event of Default occurs, whether or not it is in your power to prevent it if:

you do not pay on time any amount payable by you, under any Facility Document in the manner required under it.

151. Clause 16.3 provides:

In addition to any other consequences under the Facility Documents, if:

(a) an Event of Default under clause 16.1(a) or 16.1(b) has occurred; or

(b) any other Event of Default has occurred and we have notified you of its occurrence and the default has not been remedied within 7 Business Days of the notice,

then you must pay Interest on the Total Outstanding Amount calculated at the Overdue Rate from the date of the occurrence of the relevant Event of Default in the case of clause 16.3(a) or from the date of the notification given by us in the case of clause 16.3(b). This interest shall accrue and be capitalised in the manner specified in clause 11.3.

152. Clause 22, is entitled Definitions. It contains the following definitions:

Agreement means that the agreement constituted by the acceptance by you of the Offer Letter.

BBSY means on any day:

(a) the rate per centum per annum determined by us as being equal to the average "bid rate" quoted on the "BBSY" page of the Reuters Monitor System at or about 10 am (Sydney time) on that day for bank accepted Bills of the applicable tenor; or

(b) if BBSY cannot be determined in accordance with paragraph (a), the Bank Bill Rate on that day.

Offer letter means the letter of offer from us to you attaching the Facility Terms and includes any variation or replacement letter.

Overdue rate means the rate specified as such in the Facility Terms, and if none is specified the aggregate of the Overdraft Reference Rate plus 7% per annum or such lesser rate as may be determined by us from time to time.

Overdraft Reference Rate means our overdraft reference rate as published by us from time to time in such newspapers as we may select or, if its publication is discontinued, the nearest equivalent rate as determined by us.

Facility Documents means the documents and agreements described in Clause 1.1

Facility Terms means the document attached to the Offer Letter headed "Facility Terms".

CODE OF BANKING PRACTICE

153. The Australian Bankers Association has published an instrument called the Code of Banking Practice ("the Code"), a voluntary code of conduct, which sets standards of good banking practice to follow when dealing with persons who are, or who may become individual customers. Bankwest has adopted the Code.

154. Paragraph 2.1(b)(i) of the Code provides:

We will: ... promote better informed decisions about our banking services...by providing effective disclosure of information.

155. Paragraph 2.1(d) of the Code provides:

We will...provide information to you in plain language.

156. Paragraph 2.2 of the Code provides:

We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us.

157. Paragraph 25(2) of the Code provides:

With your agreement, we will try to help you overcome your financial difficulties with any credit facility you have with us. We could, for example, work with you to develop a repayment plan. If, at the time, the hardship variation provisions of the Uniform Consumer Credit Code could apply to your circumstances, we will inform you about them.

158. Clause 20.1(a) of the General Terms provides:

We have adopted the Code of Banking Practice and relevant provisions of the Code apply to this Agreement if:

(a) you are an individual or small business customer (as defined by the Code)

159. Clause 20.2 of the General Terms provides:

If:

(a) the Code of Banking Practice would otherwise make a provision of the Agreement illegal, void or unenforceable; or

(b) a provision of the Agreement would otherwise contravene a requirement of the Code of Banking Practice or impose an obligation or liability which is prohibited by the Code of Banking Practice,

the Agreement is to be read as if that provision were varied to the extent necessary to comply with the Code of Banking Practice or, if necessary, omitted.

RELEVANT STATUTORY ENACTMENTS AND LEGAL PRINCIPLES

The ASIC Act

160. Section 12BB(1) and (2) of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act") provides:

(1) If:

(a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and

(b) the person does not have reasonable grounds for making the representation;

the representation is taken, for the purposes of Subdivision D (sections 12DA to 12DN), to be misleading.

(2) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:

(a) a party to the proceeding; or

(b) any other person;

the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.

161. Section 12CA(1) of the ASIC Act provides:

A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.

162. Section 12CB(1)(a) of the ASIC Act provides, relevantly:

A person must not, in trade or commerce, in connection with [...] the supply or possible supply of financial services to a person [...] engage in conduct that is, in all the circumstances, unconscionable.

163. Section 12DA(1) of the ASIC Act provides:

A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.

164. Section 12GF(1) of the ASIC Act provides:

A person who suffers loss or damage by conduct of another person that contravenes a provision of Subdivision C (sections 12CA to 12CC) or Subdivision D (sections 12DA to 12DN) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

165. It is sufficient that the conduct complained of be identified as one factual cause for a claimant's loss. The conduct complained of does not have to be the only cause.

166. Section 12GM of the ASIC Act provides that the Court can make other orders when it finds a party to proceedings has suffered or is likely to suffer loss or damage by conduct of another that was engaged in a contravention of one of the provisions referred to above. Under s 12GM(7), the orders can include an order declaring the whole or any part of a contract made between the person who suffered or is likely to suffer loss or damage and the person who engaged in the conduct void ab initio or at all times on and after a date before the date on which the order is made.

The Contracts Review Act

167. By s 7(1) of the Contracts Review Act 1980 (NSW), where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, if it considers it just to do so, and for the purposes of avoiding as far as practicable an unjust consequence or result, it may make certain orders including refusing to enforce any or all of the provisions of the contract, declaring it void in whole or in part or varying it. "Unjust" is defined in s 4(1) to include "unconscionable, harsh or oppressive, and 'injustice' shall be construed in a corresponding manner". Section 9 sets out matters to be considered by the Court, however each case must be determined on its own facts.

168. A contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to a party or because of the way in which it was made or both. A contractual provision may be unjust simply because it imposes an unreasonable burden on a party when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision.

169. The public interest requires the Court to consider the position and rights of the party against whom relief is sought. Orders may be made in favour of a party to a contract who proves that at the date of the contract that he or she suffers from a relevant disability even though the other party to the contract is unaware of it. In general the Court should be reluctant to exercise the jurisdiction where the effect may be to deprive an innocent person of valuable contractual rights.

Unconscionability and estoppel

170. Where a bargain is obtained by a stronger party unconscientiously using its power against a weaker party, equity has jurisdiction to relieve the weaker party of the bargain.

171. The focus, in the exercise of this jurisdiction, is not upon the quality of the weaker party's assent, as is the case with undue influence, but upon the conduct of the stronger party. The weaker party must have a disabling condition, or the circumstances must be such, so as seriously to affect the ability of that party to make a judgment as to his, her or its own best interests. The weaker party's need or distress must be such as to leave that party in the power of the stronger. The disadvantage of the weaker party may arise because of illness, ignorance, inexperience, impaired facilities, financial need, lack of assistance or explanation where necessary, lack of relevant language competence, emotional dependence or other circumstances. It is not necessary for the stronger party to have actual knowledge of the weaker party's special disadvantage. It is sufficient if the stronger party is aware of the possibility or of facts that would raise that possibility in the mind of any reasonable person that the weaker party is suffering some special disadvantage. The stronger party must take advantage of the opportunity presented by the weaker party's disadvantage. The stronger party's conduct in taking such advantage must be unconscientious. Where a stronger party has taken advantage of a weaker one to obtain a beneficial bargain, the onus is on the stronger party to show that his conduct was fair, just and reasonable. The presence of independent advice can be an important factor in showing that the transaction was fair, just and reasonable.

172. The phrase "unconscionable conduct within the meaning of the unwritten law" as used in s 12CA(1) of the ASIC Act describes various grounds upon which equity has traditionally intervened to vindicate the requirements of good conscience. The central principle of the doctrine of estoppel is that the law will not permit an unconscionable (or unconscientious) departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to. For the departure to be unconscionable the party concerned must have played such a part in the adoption of, or persistence in, the assumption that that party would be guilty of unjust and oppressive conduct if it were now to depart from it. Cases where departure would be unconscionable include where that party has induced the assumption by express or implied representation, has entered into contractual or other material relations with the other party on the conventional basis of the assumption or knew that the other party laboured under the assumption and refrained from correcting him when it was his duty in conscience to do so.

173. Estoppel by conduct does not of itself constitute an independent cause of action. The assumed fact or state of affairs (which one party is estopped from denying) may be relied upon defensively or it may be used aggressively as the factual foundation of an action arising under ordinary principles, with the entitlement to ultimate relief being determined on the basis of the existence of that fact or state of affairs. In some cases, the estoppel may operate to fashion an assumed state of affairs which will found relief (under ordinary principles) which gives effect to the assumption itself (for example where the defendant in an action for a declaration of trust is estopped from denying the existence of the trust). In order to recover damages under s 12GF(1) of the ASIC Act a plaintiff must prove that loss or damage was suffered "by" conduct in breach of the ASIC Act. This is to be understood as taking up the common law practical or common-sense notion of causation.See: ACCC v C G Berbatis Holdings Pty Ltd & Ors [2003] HCA 18; (2003) 214 CLR 51 at 72; The Commonwealth v Verwayen (1990) 170 CLR 394 at 444 and following; Wardley Australia Ltd & Anor v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 at 128.

Economic duress

174. Where it is sought to vitiate a transaction because of economic duress the pressure inducing an apparent consent will be regarded as illegitimate for that purpose when it consists of unlawful threats or amounts to unconscionable conduct, but commercial pressure, even to the point where the party the subject of the pressure is left with little choice but to act as he did is not of itself sufficient: Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50.

MR NEALE'S CONTENTIONS

175. Mr Neale's final oral address occupied well over a day. I received not a few written documents from Mr Neale in the nature of argument, some by email and mostly unsolicited. The hearing was adjourned to give him additional time to prepare a written submission which Mr Mahony vetted. His various submissions included many statements and accusations unsubstantiated by evidence, significant amounts of conjecture, and assertions irrelevant to the issues being tried.

176. Doing the best I can, I articulate what I understand to be Mr Neale's contentions to be the following.

Debt not due or payable

177. He says, that in the railway bridge conversation, Bankwest, through Mr Caleite, agreed with and represented to him that it would "lend to him forever", meaning that, Bankwest wanted him as a customer for all time and would not reclaim the monies and would extend the expiry date of the loan for so long as things went well. By things "going well" he says was meant for so long as the value of Avon Rd continued to rise, or for so long as it took to obtain development approval.

178. He says that, relying on what Mr Caleite said, he decided to borrow from Bankwest rather than seek alternative sources for the funding of the development of Avon Rd.

179. He accepts that things did not "go well" in that the development of Avon Rd has floundered. But, he says, this has happened because Bankwest unlawfully withheld advances under the facilities, which he would have used for working capital to further the development. He maintains that with the additional money things would have gone well.

180. In these circumstances, he says that Bankwest had no right to demand repayment of its loan when it did so, and accordingly had no entitlement to appoint receivers or to procure the sale of Yatala Rd.

181. As alternatives, he says that Bankwest (and consequently SGOL), is estopped from asserting that the facility expired on 1 May 2010, and is estopped from relying on that expiry to enforce its rights, or, in making the representation, Bankwest engaged in misleading or deceptive conduct or unconscionable conduct in contravention of the ASIC Act.

182. He further says that in their subsequent dealings and by sending him bank statements rolling over the loan, Bankwest agreed to, or held out that it would, extend the expiry date while he tried to sell Avon Rd or achieve development approval, and in any event until 29 December 2011. He says that in reliance on this conduct, he refrained from seeking alternative sources of funding for Avon Rd.

183. He admits his indebtedness to Bankwest (to the extent of $22,584,097). I took him to be denying any obligation to pay because the amount was not due, or because the Court should vary the facility to bring about that result, or that he has suffered damages to the extent of (or more than) his admitted indebtedness.

Hedging

184. He says that by the financing proposal, Bankwest held out to him that the loan would be at the variable interest rate of BBSY plus a margin of 1.65% per annum.

185. He says that based on this, he moved ahead with Bankwest, rather than seeking alternative sources of finance.

186. He says that Bankwest then imposed on him, against his will, a requirement to hedge part of the interest obligation, when, to Bankwest's knowledge, he was under heavy time pressure to make a significant payment to his former wife, and it was not practically possible to go elsewhere for finance. He says that he made the agreement to hedge under economic duress, which duress Bankwest exploited.

187. He says that the cost of hedging reduced the working capital that would have otherwise been made available to him under the facility, impairing his ability to develop Avon Rd, and thereby causing him damage.

188. I took him to be submitting that the Court should set aside or vary the facility agreement, to the extent that he was required to hedge and compensate him, on the footing that a variable interest rate applied throughout and that he did not have to pay for the hedging. I further took him to be submitting that there would otherwise have been money available to him under the facility, which he would have used to advance the development of Avon Rd which in that event, would have been successful.

Overdue Rate

189. Mr Neale contends that he is not or should not be bound by the provisions in the General Terms, requiring him to pay interest at the Overdue Rate upon an Event of Default because, by the financing proposal, Bankwest conveyed to him that the facility would either be subject to the General Terms or would be a Facility Agreement. He accepts that he is bound by the terms of the Facility Agreement (meaning the facility terms) but says that because the financing proposal said he would be bound by either (and not both), he is not bound by the General Terms. I understood him to be putting that the General Terms are not part of the contract, or if they are, he was misled into committing himself to be bound by them.

190. He further contends that he is not, or should not be, bound by the provisions for the payment of interest at the Overdue Rate in the General Terms because, the Overdue Rate cannot be ascertained from a reading of the General Terms.

191. Additionally, he contends that the potential exposure was not mentioned in the financing proposal, and that the provisions were not effectively disclosed (he says arguably deliberately concealed) in the facility letter read with the General Terms as required by paragraphs 2.1(b)(i) and 2.1(d) of the Code, that he was misled in committing himself to them, that he was under economic duress when he agreed to them and that Bankwest acted unconscionably in causing him to be exposed to them.

192. He says that the requirement to pay interest at the Overdue Rate is itself, harsh and unconscionable and is an unenforceable penalty.

193. Mr Neale's initial intention was, as I understood it, to put this submission in support of his contentions on the deliberate destruction strategy, as demonstrating that the Commonwealth Bank had an incentive to bankrupt him and would benefit from his default because of the increased interest rate that would be applicable in that event.

194. I have proceeded on the assumption that Mr Neale contends that the Overdue Rate provisions are an unenforceable penalty and are unconscionable in their own right.

195. He made oral and written submissions concerning the direct benefits that Bankwest would derive, and the indirect benefits that the Commonwealth Bank would derive as a consequence of the Overdue Rate being charged. He proffered his own calculations based on his own assumptions comparing the gross profit and net profit respectively that Bankwest and the Commonwealth Bank would stand to make depending on the applicable rate of interest. His calculations included an estimate of Bankwest's costs of doing business across its lending book after the takeover by the Commonwealth Bank. His conclusion is that on the non-default interest rate, Bankwest's gross profit on his loan is 1.4% per annum (1.65% less Mr Wescott's trailing commission of 0.25%). On the assumption that Bankwest's costs across its lending book were 50%, Bankwest's net profit would be 0.7% per annum. At the Overdue Rate, his conclusion is that Bankwest's net profit would be 12.7% per annum, which over 18 months, reflects a multiple of 18 times, which he describes as being colossal and which he contends is unconscionable and a penalty.

Breach of the Code

196. Mr Neale put that the Code required Bankwest to work with him if he was in financial difficulties, whereas, especially after Bankwest was owned by the Commonwealth Bank, Bankwest, as he put it, "did the opposite in the extreme". He put that although he was not in difficulties at the time, Bankwest should have worked with him to remove risk associated with an unhedged loan, rather than have profited from him by increasing that risk. His theory, as I understand it, is that the risk of interest rates rising would be offset by an inevitable increase (if interest rates rose) in the value of the real property security, which he had provided. This is why, he says, he did not wish to hedge. He says that the requirement to hedge caused him direct damage in the amount of the cost of the hedging, and consequential damage because that cost reduced the working capital available to him to develop Avon Rd.

CONSIDERATION

197. I will deal with each of Mr Neale's contentions in turn.

Debt not due or payable

198. Where a party seeks to rely upon spoken words as a foundation for a cause of action the conversation must be proved to the reasonable satisfaction of the Court. This means that the Court must feel an actual persuasion of its occurrence or its existence. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 362; Helton v Allen [1940] HCA 20; (1940) 63 CLR 691 at 712; Rejfek v McElroy [1965] HCA 46; (1965) 112 CLR 517 at 521; Watson v Foxman (1995) 49 NSWLR 315 at 319.

199. I am not satisfied that the words attributed to Mr Caleite in the railway bridge conversation were said.

200. I am not satisfied that any conversation took place in which Mr Caleite conveyed anything which Mr Neale could reasonably have understood or which he did understand, as conveying that Bankwest "would lend to him forever", or which he could reasonably have understood or did understand as conveying that Bankwest would lend to him beyond the expiry of the first facility.

201. Leaving aside that the words attributed to Mr Caleite cannot reasonably be understood as giving rise to the imputations that the loan would be extended for so long as things went well, or for so long as the value of Avon Rd continued to increase or until development approval, I did not find Mr Neale to be a credible witness.

202. His evidence is undoubtedly coloured by the financial catastrophe that has befallen him as well as his deep preoccupation with what he considers is the dishonest and rapacious behaviour of banks in general and the Commonwealth Bank in particular.

203. Bankwest documents indicate that at the time of the first facility, Avon Rd was considered to be worth some $33,000,000 and Fox Valley Rd some $4,250,000. Additionally, Mr Neale had equity in Yatala Rd as well as in Glendon and Lake Coila. He was then a man of significant means. The equity in properties still owned by him may well now be significantly less than his debt and he has no liquid means. Mr Neale spoke repeatedly of the unacceptable profit making of banks and of not wishing to live in a country where this was permissible.

204. He is now prepared to say things which he thinks might advance his case or extricate him from his difficulties, including accusing others of dishonourable conduct where there is no basis for the accusation. By way of examples, he asserted that his long time advisor Mr Wescott had dishonestly and to earn additional commission, directed him to Bankwest and an 18 month facility, when he could have obtained a 36 month facility from St George Bank. The documents indicated that it was Mr Neale himself who had applied for 18 months, and I was not directed to any evidence which established that St George was offering more. He directed various accusations of dishonesty on the part of valuers for which there was no visible basis. He asserted, without any foundation, that SGOL's solicitor had fraudulently induced him to make the admissions he made in his Defence.

205. In contrast, both Mr Caleite and Mr Wescott were entirely satisfactory witnesses, whose testimony I believe. Their evidence fits comfortably with the inherent improbability that Mr Caleite would have said what Mr Neale attributes to him.

206. Under cross-examination Mr Caleite accepted that the bank made an initial advance for 18 months and had indicated that the bank would consider assisting with finance for later construction. He gave evidence that there was a brief discussion that if certain milestones were achieved (the DA and JV) then there would be another application for the bank to assess in regards to giving Mr Neale further finance. This accords better with the inherent probabilities.

207. Even had Mr Caleite made the statement Mr Neale attributes to him, I do not accept that Mr Neale could have considered that he was able to place any reliance on it. By his own admission, Mr Neale was experienced in both borrowing and lending money, and he also knew that Mr Caleite had limited lending authority. Mr Neale accepted that Mr Caleite gave no binding commitment.

208. Mr Neale himself applied for an 18 month facility and it is plain from both the financing proposal and the facility letter that the loan was for 18 months, and no more.

209. In the signed acceptance of the facility, Mr Neale acknowledged and agreed that he had made his own independent decision, and had not relied on any representation made by Bankwest, its officers or agents.

210. At no time prior to these proceedings did Mr Neale assert that Mr Caleite had conveyed what he now says he conveyed.

211. The evidence does not establish that things did not go well because of anything that can be blamed on Bankwest.

212. The evidence does not establish that Mr Neale could or probably would have obtained finance elsewhere on equivalent or more advantageous terms. The evidence does not establish that things might (let alone would) have otherwise turned out better than they did. Mr Neale's own planning consultants provided a submission to the Department of Planning, which was considered to be inadequate. Against Mr Wescott's advice, Mr Neale decided that his application to Bankwest for development finance would be on the basis of a JV with Mr Rocco Falcomata, even though he had been advised that this was unlikely to be well received by the bank.

213. Mr Neale repeatedly talked of the failure of the bank to make available sufficient working capital to enable him to further and achieve the development of Avon Rd. This contention was not made out on the evidence. Mr Neale did not establish that advances from Bankwest were his only source of resources or that had Bankwest advanced further working capital, he would have achieved development approval for Avon Rd. This has still not yet been achieved. True it is that things did not go well, but Mr Neale has not established that anyone other than himself is to blame.

214. The contention that during their later dealings or by sending him bank statements reflecting a roll over, Bankwest agreed or held out, or that Mr Neale did or could have reasonably believed that the expiry date had been extended, must also be rejected.

215. By its letter dated 9 February 2010, Bankwest offered to extend the facility to 1 May 2010, on conditions which were not met, including the payment of interest which Mr Neale did not make on time.

216. By his email of 7 April 2010, Mr Bryant informed Mr Neale of what he needed to provide Mr Bryant to assist him in preparing a strategy paper to try and obtain a further extension.

217. On 20 April 2010, Mr Neale signed his acceptance to the terms of Mr Bryant's letter of 16 April 2010, effectively conceding default and acknowledging that all Bankwest's rights were reserved.

218. The correspondence between Bankwest and Mr Neale between 21 April 2010 and 27 August 2010 could have left Mr Neale in no doubt that no extension had been granted. Indeed, on 10 September 2010, Mr Neale provided a Status Report in support of a foreshadowed application for an extension of time "to get a DA". On 12 October 2010, Mr Herbert emailed Mr Neale that his application for an extension had not been approved. Against this background, Mr Neale received various bank statements showing that his loan had been "rolled over" on a month-to-month basis. As a practical matter, Mr Neale was given the benefit of an extension because, the bank forbore from demanding repayment and had approved an "internal extension" so as, at least for the time being, to relieve Mr Neale of the obligation to pay the default interest. But this was against the background of Mr Neale's concession of default and his applications for further extensions.

219. But in any event, on Mr Neale's own case, any alleged extension ran out at the end of 2011.

220. No conduct on the part of Bankwest has been established to have been misleading or deceptive, or likely to mislead or deceive, or unconscionable.

221. The contentions that the loan was not repayable with effect from 1 November 2009, or is not now repayable, must be rejected.

222. It follows that the principal monies loaned to Mr Neale are due and payable and there is no warrant to make any order setting aside or varying the terms of the loan contracts.

Hedging

223. The covering letter dated 25 January 2008 under which Bankwest conveyed the financing proposal to Mr Neale made it plain that he should not rely on it or enter into any commitments based on it. The financing proposal itself made it plain that Bankwest reserved the right to alter, vary or supplement any aspect of it including security structures, or decline to offer finance at all for any reason. It also stated that it was not an offer of finance and was subject to due diligence and formal credit approval.

224. Mr Neale may have moved ahead with Bankwest because of it, but it did not convey any basis upon which he could fairly have relied on the interest rate of an ultimate loan being the variable BBSY rate plus a margin.

225. There was nothing commercially exceptional with respect to the requirement that the interest on the part of the principal be hedged. Indeed, had interest rates moved adversely to Mr Neale, this would have provided protection for him as well as the bank. It was part of the security structures pertinent to the risk Bankwest was prepared to undertake. As a result of the hedging arrangements, the provision in the facility for capitalised interest was reduced from the original $3,000,000 to $2,700,000. The consequence of this was some additional money became available to be drawn down for the benefit of Mr Neale. His position was adversely affected by the termination fee he had to pay Macquarie Bank.

226. During the hearing, Mr Neale kept on repeating that he was under a "time of the essence" obligation to pay his former wife and that, had he not paid on time, his former wife would have sold up his properties. The evidence did not establish this. He had obtained one extension on the payment of interest and it was not shown that a further extension could not have been obtained on a similar basis.

227. The evidence did not establish that he could not have obtained finance elsewhere in time, or that if required, an additional extension to pay his former wife could not, on payment of interest, have been obtained.

228. But in any event, if Mr Neale was under any time pressure to pay his former wife, this was a matter entirely of his own making and was nothing of Bankwest's doing.

229. The timing of his application for finance was entirely a matter for him. He delayed from 25 January 2008 to 27 February 2008 in paying the mandate fee required to progress the financing proposal.

230. Bankwest did not require the whole loan to be hedged. After unsuccessfully seeking to negotiate the interest provisions, it was Mr Neale who, contrary to the advice of Mr Wescott, decided to hedge the whole amount. In his email to Mr Caleite on 20 March 2008, Mr Wescott stated that the "major covenant" by Mr Neale in accepting the unexpected hedging requirement is that he be totally satisfied with the price of the hedging arrangements quoted. Hedging arrangements were subsequently entered into by Mr Neale. Although he complained, as he said in his email of 10 June 2008 to Mr Wescott, he decided to accept the interest rates fixed for the swaps, because he considered that there was some chance that an adjudicator might accept it. These are not the actions of a man under economic duress.

231. Mr Neale has not established that he was subject to, or the victim of, anything remotely approaching economic duress, with respect to his borrowing from Bankwest or its terms, including his agreement to hedge interest rates.

232. Mr Neale needed money to discharge an obligation earlier incurred to his former wife and Bankwest lent him money on commercial terms, which enabled him to do so.

233. He was commercially and financially sophisticated, astute and experienced. Mr Neale is an avowed expert in the area of derivatives and financial calculations. At the time, had significant equity in real property assets. Also, he had access to commercial advice from Mr Wescott and legal advice from Mr Battersby. He requested and was given time to obtain legal advice in respect of his acceptance of the 9 February 2010 facility variation letter.

234. Mr Neale was not a weak party. He was well able to protect his own interests. In no way did Bankwest take advantage of him let alone by any unconscionable means.

235. I accordingly reject Mr Neale's submissions that he was in anyway wronged by the hedging, which he was required to, or did effect.

Overdue Rate

236. Mr Neale's contention that he was to be bound by a facility agreement or the General Terms, but not both is without substance, as is his contention that the Overdue Rate was not, or not sufficiently, disclosed.

237. The covering letter for the first facility plainly stated that both instruments were to govern their contractual relationship. That he knew and understood this, is revealed by his request to Mr Wescott to obtain it for him, his intimation to Mr Battersby that he would read it himself and the advice from Mr Battersby in his letter of 28 March 2008 that the applicable documentation included those terms and his instructions to Mr Battersby not to advise him on it.

238. Each of the subsequent covering letters for variations of the facility of 21 April 2008, 30 September 2008 and 9 February 2010 made the same thing plain.

239. At no time did Mr Neale assert anything along the lines that he was not bound by the General Terms or that he had an understanding inconsistent with this.

240. The specific percentage of the Overdraft Reference Rate which is a component of the Overdue Rate is not specified in the General Terms because it is not fixed but can vary from time to time.

241. With his experience and expertise, Mr Neale would have had no difficulty in reading and understanding the purport of paragraph 16.3 of the General Terms in conjunction with the definitions of Overdue Rate and Overdraft Reference Rate.

242. These provisions may have had less significance for him then than they have now, in that it is unlikely that he anticipated default on his part from the outset.

243. There is no basis for the suggestion that the interest terms on default were not adequately disclosed. The submission that there was deliberate concealment is an example of Mr Neale's willingness to make charges of dishonest conduct for which there is no foundation.

244. It is well established that an increase in interest rates which operate only from the date of default in payment, will not be considered as a penalty, but rather as a liquidated satisfaction, fixed and agreed on by the parties as compensation for the lender being kept from his money: David Securities Pty Ltd v Commonwealth Bank of Australia [1990] FCA 148; (1990) 23 FCR 1 at 30 per Gummow J. There is no retrospective increase in interest upon default here.

245. Mr Neale's assertions concerning, and his comparisons between different levels of profit which Bankwest might earn as a consequence of applying different interest rates were entirely unsubstantiated by evidence.

246. Even if the correctness of those assertions had been established by admissible evidence, nothing suggests that they are uncommercial, extravagant, or do not genuinely reflect the risk of loss undertaken by the bank assessed in the light of default by the borrower.

247. Even if the rates could be considered exorbitant (which was not established) this would not necessarily make them unconscionable: see Accom Finance Pty Ltd v Mars Pty Ltd [2007] NSWSC 726; (2007) 13 BPR 24,729.

248. It follows that I reject Mr Neale's contentions with respect to his liability to pay interest at the Overdue Rate as a consequence of his default.

Breach of the Code

249. Paragraph 2 of the Code required Bankwest to provide effective disclosure of information and to act fairly and reasonably towards Mr Neale in a consistent and ethical manner. Under Paragraph 25.2, Bankwest took on the obligation, with Mr Neale's agreement, to try and help him overcome his financial difficulties with any credit facility he had with the bank.

250. No breach of any of these obligations has been established. As I have earlier said, each facility letter made it clear that the General Terms were to apply, and there is nothing in that instrument not fairly and easily capable of being understood by someone with Mr Neal's qualities.

251. Paragraph 25.2 of the Code did not apply at the time of the hedging because as Mr Neale himself put it, he was then not in financial difficulties. Whatever assistance Bankwest was obliged to give was to be with Mr Neale's agreement. Having regard to the parties' respective contractual rights and obligations, to my mind, the bank more than discharged its obligation to try and help Mr Neale.

252. In my view, whatever obligation the bank had to render assistance to Mr Neale it gave, and then more. At an early point in time the bank made a negative assessment of its willingness to lend beyond the expiry of the initial period.

253. It is to be borne in mind that the facility was for an initial period for only 18 months. It was what Mr Wescott described as a "land loan", meaning a commercial facility secured by land, which was not yielding any revenue return. Long or medium term land loans except in relation to residential mortgages are, according to Mr Wescott, unusual.

254. By 18 June 2009, as the email from Mr Foden to Mr Wescott of 18 June 2009 reveals, the bank had indicated its intention not to lend further. However, by 12 August 2009, having regard to the practical reality that Avon Rd may not have been able to be sold before expiry, Bankwest indicated that it would consider an extension. The bank took no enforcement action between expiry of the facility and its facility offer letter of 9 February 2010. It was Mr Neale who did not comply with the conditions for the extension, notwithstanding his acceptance of the terms.

255. On an internal basis, the bank forbore from charging interest at the Overdue Rate for a significant period in 2010. Receivers were not appointed until 23 June 2011, by which time Mr Neale had not achieved development approval for, or had sold, Avon Rd.

256. The contentions that Bankwest breached the Code must be rejected.

Contracts Review Act

257. Although Mr Neale did not make any submissions in relation to the Contracts Review Act, I have given consideration to whether the facility or its terms, were unjust at the time they were entered into within the provisions of that Act, with respect to his being bound by the General Terms and the imposition of the hedging. I have concluded that they were not.

258. Mr Neale was, at the time, possessed of significant wealth. His commercial background and experience rendered him well able to reasonably protect his own interests, but in addition he had independent legal and other financial advice. Mr Neale well understood the nature, and indeed detail of the transaction. The transaction was in substance, a large commercial one, and Mr Neale was motivated by profit. There is no evidence to suggest that the commercial terms were in any way exceptional. No unfair pressure was applied to, or unfair tactics used against him.

259. There is no basis for the exercise of jurisdiction to deprive Bankwest or its successors of its or their valuable contractual rights.

CONCLUSION

260. Given that all Mr Neale's challenges to liability have failed, his application for leave to withdraw the admissions made in the Defence is refused.

261. There will be judgment for SGOL against Mr Neale and his company for $31,552,497 as at 3 November 2013.

262. There will be an order for possession of Fox Valley Rd.

263. The cross-claim will be dismissed.

264. The proceedings brought by Mr Neale and his company, will be dismissed.

265. I will stand the matter over for a short time for the parties to bring in short minutes reflecting this outcome, to enable them to be heard on costs and on any further issues that require determination.

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