- Unreported Judgment
- Appeal Determined (QCA)
SUPREME COURT OF QUEENSLAND
Court of Appeal
General Civil Appeal
7 October 2011
23 May 2011
White JA, Margaret Wilson AJA and Fryberg J
Separate reasons for judgment of each member of the Court, each concurring as to the order made
Appeal dismissed with costs to be assessed
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLE – FORMATION OF CONTRACTUAL RELATIONS – AGREEMENTS CONTEMPLATING EXECUTION OF FORMAL DOCUMENT – WHERE CONCLUDED CONTRACT
Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175;  HCA 27, cited
Mesana Pty Ltd v Zamia Investments Pty Ltd and Anor  QSC 419, cited
JT Gleeson SC and DM Stone for the appellant
J Peden for the respondents
Holding Redlich for the appellant
Gadens Lawyers for the respondents
 WHITE JA: I have read the reasons for judgment of Fryberg J and agree with those reasons and the order proposed by his Honour.
 MARGARET WILSON AJA: I agree with the order proposed by Fryberg J and with his Honour’s reasons for judgment.
 FRYBERG J: I begin with the events giving rise to the litigation.
The events giving rise to the case
 At all material times, the second appellants, the Ashleys, had a family trust, and the first appellant, Zamia, was its trustee. Mr Ashley was an accountant by profession and the director and principal of Zamia. Zamia was one of a number of shareholders in a company called Mini Tankers International Pty Ltd (“MTI”). Mr Ashley was the chairman of directors of MTI.
 Another shareholder in MTI was the respondent, Mesana. Mr Tony Hartin was the beneficial owner of the shares of Mesana and he too was a director of MTI. There were other shareholders in MTI, and also two or three other directors.
 MTI carried on the business of providing onsite refuelling services, typically to machines operating on building sites (or, perhaps, granting franchises for such businesses). Its chief executive was Mr Geoff Gault. It was the ultimate holding company of shares in a number of other companies. One such company (MT USA) operated in the USA and another (MT C) operated in Canada. MTI held a 40% interest in MT C.
 Mr Ashley and Zamia banked with the National Australia Bank, apparently at its Acacia Ridge branch. So did MTI. Their man at the bank was Mr McKay, who rejoiced in the title “Relationship Manager”. Zamia had a business cheque account and the Ashleys had executed guarantees for any amount by which Zamia was in default to the bank up to specified limits. MTI had a bill facility. MTI’s dealings with the bank were conducted primarily through Mr Ashley and Mr Gault.
 In late 2002 MTI was experiencing liquidity problems, particularly due to the ongoing costs of MT USA. It needed more working capital. NAB would not provide it; it was seeking a reduction of MTI’s indebtedness. To achieve that reduction and to provide some funding for MT USA, MTI decided at an emergency Board meeting on 23 January 2003 to sell its interests in MT C for approximately CAD$1.6 million. It further resolved:
“Resolution No. 2:That, in support of the sale of equity in Mini-Tankers Canada Ltd, the Board recognises that, apart from reasonable reduction in debt due the National Australia Bank Ltd, the proceeds of sale of equities in Mini-Tankers Canada Ltd be applied as the Board resolves appropriate in underpinning the financial needs of Mini-Tankers USA, Inc.
Resolution No. 3:That, with respect to the application of proceeds of sale of equity in Mini-Tankers Canada Ltd, that the company apply $200,000 (Canadian) towards current financial support of Mini-Tankers USA, Inc.”
An agreement for the sale was executed, effective 31 January 2003. It provided for settlement on 30 April 2003 and was subject to the purchaser obtaining finance. In the event, settlement did not occur until early June 2003.
 Funding for MT USA continued to be a problem. The minutes of a meeting of the Board on 3 March 2003 record:
“Options for providing funding support for MTUSA were discussed, including the possibility of bridging the funding gap over the next two months via $250,000 from Rob Ashley and a further $250,000 from the bank or other sources. It was pointed out that closing MTUSA meant not just a loss of the business but also the value of the future royalty stream.
Concern was expressed over the extent of the losses in MTUSA and also management’s ability to deliver commercial viability.
The general view of the Board (not supported by the Chairman) was that MTUSA should be wound up.”
At a shareholders’ meeting held shortly afterwards, Mr Ashley confirmed that he would be prepared to back the US venture, but no other shareholder was willing to provide money to support it.
 At some time prior to 20 March, Mr Ashley telephoned the NAB and spoke to Mr McKay. On behalf of Zamia he sought a bridging loan of $250,000. The purpose of the loan was shortly afterwards recorded in a memorandum by Mr McKay:
“Customer seeks short term loan of $250,000 to contribute to a shareholder funded loan to Mini Tankers International Pty Ltd. This funding requirement comes from the need for funding for the period between now and 30/4/03 by which time, Mini Tankers International will have sold its interest in Mini Tankers Canada for CAD$1.6M (AUD $1.77M) to provide clearance of this loan request and make substantial reduction to core facilities of MTI.”
 The statement that the sale was “to provide clearance of this loan request” was untrue. The Board of MTI had not agreed that the proceeds of sale would be used to clear Zamia’s loan, although it seems that the possibility had been discussed. The resolutions of 23 January to apply the proceeds to MT USA and to the reduction of the bank debt stood. Mr Ashley testified that on the evening of 3 March, he telephoned Mr Hartin. He said that in the course of that call he told Mr Hartin he would pursue the NAB to raise $250,000 and that clearance of that loan would come from the Canadian sale. He testified that Mr Hartin said, “That’s fine, but I’m not putting any more money in.” The learned trial judge did not accept that evidence; he preferred Mr Hartin’s denial. That finding has not been challenged in this appeal.
 In any event such a conversation between two directors could not bind MTI, and Zamia did not submit otherwise. Its case was that MTI borrowed the money on the basis that the loan “would be repaid to [Zamia] when MTI received the share sale proceeds”. It alleged that such a term had been agreed to between Mr Ashley on behalf of Zamia and Mr Gault on behalf of MTI at some time during a series of meetings between 3 March and 27 March. Mr Gault denied any such agreement and the judge believed him, rejecting Mr Ashley’s evidence to the contrary. Mr Ashley did not tell Mr McKay about the division within the Board of MTI over the future of MT USA. His statement that the loan was to enable Zamia to contribute to a shareholder funded loan tended to suggest that Zamia was not acting alone. That was misleading.
 Mr McKay wrote a memorandum recommending that NAB approve a “Market Rate Advance” of $250,000 to Zamia to expire on 31 May 2003. Under the heading “Exit Analysis” he wrote:
“Primary exit: continued operation of practice and Zamia Investments will provide sufficient revenue to clear the proposed facilities.
Whilst we have demonstrated the servicing from normal activities, the clearance source of the loan will come from the sale proceeds of MTC to MTI. We hold will hold (sic) an irrevocable letter of instruction to direct $250k from the sale proceeds to the clearance of the proposed new debt. Also we hold evidence in the form of contract of sale from MTI to MTC and confirmation of finance application by MTC to facilitate the purchase. All parties are confident the sale transaction will proceed.
Security for the loan will comprise G&I from DJ Ashley (Rob’s wife) and supported by their family home at MacGregor. Our recent inspection of this property lists its market value at $975k or B/V of $780k. Facilities against this security can be summarised as:
Current Home Loan$345,000ino RAM & DJ Ashley
Overdraft$210,000ino Zamia Investments PL
New loan$250,000ino RAM Ashley
The above B/V is less than debt level however we are comfortable given the short term nature of this transaction and the current market for real estate within MacGregor.”
 The advance was approved on 24 March. Mr McKay e-mailed Mr Ashley, “Rob, Just a quick note to confirm that the bank has approved your funding of $250k. This is subject to the loan being cleared from proceeds of the MTC sale on or before 30/4/03.” On the same day the bank created a loan account in Zamia’s name. Zamia drew down the loan on the following day and paid the money to MTI. The bank statement for the account for the period 24-26 March recorded the drawdown immediately beneath the note:
“Please Note From Today Your Int Rate Is 7.902% With Any Repayments In Arrears Incurring An Int Rate Of 15.700%”.
 On or between 24-26 March Mr McKay telephoned Mr Gault. According to the latter, he told him that the Zamia loan had been approved and asked him to:
“send a letter acknowledging the understanding that those loan - the loan proceeds would be repaid out of the proceeds of the equity position in Mini-Tankers USA and that was the basis under which I prepared the letter and sent it later in the week.”
The reference to Mini Tankers USA was obviously a slip for Mini Tankers Canada. Later that week Mr Gault sent the bank a letter in the following terms:
Further to our discussion earlier this week, we acknowledge that the $250,000 advance from Zamia Investments Pty Ltd was provided on the understanding that it would be repaid from the proceeds of the sale of Mini-Tankers Investments Pty Ltd’s equity position in Mini-Tankers Canada Ltd.”
Mr Gault suggested that he sent this letter because Mr McKay had asked for it and MT USA was in desperate need for cash.
 Because of the urgency, NAB advanced the money to Zamia before any formal documentation was signed. In due course a document entitled Market Rate Facility was prepared by the bank and on or about 23 April (as the trial judge found) Mr McKay sent it to Mr Ashley for signature. The appellants challenge that finding. The document was a standard form document used by the bank for market rate loans. It contained nothing unusual, but one item in the schedule of details was filled in differently from Mr McKay’s memorandum: it provided for a loan term of 12 months. The document contained a provision expressly permitting assignment of the loan by the bank. Mr Ashley denied that Zamia ever received it and he testified that it was not signed or adopted by Zamia in any way. The bank was unable to find a copy signed on behalf of Zamia. The trial judge found Mr Ashley an unreliable witness and did not accept his evidence that Zamia never received the document. He held that the loan was on the terms and conditions in the document.
 As already mentioned, settlement of the share sale took place in early June 2003. Of the sale price of CAD 1.6 million, only CAD 711,300 (AUD 797,000) was received. There were several reasons for that. MTI had already sent the deposit of CAD 350,000 to MT USA for operational support; two loans totalling over CAD 196,000 had been repaid (presumably in Canada); and CAD 342,500 had been retained in Canada as security for withholding tax. CAD 200,000 of this last amount was expected to be received by the end of August once the tax position was finalised. Of the funds received in Australia, AUD 197,000 was remitted by MTI to a Hong Kong creditor and MTI wanted to send a further AUD 300,000 to MT USA to fund ongoing operations. That would have left AUD 300,000 to fund the promised reduction of indebtedness to the bank of AUD 750,000 and repayment of Zamia’s loan.
 Soon afterwards, control of the Zamia file passed to a different section of the bank. Other deficiencies in the management of the file and of the MTI file were identified and Mr McKay ceased to be employed by the bank. Zamia's loan was extended to the end of July.
 By mid- to late July it was becoming clear that MTI's efforts to raise equity capital in Australia, and MT USA's efforts to raise finance in America, were not succeeding. On the other hand, Mr Ashley was successful in persuading the bank that its loan to Zamia should be cleared by using $250,000 from the funds held by the bank on behalf of MTI as a result of the share sale. However before that agreement was implemented, Mr Adams, a senior bank officer, became aware of the dissension within the Board of MTI. It was decided not to appropriate the money in that way without the authority of a directors’ resolution, and Mr Adams so informed Mr Ashley on 17 August. On 19 August Mr Ashley signed a circular resolution authorising Mr Gault to instruct NAB to clear the Zamia loan with funds from the company's bank account, but Mr Hartin refused to sign it. A meeting between a number of bank officers, Mr Ashley and Mr Hartin on 22 August revealed a dysfunctional position within MTI with no agreement for the release of the money.
 On 19 September 2003, at the request of the MTI Board, the NAB appointed receivers to MTI. Mr Ashley consulted solicitors and on 23 October they wrote to the bank on his behalf attempting to set out his position in relation to the various dealings. No resolution was achieved. On 31 October, the bank and Mesana entered into a Deed of Assignment of Zamia's debts to the bank.
 Eventually Mesana sued to recover the assigned debts. Its claim comprised the amount owing on the loan account and the amount owing on the business cheque account, and interest. It claimed against Zamia, relying on the Deed of Assignment and against the Ashleys, relying on the guarantees already referred to together with a fresh guarantee given by Mr Ashley in July 2003. The pleadings were fairly complex, but the issues as identified by Boddice J, the trial judge were briefly stated:
“(a)the terms of the loan for $250,000, and of the other facilities provided to Zamia by NAB;
(b)whether those amounts, and guarantees executed by the Ashleys, were properly assigned by NAB to Mesana;
(c)whether NAB, and therefore Mesana, is estopped from recovering those amounts having regard to representations allegedly made by NAB.”
The amendment of the defence
 When the trial commenced on 2 August 2010, Zamia’s defence as pleaded was that there were terms of the loan that repayment “would be made when MTI received the proceeds of a sale of shares in [MT C]” and that “when the share sale proceeds were received by MTI, $250,000 thereof would be repaid to the first defendant, or paid directly to the National by MTI in satisfaction of the first defendant's $250,000 loan from the National”. It denied indebtedness on the grounds first, that for various reasons, the assignment was ineffective, and second, that NAB was estopped from recovering the loan because it had represented to Mr Ashley that it “would accept repayment of the said $250,000 loan from the share sale proceeds received by MTI, which proceeds would be paid at first instance into MTI's account with the National.” The defence went on to allege that contrary to that representation, the NAB had in various ways set off the share sale proceeds in MTI's account against MTI's indebtedness to itself.
 On the face of things there were serious difficulties with that defence. If the alleged terms were intended to mean that the sole method of repayment of Zamia’s loan was to be from the proceeds of sale, they were not only commercially incredible but also were inconsistent with Mr Ashley’s evidence. If they were intended to mean that the bank was in effect warranting that MTI would make the payment, they were on their face improbable. If they were intended to mean simply that NAB would accept repayment of Zamia’s debt from MTI out of the proceeds of sale and not insist upon applying those proceeds to its own debt, it would have been necessary for Zamia to prove that the bank had refused to accept such payment or had insisted on the proceeds being applied to its own debt first. That did not square with the evidence.
 It must have been apparent by the second day of the trial not only that the bank had not refused to accept payment of Zamia's debt by MTI, but also that it would willingly have accepted that payment. The problem was that MTI refused to permit the bank to make the payment. The MTI Board had not authorised such a payment at its meeting on 3 March 2003 and it would not do so when the funds were received. Against this background the defendants applied for leave to amend the defence to allege for the first time the existence of a further term of the loan, namely that NAB “would obtain an irrevocable letter of direction from MTI for the said repayments”.
 After substantial oral submissions from the parties, his Honour granted the leave sought. It might be thought that the defendants were fortunate in the circumstances. Unsurprisingly, the amendment provoked an application by the plaintiff for a substantial adjournment of the trial, an application which his Honour granted. The trial was adjourned and did not resume until 13 October 2010.
 As particularised, the further term alleged by the amendment was:
“(d)the National would obtain an irrevocable letter of direction from MTI for the repayments.
i.The term was oral.
ii.The term was advised by Scott McKay to Robert Ashley during one of a series of telephone conversations between 5 and 24 March 2003. The precise date of which Mr Ashley is unable to recall.
iii.The words used by Scott McKay were to the effect that ... ‘we'll require a letter of direction from MTI. I'll call Geoff Gault to organise it’.”
 The appellants did not plead breach of that term. They used its existence to support arguments about the assignability of the debt and estoppel.
The decision at first instance on the first issue
 Boddice J found that the loan was on the terms of the Market Rate Facility Document referred to above. He wrote:
“I do not accept Mr Ashley’s evidence that Zamia did not ever receive a copy of the market rate facility document. Mr Ashley did not impress me as a reliable witness. His evidence left me with the overall impression that he was reconstructing what he thought to be the position rather than recalling events as they had occurred in 2003.
The loan was organised urgently having regard to the pressing need to fund MT USA. Both Mr McKay and Mr Adams gave evidence it was not unusual in those circumstances to approve the loan and forward the documentation at a later date. The documentation is prepared externally. Mr McKay’s evidence that he would have sent that document later accords with that practice. The document was signed by Mr McKay. It is likely, in those circumstances that it would have been sent by him in accordance with this usual practice. Mr Ashley, and therefore Zamia, was aware interest was being debited for the loan. This was never questioned, apart from a complaint that from June 2003 NAB commenced to charge interest on a default rate under the facility. Further, Mr Ashley never raised the non-existence of terms of the loan in the letter sent by his then solicitors, Sparke Helmore, in October 2003. If Zamia had never received any terms in relation to the loan, it is an inexplicable omission that that fact was not the subject of specific reference by his solicitors having regard to the nature of the letter being sent by them. I am satisfied Zamia received the market rate facility terms and conditions, and that the loan was on those terms.”
 His Honour also rejected the existence of the further term:
“As to the allegation that Zamia’s loan for $250,000 was subject to a specific term that NAB would obtain an irrevocable letter of direction from MTI ‘for the repayments’, the pleading alleges the term was an oral term, not a written term, advised by Mr McKay to Mr Ashley in a telephone conversation. Mr Ashley had one telephone call with Mr McKay. Whilst the pleading alleged Mr McKay said words to the effect NAB ‘will require a letter of direction from MTI’ (emphasis added), the letter sent by Sparke Helmore on 23 October 2003 did not contain an assertion in those terms. It asserted NAB ‘requested’ a letter confirming Zamia’s loan to MTI would be repaid out of the sale proceeds.
Mr Ashley’s note of his conversion (sic) with Mr Adams on 22 July 2007 refers to NAB having sought a ‘letter of comfort’. That terminology is consistent with NAB requesting an acknowledgment from MTI that it would repay Zamia’s loan upon receipt of the proceeds of MT C. A request for acknowledgment is markedly different to the loan being given on a term that MTI would be responsible for Zamia’s repayment to NAB.
The letter from Mr Gault was in terms of an acknowledgment of an ‘understanding’, not a direction to NAB. Mr Gault worded it, based solely on his conversation with Mr McKay. It was only a ‘statement of intent’. His evidence, and the terms of the letter, support the conclusion that Mr McKay sought confirmation that MTI was agreeable to Zamia’s loan being repaid from the proceeds of MT C, not that MTI was to be responsible for Zamia’s repayment to NAB. Whether MTI ultimately did repay Zamia its loan was a matter between it and Zamia. Zamia remained responsible for repayment of its loan to NAB.”
 The appellants’ submissions in this court were careful and extensive. I trust I do them no injustice by summarising. Essentially the appellants contended that his Honour should have found that the terms of the loan contract were in accordance with the amended defence and did not include any terms from the Market Rate Facility Document. They did not submit that Boddice J should have upheld the defence as originally pleaded. They submitted that he fell into error by failing to analyse the formation of the contract. That must have been complete, they submitted, no later than the date of drawdown, 25 March 2003. The terms were to be found from the evidence of Mr McKay and Mr Ashley and the former’s memorandum seeking loan approval. The Market Rate Facility Document could have been included in the contract only by way of subsequent variation. His Honour’s implied finding of such a variation was deficient because it did not indicate whether the market rate facility terms were in addition to or in substitution for the original terms.
 Other grounds related to penalty interest, the assignment, the guarantee and the alleged estoppel. I shall revert to those grounds later.
The formation and terms of the contract
 It is true that his Honour did not embark upon a detailed analysis of the formation of the contract in terms of contract law theory. I find no indication that he was invited to do so. Perhaps his Honour’s reasons for judgment might have been academically a little more satisfying had he undertaken such an exercise, but reasons for judgment are not intended for use as texts on legal theory. In any event, such an analysis would not in my judgment have affected the outcome.
 If it were relevant, I would reject the submission that a contract of loan must have been formed no later than the date of drawdown. A person can lend money to another without first entering into a contract for a loan. A loan may be effected simply by the transfer of money or credit from one person to another. The transfer must, of course, be with the knowledge and acquiescence of the parties, and the acquiescence must include an intention to create the relationship of debtor and creditor. A transfer by way of gift, for example, would not suffice. In the absence of agreement the law will presume that the debt is repayable on demand. In theory NAB might have allowed Zamia to draw down the loan and left it until later to negotiate an agreement. If no agreement were subsequently reached, it could always demand repayment forthwith.
The Market Rate Advance document
 But that is not what happened here. Mr Ashley and Mr McKay discussed the terms of the loan and reached agreement about them. In their particulars the appellants pleaded that the discussion took place in a series of telephone conversations which Mr Ashley had with Mr McKay between 5 and 19 March 2003 and in a meeting at the offices of Ashley & Munro on 19 March. In his evidence Mr Ashley said that discussion took place only by telephone and that as far as he could recollect, there was only one conversation. Mr McKay could remember very little of the discussion. What they agreed in it constituted the terms of the loan at the time of drawdown. I accept the appellants’ submission that his Honour erred in making no finding as to the terms of the loan agreement at that time. I also accept the appellants’ submission that Mr McKay’s memorandum was “a reliable and near contemporary record” of the conversation, the “best and central record of what occurred”. But I do not accept their submission that those terms could have become part of the contract only by a variation effective at some subsequent time.
 The memorandum recorded “Facility sought: Market Rate Advance $250,000”. I would accept that as a reliable and near contemporary record of what Mr Ashley sought in the conversation. He testified that he asked for a loan of that amount on behalf of Zamia and that he knew the company would have to pay interest. Mr McKay testified that he would have discussed advancing the loan, with documentation to come later, with Mr Ashley, although he could not remember any specific conversation. Mr Ashley’s answer in evidence in chief about the form of documentation was:
“Did you have any discussions with Mr McKay as to the form the loan would take, that is, that it would be a fixed rate interest only loan, or anything like that?-- No, there was no discussion at all as to the terms.”
Mr Ashley was a partner in an accounting firm. He would surely have known that banks require loans to be documented, especially loans as large as Zamia sought, and that NAB had a standard form document for such a facility as he sought. An objective observer would inevitably conclude that the parties intended the advance to be on the bank’s usual terms for Market Rate Facilities. Those terms were proved by the standard form terms contained in ex 43, the Market Rate Facility Document. They were incorporated into the contract by reference at the time of the conversation between Mr Ashley and Mr McKay.
 The appellants sought to suggest that at that time the Market Rate Facility terms could not have been incorporated because they were inconsistent with other parts of the conversation. One proposed inconsistency was the alleged oral term for an irrevocable letter of direction. For the reasons set out below, I am not satisfied that any such term was agreed. Another was the rate of interest, which the appellant submitted was a fixed rate of 7.902%. That submission was based on the evidence of Zamia’s loan account statement for the period ended 26 March 2003, where the figure is recorded and the loan is described as “Fixed Rate”. However that document post-dated the drawdown and on the evidence of Mr McKay’s memorandum is inconsistent with what was said in the conversation with Mr Ashley. On the appellants’ own argument it cannot be used to negate the proposition that this was a Market Rate Advance Facility.
 The third proposed inconsistency was the period of the loan. On the evidence of Mr McKay’s memorandum he and Mr Ashley agreed that the loan would be repayable on 31 May 2003. The market loan facility document stated the term of the loan as one year. However that information, like the name of the borrower, the amount of the loan and other matters particular to the transaction, was not part of the standard form for a Market Rate Advance. The non-standard information in the document was not part of what was incorporated by reference; but that information was discussed and with the exception of the period of the loan, was accurately recorded in the exhibit. With that exception, his Honour’s conclusion that the loan was on those terms was correct.
The irrevocable letter of direction
 However that was not the critical issue. The outcome of most importance of the case depended on whether the further oral term pleaded in the amendment was proved. That term was, it will be recalled, that “the National would obtain an irrevocable letter of direction” from MTI. Several parts of the evidence bore upon that question.
 Mr McKay's memorandum demonstrates that he expected that the bank would be in possession of an irrevocable letter of instruction from MTI. It is neutral on the question whether Mr Ashley volunteered such a letter or Mr McKay requested it; and of course, it conveys no sense of the terms of or the importance which Mr McKay attached to any request. It is also neutral on the question of who was going to make arrangements for the letter to be provided.
 Mr Ashley does not seem to have thought in 2003 that the letter was of any particular importance to his position. In a handwritten file note of a telephone conversation on 22 July that year, he recorded (apparently as something which he told Mr Adams, a NAB officer), “The loan was provided on the basis that it be cleared from MT C equity. Geoff was asked to provide a letter of comfort from MTI” (emphasis added). Also, on 23 October 2003 Mr Ashley’s solicitors wrote on his behalf to Mr Adams:
“At the time there were discussions between the Bank and Mr Ashley about the security which would be required by the Bank for the advance it was making to Zamia. The Bank wanted to be assured that it would be paid out of the Sale Proceeds and requested that MTI provide a letter confirming that the loan made by Zamia to MTI would be repaid out of the Sale Proceeds. In response to this request, MTI provided a letter to the Bank confirming that MTI would use the Sale Proceeds to directly repay the Bank.”
 Those documents suggest that Mr McKay was the source of a request for a letter from MTI. They also suggest that Mr Ashley did not at that time understand the letter under discussion to be an irrevocable letter of instruction to the bank. They further suggest that Mr Ashley did not perceive the bank to have been under any obligation to him to procure such a letter. I reject the appellants’ submission that these conclusions are open only on an unduly pedantic reading of the documents.
 A day or two after his conversation with Mr Ashley, Mr McKay telephoned Mr Gault and asked for a letter. The sequence of events as found by the trial judge and not challenged on appeal is set out above. It demonstrates, in the absence of any suggestion of duplicity on Mr McKay’s part, that either he did not understand the nature of an irrevocable letter of instruction to debit an account or the precise nature of the letter was of no particular importance to him. The fact that Mr McKay approached Mr Gault supports the contention that he agreed to do so during the phone call with Mr Ashley. However the conversation does not support a finding that Mr McKay in effect promised Mr Ashley that the bank would be legally responsible for obtaining the irrevocable letter pleaded.
 In analysing the evidence it must be remembered that Mr McKay was labouring under the belief that MTI had agreed “to provide clearance of this loan request” from the sale of the interest in MT C. It was Mr Ashley who had told him that. Mr Ashley was chairman of the Board; Mr McKay had no reason to doubt his word. He was a relatively junior bank officer who had had a number of dealings with Mr Gault. It would not be surprising if he offered to contact the CEO to get the letter. That would be quite different from (in effect) offering a warranty on behalf of the bank that MTI would provide such a letter.
 Mr McKay did not recall much of his conversation with Mr Ashley. In cross-examination it was put to him that he told Mr Ashley that the bank required an irrevocable letter of instruction. He did not accept that suggestion, but responded, “That was a condition of approval.” He was satisfied to receive Mr Gault’s letter of 27 March, which plainly was not such a letter. It was also put to Mr McKay that he told Mr Ashley in the telephone conversation that he would get the letter of instruction from MTI. He replied, “I have no recollection of that conversation.”
 That evidence was given before lunch on the second day of the trial. After the luncheon adjournment counsel for the appellants sought leave to amend the defence as described above. The respondent opposed the amendment and made it very clear that the proposed new term would be alleged to be a recent fabrication:
“MR PEDEN: And, as I say, it does represent a departure from the case. It is one which my learned friend would candidly concede has come some way through the cross-examination of Mr McKay. Mr Ashley has been sitting in court the whole time. He has heard the evidence unfold, he's heard the points that we've raised about the difficulty that he's faced with the document itself being - whether or not it is a mandate, an effective mandate, and now this new term is alleged to be imposed upon the National. Now, it's just really something that's come out of the blue.
MR PEDEN: I mean, there's obviously going to be an allegation of recent invention made against Mr Ashley.
HIS HONOUR: Yes.
MR PEDEN: To that extent, we'll seek disclosure of witness statements that he's provided on this point.
HIS HONOUR: You don't submit, I take it, that, in effect, the whole trial should go off and start afresh? It is more a matter of an adjournment of what-----
MR PEDEN: It is a matter of an adjournment, your Honour, subject to, as I say, we want disclosure of the file note - of Mr Ashley's witness statement on this point.
HIS HONOUR: Yes.
MR PEDEN: Because if his witness statement only referred to three points, which are (a), (b) and (c) of paragraph two and now, on day two of the trial, he says, ‘No, there's a further one.’, well, if it appears in his witness statement, then the point goes nowhere.”
Shortly afterwards, the trial was adjourned.
 Mr Ashley’s evidence commenced some two months later, on the third day of the trial. In evidence in chief he testified:
“The arrangements - or your discussions with Mr McKay about the proposed loan, did they take place by telephone or in person?-- By telephone.
Was there one, or more than one conversation?-- As far as I am aware there was one telephone call that I made in relation to organising the loan.
In your discussions with - sorry, I will withdraw that. In your suggestions (sic) with Mr McKay did he tell you what the bank would require in order to advance the loan?-- I asked him whether or not he could consider an application for $250,000 advance to be used as a bridging loan for Mini-Tankers International. He advised me that for that to proceed that he would require a copy of the contract.
Which contract, the Canadian sale contract and that he would also require a letter of direction from Mini-Tankers International, and that he would obtain both of those things from Mr Gault.”
Obviously, the weight to be attributed to the answer to the last of these questions is affected by the leading nature which the use of the words “what the bank would require” imposed.
 In cross-examination the following day, there was the following exchange:
“And just in relation to the conversation that you say occurred, you recall that that conversation was first raised on your behalf in an amended pleading on day 2 of the trial back in August. You recall that, don't you?-- There was an amendment to the pleading, yes.
And that's the first time, isn't it, that you raised with anybody the concept of a conversation with Mr McKay about the inclusion of such a term or condition in the contract.
MR WILSON: I object, your Honour.
HIS HONOUR: On what basis?
MR WILSON: To the extent that it's going to ask the witness whether he raised - if it's intended to extend to raising that matter with the witness's legal advisors, that's a matter of privilege.
HIS HONOUR: Yes.
MR PEDEN: I'm suggesting recent invention, your Honour.
HIS HONOUR: Yes, well, I know you are, but - well, we'll see what the answer is, Mr Peden. Yes?-- I have maintained that position from day one with my counsel.
MR PEDEN: Well, whether you've maintained that position or not, Mr Ashley, I'm suggesting to you that you in fact made up the conversation, and you only first told your lawyers about it midway through day 2 of the trial in August 2010?-- That is incorrect.”
Despite that cross-examination, no witness statement was produced by the appellants.
 My purpose in referring at some length to those passages in the transcript is not to suggest that Mr McKay did not refer to a letter of direction from MTI in his conversation with Mr Ashley. It is to suggest that whatever words were used were not understood by Mr Ashley to convey a meaning which entitled him to rely on the bank procuring a letter having the pleaded qualities.
 Finally, I find the notion that a bank would undertake an obligation to a customer to procure such a letter from a third party commercially extraordinary. Common sense suggests that it would be Zamia's responsibility to procure any letter which the bank requested as security. Zamia was to onlend the money to MTI and Mr Ashley was chairman of the board. It was he who had told Mr McKay about the source of funds for the repayment. Commercial practice is consistent with the contemporary documents and the surrounding circumstances.
 In summary, the evidence and the course of the trial strongly suggest that there was no term in the agreement between Mr Ashley and Mr McKay as alleged in the appellants’ amendment to their defence. That was what the trial judge concluded. When one takes into account his Honour’s finding on Mr Ashley’s credit, his Honour’s conclusion must be upheld.
The other issues
 The appellants conceded, either expressly or by the terms of the notice of appeal, that each of their remaining grounds of appeal must fail if the terms of the Market Rate Facility Document were incorporated into the contract and there was no obligation on the bank to procure an irrevocable letter of instruction.
 The appeal should be dismissed with costs to be assessed.
I have referred to a number of exhibits and to testimony not included in the Appeal Record.
 The date seems to have been a slip.
 QSC 419.
Defence para 2(a) – (c).
Defence para 29.
Defence para 25.
Defence para 37.
Defence paras 37-46.
Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 17;  HCA 27.
The term which the appellants alleged in the notice of appeal as that which the judge ought to have found differed from this.
 Quoted in para .
The approval was effected by Mr Garrard, the District Credit Manager, signing Mr McKay’s memorandum in the box labelled “Approved By” on 24 March.
At one point in the oral argument, counsel for the appellants seemed to submit otherwise, but I do not understand anything to flow from the submission.
Paragraph  of his reasons the judgment, set out in para  above.
- Published Case Name:
Zamia Investments Pty Ltd & Anor v Mesana Pty Ltd
- Shortened Case Name:
Zamia Investments Pty Ltd v Mesana Pty Ltd
 QCA 274
White JA, M Wilson AJA, Fryberg J
07 Oct 2011
|Event||Citation or File||Date||Notes|
|Primary Judgment|| QSC 419||17 Nov 2010||-|
|Appeal Determined (QCA)|| QCA 274||07 Oct 2011||-|