Commonwealth Bank of Australia Ltd v Chamos [2012] NSWSC 1345

Supreme Court New South Wales

Medium Neutral Citation: Commonwealth Bank of Australia Ltd v Chamos [2012] NSWSC 1345 Hearing dates: 29 - 31 October 2012 Decision date: 07 November 2012 Jurisdiction: Equity Division - Commercial List Before: Stevenson J Decision: The plaintiff is entitled to judgment against the defendants Catchwords: GUARANTEES - whether discharged or unenforceable - misleading or deceptive conduct Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth) Body Corporate and Community Management Act 1997 (QLD) Body Corporate and Community Management Amendment Act 2009 (QLD) Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth) Property Agents and Motor Dealers Act 2000 (QLD) Cases Cited: Bossichix Pty Ltd v Martinek Holdings Pty Ltd [2008] QSC 278 Bossichix Pty Ltd v Martinek Holdings Pty Ltd [2009] QCA 154 Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 Heydon v NRMA Ltd [2000] NSWCA 374; (2000) 51 NSWLR 1 Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 Category: Principal judgment Parties: Commonwealth Bank of Australia Limited (plaintiff) Christopher Chamos (first defendant) TBAMS Constructions Pty Ltd (ACN 107 173 053) (second defendant) Total Building & Management Services Pty Ltd (ACN 101 116 527) (third defendant) Representation: Counsel: D F C Thomas (plaintiff) M H Southwick (defendants) Solicitors: Herbert Smith Freehills (plaintiff) TressCox Lawyers (defendants) File Number(s): SC 2011/328482 Publication restriction: Nil

Judgment

Introduction 1The plaintiff, Commonwealth Bank of Australia Limited ("CBA"), is the successor in law of Bank of Western Australia Limited ("BankWest"). 2On 1 October 2012, all of the assets, liabilities, obligations and business of BankWest were transferred to CBA pursuant to the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth). 3CBA brings these proceedings under guarantees given by the defendants to BankWest in relation to the indebtedness to BankWest of Lanai Apartments Pty Limited ("Lanai"). 4BankWest made available to Lanai financial accommodation to enable it to purchase and develop a property in Mackay, Queensland. The defendants guaranteed Lanai's obligations in respect of that accommodation. 5Lanai is now in liquidation. 6CBA seeks to recover from the defendants Lanai's indebtedness to BankWest pursuant to the guarantees. 7The defendants contend that in May 2007 BankWest engaged in misleading or deceptive conduct within the meaning of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) and that as a result they are entitled to an order under s 12GM of that Act, discharging them from all liability under the guarantees or, alternatively, declarations that the guarantees are not enforceable. 8The defendants do not otherwise contest their liability to CBA under the guarantees.

Decision 9In my opinion, for the reasons that follow, BankWest did not engage in misleading or deceptive conduct. 10Accordingly, CBA is entitled to judgment against the defendants under the guarantees.

Background 11The first defendant, Mr Christopher Chamos, is a licensed builder and engineer. He was the sole director of Lanai. The other two guarantor defendants are corporations associated with Mr Chamos. 12In July 2005, Mr Chamos identified the Mackay property as a potential development site. 13In November 2005, a development application was lodged with Mackay City Council for 80 residential apartments on the property. Mr Chamos spent the balance of 2005, and the whole of 2006 exploring various options to finance the proposed development. 14The Mackay City Council approved the proposed development in April 2006. 15In September 2006 pre sale of units in the proposed development commenced. Mr Chamos had not obtained funding to purchase or develop the property at that stage. 16The pre sale contracts ("the Pre Sale Contracts") used by Mr Chamos were drafted, at his request, by Mallesons Stephens Jacques ("Mallesons"). 17At the relevant time, s 212 of the Body Corporate and Community Management Act 1997 (QLD) ("the BCCM Act") provided that: - "212 Cancellation for not complying with basic requirements (1) A contract entered into by a person (the seller) with another person (the buyer) for the sale to the buyer of a lot intended to come into existence as a lot included in a community titles scheme when the scheme is established or changed must provide that settlement must not take place earlier than 14 days after the seller gives advice to the buyer that the scheme has been established or changed. (2) Also, when the contract is entered into, there must be a proposed community management statement for the scheme as established or changed. (3) The buyer may cancel the contract if - (a) there has been a contravention of subsection (1) or (2); and (b) the contract has not already been settled." 18The Pre Sale Contracts did not contain a provision of the kind required by s 212(1) of the BCCM Act.

The decision in Bossichix Pty Ltd v Martinek Holdings Pty Ltd [2008] QSC 278 19On 12 November 2008 Mackenzie J in Bossichix Pty Ltd v Martinek Holdings Pty Ltd [2008] QSC 278 held that the absence of the wording prescribed by s 212(1) of the BCCM Act from a similarly worded pre sale contract (between parties unrelated to these proceedings) entitled the purchaser under that contract to cancel the contract pursuant to s 212(3) of the BCCM Act, and recover its deposit. Mackenzie J's decision was upheld on appeal: Bossichix Pty Ltd v Martinek Holdings Pty Ltd [2009] QCA 154. 20The Queensland Parliament enacted emergency legislation to overturn the effect of Bossichix; Body Corporate and Community Management Amendment Act 2009 (QLD). That legislation did not extend to contracts that had been validly terminated before the date of the decision of the Queensland Court of Appeal (5 June 2009). 21No party involved in these proceedings knew of this problem until the decision of Mackenzie J on 12 November 2008.

Commercial Advance Facility and purchase of the Land 22On 2 March 2007, BankWest entered into a Commercial Advance Facility with Lanai ("the Facility"). The purpose of the Facility was described in the relevant documents as being to "assist in providing for the purchase" of the Mackay property. The Facility limit was $3.72 million. The terms of the Facility were set out in an Offer Letter of 28 February 2007. Attached to that letter were the Facility Terms. The letter also stated that the Facility was subject to BankWest's General Terms for Business Lending ("the General Terms"). 23In March 2007, Lanai exercised an option to purchase the property. Settlement of the purchase was completed on 12 April 2007.

2007 variation to the Facility 24On 1 June 2007, the limit of the Facility was increased to $42.37 million. The purpose of the Facility was now stated to be to "provide construction funding for the development of 80 residential apartments" on the Mackay property. The parties referred to this further finance as the "construction funding". 25The terms of the amended Facility were set forth in BankWest's letter of 31 May 2007, the Facility Terms attached to that letter and in the General Terms. 26The Facility Terms listed a series of conditions precedent and stated: - "All the conditions precedent set out below must be completed to our satisfaction or waived by us before we will provide any of the Facilities to you or provide the first Drawing of any subsequent Drawing to you." 27Similarly, clause 2.1 of the General Conditions provided: - "Our obligation to provide any Facility or any Drawing to you is subject to the Facility Documents and is conditional upon us having received all of the following in form and substance satisfactory to us...: - (i) all conditions precedent specified in the Facility Terms." 28Clause 2.3 of the General Conditions provided: - "Each condition precedent for a Facility or Drawing is for our sole benefit and may only be waived by us." 29Condition Precedent 7 was entitled "Qualifying Pre Sales Contracts" and was in the following terms: - "Qualifying Pre Sales Contracts where the net sale price (i.e. the sale price excluding GST) for all properties sold, including 'off-the-plan' sales is at least $24,000,000 / 57% of the Credit Limit for the Lanai Apartments Pty Ltd ATF Lanai Unit Trust. We may require these contracts be reviewed by our solicitors. If this occurs, they must confirm to us that the terms of these conditions are acceptable. A Qualifying Pre Sales Contract means a contract for sale of an individual property within a Development which meets all the following criteria: (a) the contract of sale: (i) is unconditional (except for completion of the Development); (ii) does not permit the purchaser to rescind the purchase in the event that you become insolvent; (iii) specifies a settlement or completion date for the sale which is not later than six months after the latest estimated date of practical completion advised to us by our appointed quantity surveyor or the plan registration dated (whichever is the later); (iv) provides that you have the right to advance or extend the settlement or completion date if necessary; and (v) the purchase price for that individual property is not less than 95% of the list price of that property approved by us; (b) the purchase has either: (i) paid a non-refundable deposit of 10% of the purchase price into a solicitor's trust account or other trust account acceptable to us; (ii) provided an irrevocable bank guarantee from an Australian Bank or letter of credit from a non-Australian bank acceptable to us issued to you for an amount equal to 10% of the purchase price and you have given the original of that document to us; or (iii) provided a deposit bond, on terms acceptable to us, from a financial corporation or insurance company acceptable to us for an amount equal to 10% of the purchase price and you have given the original of that document to us; (c) no more than one deposit bond has been provided for the purchase of properties by the purchaser or a Related Entity of the purchaser; (d) the aggregate face value of all deposit bonds provided by all purchasers does not exceed 50% of all deposits paid or provided; (e) the sale is on arms length terms; (f) the purchaser is not a Related Entity of you or any Guarantor; (g) if the purchaser is a corporation, the obligations of the purchaser are guaranteed by all directors of the corporation; and (h) no more than 10% of the aggregate purchase price for all properties in the Development are sold to non-Australian residents, unless we otherwise consent in writing."

Subsequent variations of the Facility 30The terms of the Facility were varied on a number of occasions. The Facility Limit was reduced to $18,100,788 and the expiry date extended to 30 September 2010.

Completion of the development/fallout from the Bossichix decision 31The development was completed in early 2009. 32There were 44 Pre Sale Contracts in place before construction commenced. 33Ten purchasers terminated their contracts in reliance on the Bossichix decision.

Lanai's default under the Facility and demands on the Guarantors 34At the expiry of the Facility on 30 September 2010, Lanai was indebted to BankWest in the sum of $18,100,788; the limit of the Facility. 35On 28 September 2011, BankWest made demand on the guarantors. 36These proceedings were commenced on 14 October 2011.

The representations alleged 37The defendants' pleadings were amended a number of times during the hearing. In the final iteration of the defendants' List Response only one representation was alleged, namely: - "The plaintiff represented that the Pre Sale agreements were Qualifying Pre Sales." 38BankWest did not dispute that, in the circumstances described below, it, through one of its Senior Relationship Managers, Mr Tony Brown, told Mr Chamos that the Pre Sales Contracts were "all fine" and thus that BankWest was prepared to treat them as "Qualifying Pre Sales Contracts" for the purpose of Condition Precedent 7. 39However, Mr Southwick, who appeared for the defendants, submitted that implicit in Mr Brown's statement were further representations by BankWest that the Pre Sale Contracts: - (a)were enforceable; and (b)did not contravene Queensland law.

The pleading issue 40There was debate before me as to whether these further representations had been pleaded by the defendants. 41As to the contention that BankWest implicitly represented that the Pre Sale Contracts were "enforceable", the final iteration of the defendants' List Response stated that one of the issues "likely to arise" was: - "Did [BankWest] procure the defendants' signatures in respect of a Construction Facility and Guarantors Acknowledgment by engaging in misleading and [sic] deceptive conduct by representing to the Guarantors that the Pre Sales Contracts were enforceable when they could be cancelled by the purchasers for non compliance with s 212 of the Body Corporate and Community Management Act QLD". (emphasis added) 42Although that statement did not appear amongst the defendants' contentions in the List Response, its presence amongst the issues "likely to arise" was, in my opinion, sufficient notification to BankWest of this aspect of the defendants' case. 43As to the contention that BankWest implicitly represented that the Pre Sale Contracts "did not contravene Queensland law", there is simply no allegation to this effect in the List Response. 44In my opinion, the submission that BankWest had represented that the Pre Sale Contracts "did not contravene Queensland law" was outside the pleadings and should be rejected on that basis alone. 45Nonetheless I will consider the merits of the submission.

The manner in which it is alleged the representation was made 46By a letter of particulars, the defendants alleged that the representation they relied on was "partly oral and partly written". 47Insofar as the representation is alleged to have been made orally, the defendants relied on conversations between Mr Chamos and Mr Brown on 15 May and 31 May 2007. There is no dispute as to the terms of those conversations. 48The writing upon which the defendants relied was: - (a)an email sent by Mr Chamos to Mr Brown on 5 April 2007; (b)an email sent by Mr Brown to Ms Genevieve Ellaway, a solicitor at the Brisbane office of Gadens ("Gadens Brisbane"), on 20 April 2007; and (c)an email sent by Mr Brown to Mr Sebastian Nieding (Lanai's Legal Co-ordinator) on 26 April 2007. 49The representation alleged does not appear in any of those documents. As I understood Mr Southwick's argument, those documents were relied upon to place into proper context the two conversations between Mr Chamos and Mr Brown.

The conversations 50The first conversation took place on 15 May 2007 and was in a telephone call by Mr Brown to Mr Chamos as follows: - "Mr Brown: Thank you for all the submissions you have given me, I now have all the information I need to complete the construction facility. Mr Chamos: What about the presales and building contract? Has Gadens signed off on them? Mr Brown: Yes they are all fine." 51The second conversation took place on 31 May 2007. On that occasion Mr Brown said, in respect of, amongst other things, Condition Precedent 7, that: - "That condition has been satisfied."

The alleged falsity of the representation 52The representation is alleged to be misleading or deceptive because the Pre Sale Contracts did not comply with s 212 of the BCCM Act and that: - "Accordingly, each purchaser under the contract had a right pursuant to s 212 of the [BCCM] Act to cancel the contract at any time prior to settlement and to require a refund of the deposit." (Particulars to [25] of the Second Amended Commercial List Response)

The events leading to 15 May 2007 53To place the conversations of 15 May and 31 May 2007 in their proper context, it is necessary to examine the circumstances (including, but not limited to, the three documents on which the defendants rely) that led to those conversations. 54It will be recalled that on 28 February 2007 BankWest agreed to make available to Lanai the Facility, and that the Facility was used to fund the purchase of the Mackay property, with settlement taking place on 12 April 2007. 55It was common ground that, during this period, the parties contemplated that BankWest would in due course make available funding for the development of the property. 56On 9 March 2006 (that is almost a year earlier) BankWest had given to Mr Chamos an "Indicative Terms Sheet" setting out the basis upon which it would consider funding the development of the property. That Indicative Terms Sheet included a statement that any funding would be subject to the bank's "usual conditions precedent", including a minimum pre sales requirement. 57Thus, in early 2007, Mr Chamos knew that BankWest would likely impose a condition precedent concerning pre sale contracts in any facility for construction finance and would wish to review the Pre Sale Contracts to ensure that they were satisfactory. 58Accordingly, on 20 March 2007 Mr Chamos wrote to Mr Brown: - "How would you like proceed with [the Pre Sale Contracts] and having them viewed? We are happy to arrange a meeting with Mallesons or if you choose contact Mallesons direct to arrange this. I did though give you our latest summary." 59On 22 March 2007 Mr Brown wrote to, amongst others, Mr Chamos stating: - "Crazy to get every single sale contract so what I am proposing is as follows: Mallesons supply spreadsheet listing full details of each sales contract. Mallesons also supply one copy of a full contract. Mallesons accompany this with a letter stating all contracts are the same as the one supplied, deposits are held for each contract etc. Our [ap]pointed solicitor can then review. This way it saves time and reduces our solicitor fees, which [Mr Chamos] ultimately pays." 60Mr Brown's statement that Mr Chamos (or, more accurately, Lanai) "ultimately pays" the costs was a reference to clause 12.1(a)(ii) of the General Terms which provided that: - "You must pay or reimburse ...all our Costs in connection with...our being satisfied that conditions to draw down have been met". 61On 26 March 2007 Mr Brown sent to Lanai's quantity surveyor a draft of the conditions precedent including a draft of Condition Precedent 7. That draft did not include the wording referred to at [26] above and did not include the dollar or percentage figure ("$24,000,000 / 57%") that ultimately appeared in the opening words of Condition Precedent 7 (see [29] above). The evidence did not reveal precisely when Mr Chamos became aware of that draft. He certainly received a copy by 10 April 2007. 62On 5 April 2007 Mr Chamos sent to Mr Brown the email referred to at [48(a)]. The defendants placed great weight on this email. 63In the email Mr Chamos said: - "I understand that your solicitor (Kemp Strang) has received the Mallesons contracts of sales schedule for Lanai yesterday. I would prefer to have your solicitor and BankWest confirm the 'qualifying pre sales' prior to finalising your credit paper for construction funding. Let me know when this can be completed and issued to us. If you require any further information that will assist you in issuing us the bank confirmed volume of qualifying pre sales, let me know at the earliest convenience". (emphasis added) 64Mr Chamos said that as a result of correspondence he had received from CBA (which bank, by coincidence, Lanai had during 2006 approached as a potential funder for the development of the Mackay property), a conversation with a real estate agent in Queensland, and his knowledge of BankWest's "qualifying pre sales conditions": - "I was concerned to have the contracts vetted by the Bank and its solicitors prior to construction finance". 65It is understandable that Mr Chamos would wish to know, as soon as possible, whether BankWest was satisfied that the Pre Sale Contracts would satisfy what came to be Condition Precedent 7. 66However, in his oral evidence, Mr Chamos said that there was a further reason why he wanted BankWest and its solicitors to "vet" the Pre Sale Contracts; his uncertainty as to whether the Pre Sale Contracts complied with Queensland law. 67This was a peculiar apprehension for Mr Chamos to have, bearing in mind that he had caused Lanai to retain Mallesons to assist in relation to the development of the project and to draft the Pre Sale Contracts. Since September 2006 Lanai had entered into approximately 40 Pre Sale Contracts, worth many tens of millions of dollars, using the contract drafted by Mallesons. 68Mr Chamos said that, as at February 2007, he was "unsure as to whether the pre sale contracts that had been drafted by Mallesons complied with Queensland law" and that he was "concerned as to difficulties of enforcing contracts in Queensland". 69Mr Chamos agreed that he did not seek confirmation from Mallesons that the Pre Sale Contracts did comply with Queensland law and explained: - "Because they're the ones drafting it. If you ask someone themselves how they're drafting it they're obviously going to tell you they're right, they're not going to tell you they're wrong. They'd just got a fee for it so I don't see any reason to go back to the same lawyer and say 'did you get it right?', they're going to say 'yes'. So I need someone else to check it. That's the whole point of the peer review, getting someone else to check someone's documents." 70I find it curious that Mr Chamos would have this state of mind. 71There was nothing in Mr Chamos's email of 5 April 2007 to suggest that Mr Chamos had any such concerns. His email simply expressed a preference that BankWest, and its solicitors "confirm the 'qualifying pre sales'". The natural reading of those words is that Mr Chamos was doing no more than asking BankWest, and its solicitors, to confirm the Pre Sale Contracts satisfied the requirements of what became Condition Precedent 7. 72In my opinion, the words Mr Chamos wrote on 5 April 2007 provide a more reliable guide to his thought process at the time, than the evidence he gave before me, referred to at [66] to [69] above. 73What is clear is that Mr Chamos did not tell Mr Brown, or anyone else at BankWest, that he was unsure whether the Pre Sale Contracts complied with Queensland law. 74Mr Brown gave this unchallenged evidence: - "At no time did [Mr Chamos] advise me that one of the reasons he had requested the review of the pre-sales contracts...was to ensure that the pre-sales contracts complied with Queensland law." 75Not only that, but in my opinion, there was no reason for Mr Brown, or anyone at BankWest, to think that Mr Chamos had any doubt about the enforceability of the Pre Sale Contracts or that he had any concern as to whether the Pre Sale Contracts complied with Queensland law. 76In early April 2007, the solicitors acting for BankWest in relation to the transaction were Kemp Strang. 77On 20 April 2007 Mr Brown sent an email to Mr Nieding (cc'd to Mr Chamos) in which he stated: - "I have spoken to our solicitors (Kemp Strang). They have actually recommended that the legal work for the construction loan be done by a QLD solicitor in order to save time and costs. They have given me the name of Gaden[s] Lawyers in Brisbane who understand QLD contracts. I will get a quote and revert to you via separate email. Then [it is] a matter of getting Mallesons in Brisbane to talk direct to Gadens in Brisbane." (emphasis added) 78Mr Southwick submitted that the statement that Gadens Brisbane "understand QLD contracts" was: - "an indication that there could be specific Queensland requirements that needed to be satisfied. If there were not then there would have been no reason for Kemp Strang to refer the matter to Gadens in Queensland". 79There is some force in this submission. 80However, according to Mr Brown's email, the reason Kemp Strang gave BankWest for suggesting that a Queensland solicitor be used was "in order to save time and costs", rather than because of any apprehension that there might be Queensland legislative provisions with which the Pre Sale Contracts might need to comply. 81It was contemplated that BankWest's solicitors would review the 44 Pre Sales Contracts. Those contracts were in the possession of Mallesons' Brisbane office. It may well have saved "time and costs" for those 44 contracts to be inspected by other solicitors (familiar with the form of land sale contracts in Queensland) also located in Brisbane. 82Later on 20 April 2007 Mr Brown sent an email to Ms Ellaway, at Gadens Brisbane, referred to at [48(b)] above: - "Whilst the client is located in Sydney, all the dealing[s] for this transaction are located in QLD. Our abovementioned client of mine is shortly to commence a residential apartment construction project in Mackay QLD. The land settlement took place earlier this month and we used panel solicitors here in Sydney. The client is also using Mallesons solicitors in Brisbane for this project. Given the above, our panel solicitors here in Sydney have recommended that it may be more appropriate to use QLD based solicitors. Within the next 2 weeks I plan to be ready to submit my property construction loan proposal to our credit area. Are you able to assist/provide me with the following: 1. Quote for legal costs associated with this construction loan (will be approx $34.5m). The scope of work will presumably cover: - Completion of our loan approval letter - Completing [sic] of loan documentation (although mortgages etc are now in place) - Review of pre-sale contracts - Review of building contract - Review of building tripartite agreement 2. If acceptable, I will need a draft copy of a Builders Tripartite Agreement in our preferred format, so that our client can provide to the builder before they finalise negotiations. 3. Pre-sale contracts. There are approx 37 of them. BankWest obviously needs to ensure that they are compliant pre-sales. The clients [sic] solicitors (Mallesons) in Brisbane already have them ready to send to someone for vetting on our behalf. From a processing/costs viewpoint, presumably you would not want to see every contract, just a copy of one proforma contract with [a] schedule of amendments and some sort of written undertaking from Mallesons that all contract formats are the same? I know we normally wait until [the] loan is approved before we do this however, [the] client wants us to do this as a priority." (emphasis added) 83The second paragraph of that email also suggests that a reason (if not the reason) BankWest retained Gadens Brisbane was for reasons of convenience, rather than because of any apprehension that advice may be needed concerning Queensland law. 84Relevantly, Gadens Brisbane was asked to "review" the Pre Sale Contracts "on our behalf" because BankWest needed "to ensure that they are compliant pre-sales"; that is that the Pre Sale Contracts satisfied the requirements of Condition Precedent 7. 85Mr Brown gave evidence that: - "At no stage did I instruct Gadens to review the pre-sale contracts in order to ensure that they complied with all aspects of Queensland law, including the provisions of the [BCCM] Act". 86I see nothing in Mr Brown's letter of instructions to Ms Ellaway inconsistent with that statement. 87Later on 20 April 2007 Ms Ellaway replied to Mr Brown in the following terms: - "I am presuming the contracts relate to residential lots. This means that the real estate agent must comply with the Property Agents & Motor Dealers Act and if the act is not complied with the purchaser can walk away. So it means that we cannot just look at the schedule page of the contract. What we need is all of the PAMDA forms, the schedule page of the contract and any special conditions, but not the standard terms. However, if Mallesons have prepared a project specific contract we will need a full copy of that and copies of the relevant pages of the other contracts including the PAMDA forms and an undertaking from Mallesons that all contracts are the same. My quote for examining the contracts is $2,000.00 plus GST. My quote for dealing with [the] rest of the transaction (eg. reviewing the building contract, preparing the tripartite deed, certification etc) is $6,000.00 plus GST." (emphasis added) 88In that email Ms Ellaway makes reference to the Property Agents and Motor Dealers Act 2000 (QLD) ("the PAMD Act") although not the BCCM Act. 89However it is clear that Ms Ellaway was making reference to the PAMD Act only for the purpose of explaining why it would not be possible, in her opinion, for Gadens Brisbane to give BankWest advice concerning the Pre Sale Contracts merely by reference to "one proforma contract with [a] schedule of amendments" (as Mr Brown had suggested in the final paragraph of his email earlier in the day.) 90I do not accept Mr Southwick's submission that Ms Ellaway's statement indicates that Gadens Brisbane saw their task as ensuring that the Pre Sale Contracts complied with Queensland law "to make sure the purchaser cannot walk away". Ms Ellaway was doing no more than explaining why it would be necessary for her to look at each of the Pre Sale Contracts in order to properly advise BankWest whether they were "compliant". 91Mr Chamos received a copy of these emails. Mr Brown forwarded the emails to him in the course of obtaining Mr Chamos's approval to Gadens Brisbane's quotation in respect of legal costs. 92Gadens Brisbane was providing legal services exclusively to BankWest and not to the defendants (as was made clear by Mr Brown's reference to Gadens Brisbane "vetting on our behalf" the Pre Sale Contracts.) Mr Chamos agreed that he understood this to be the case. Lanai was obliged to pay Gadens Brisbane's fees. But, as General Condition 12.1(a)(ii) makes clear (see [60] above), Lanai's obligation to pay those was expressed in terms of the costs being incurred to enable BankWest to be satisfied that "conditions to draw down" had been met. 93Mr Chamos said that, by reason of this correspondence, he understood that Gadens Brisbane was "checking for Queensland legislation". 94However, I cannot accept that this is what Mr Chamos thought at the time. 95His email of 5 April 2007 makes clear that what he wanted was for BankWest and its solicitor to "confirm the qualifying pre sales"; that is, that BankWest was prepared to treat the Pre Sale Contracts as Qualifying Pre Sale Contracts for the purpose of Condition Precedent 7. 96Further, Mr Chamos knew from Mr Brown's retainer email of 20 April 2007, that what Mr Brown had asked Gadens Brisbane to do was "review" or "vet" the Pre Sale Contracts "on our behalf" to "ensure that they are compliant pre-sales". That must have made it clear to Mr Chamos that, from BankWest's point of view, the object of the exercise was as I have set out in [84]. 97It is true that Gadens Brisbane's 20 April 2007 reply to Mr Brown made reference to the PAMD Act. However, I do not think it was reasonable for Mr Chamos to conclude that Gadens Brisbane was planning to travel beyond its retainer. 98Certainly, Gadens Brisbane did not see its role this way. The advice Gadens Brisbane gave BankWest was directed exclusively to the question of whether the Pre Sale Contracts satisfied the requirements of Condition Precedent 7. And, as I have set out above, Mr Brown did not consider that he had retained Gadens Brisbane to advise whether the Pre Sale Contracts complied with Queensland legislation. 99On 2 May 2007 Ms Ellaway wrote to Mr Brown saying that Gadens Brisbane had not yet received the Pre Sale Contracts from Mallesons, but had received "the standard contract for use with a development which mostly complies with BankWest's requirements". 100On 3 May 2007 Mallesons wrote to Gadens Brisbane enclosing two "contract reports" which summarised "the relevant details in relation to pre-sales" and stated that, apart from minor changes, "all sales have been in the form of the current document sent to you". 101The Mallesons letter also stated: - "To the best of our knowledge, based on the documents and correspondence held on our files, all sales comply with the pre-sale disclosure and warning statement requirements of the Land Sales Act 1984, the [BCCM Act], and the [PADM Act]." 102A copy of the letter was also sent to Mr Neiding at Lanai. 103It may be that it was this passage in Malleson's letter that has led Mr Chamos to now conclude that Gadens Brisbane was engaging in what Mr Chamos described as a "peer review" (see [69] above). However, there is no suggestion in the evidence that Gadens Brisbane had sought this information. So far as the evidence reveals, this statement in Mallsons's letter was unsolicited. If the statement was liable to have any effect on Gadens Brisbane's view of the task ahead, it would likely be to deter, rather than encourage, investigation of compliance with Queensland legislative requirements. In any event, as I have said, this was not what BankWest asked Gadens Brisbane to do. And it was Lanai that retained Mallesons to protect its interests. 104On 9 May 2009 Gadens Brisbane sent BankWest a formal letter setting out "the results of our examination" of the Pre Sale Contracts and concluded:- "We believe the documents we inspected are satisfactory and comply in the most part with BankWest's standard pre-sales condition precedent". 105Gadens Brisbane offered no opinion as to whether the Pre Sale Contracts complied with Queensland legislation. Gadens Brisbane's advice, consistently with the retainer comprised by Mr Brown's email of 20 April 2007, was confined to whether the Pre Sale Contracts satisfied the requirements of, relevantly, Condition Precedent 7.

The events of 15 May 2007 106It is in this context that the critical events of 15 May 2007 must be considered. 107At 3.04pm on 15 May 2007, Mr Chamos sent Mr Brown an email that attached a document called "Financial Addendum" and "Revised Financials". These documents were relevant to BankWest's consideration of Lanai's application for an extension of the Facility to cover construction costs. 108The "yes they are all fine" conversation set out at [50] occurred after Mr Brown had received that email. 109Mr Brown's reference, in that conversation, to "all the submissions you have given me" was a reference to Mr Chamos's email at 3.04pm on 15 May 2007 (as well as financial material sent earlier). 110Mr Chamos then asked whether Gadens Brisbane had "signed off" on the "pre-sales". 111A month earlier, Mr Chamos had received from Mr Brown a copy of the draft conditions precedent that Mr Brown had sent to Lanai's quantity surveyor. The draft of Condition Precedent 7 included the following passage (which was also in the final version of Condition Precedent 7): - "We may require these contracts [i.e. the Pre Sale Contracts] be reviewed by our solicitors. If this occurs, they must confirm to us that the terms of these contracts are acceptable." 112Mr Chamos made specific reference, in his affidavit, to receipt of the draft conditions precedent and set out in his affidavit the text of the draft, including the passage in the preceding paragraph. 113I infer from the prominence Mr Chamos gave that document in his affidavit that it was in his mind when he had the conversation with Mr Brown on 15 May 2007. 114Further, Mr Chamos knew, from the terms of Mr Brown's retainer email to Ms Ellaway on 20 April 2007, that Mr Brown had retained Gadens Brisbane to "review" the Pre Sale Contracts because "BankWest obviously needs to ensure that they are compliant pre-sales". 115In that context, I conclude that Mr Chamos's enquiry as to whether Gadens Brisbane had "signed off" on the "pre-sales" was an enquiry as to whether the Pre Sale Contracts were "compliant" and, for that reason, "acceptable" to BankWest. 116I accept the submission of Mr Thomas, who appeared for BankWest, that "acceptable" in this sense "most naturally connotes a subjective consideration of the position rather than confirmation that various objective facts were or were not in existence". 117Mr Brown's response ("yes they are all fine") conveyed that Gadens Brisbane had "signed off" on the Pre Sale Contracts and had (to use the language of the draft conditions precedent set out at [111]) "confirm[ed] to [BankWest] that the terms of these contracts are acceptable". 118Immediately after the conversation, at 3.17pm on 15 May 2007, Mr Chamos sent Mr Brown an email that, in my opinion, confirms that this is how Mr Chamos then understood the conversation. 119The email was in the following terms: - "From what I can understand I believe that all necessary information to complete the credit submission has been sent to you as well as satisfying what we believe are going to be the mandatory [conditions precedent] to begin construction funding. The only exception to this is the signed building contract which should be finalized on Thursday afternoon. The contract price will not deviate from what has been outlined in the previous information sent. Could you please confirm that you are of the same understanding as me." (emphasis added) 120In my opinion, a fair reading of that email is that Mr Chamos was setting out his understanding about two matters. First, that Lanai had provided BankWest with all information necessary for BankWest to complete the credit submission in respect of the proposed extension of the Facility. Second, that all information had been provided to BankWest to satisfy it as to compliance with the various conditions precedent (including Condition Precedent 7). 121During his cross-examination I asked Mr Chamos: - "Should I not read [the 15 May 2007 email] as you indicating that what you understood Gadens were doing was to advise the bank whether its condition precedents were satisfied?" 122Mr Chamos replied: - "That is correct, but I also understood that in the condition precedent of pre-sale that they were checking against Queensland law because that is what they had alerted us to and Tony Brown had alerted us that it was leaving Kemp Strang in Sydney, their Sydney office, to go to a Queensland lawyer who understood Queensland contracts." 123I cannot accept that this was Mr Chamos's state of mind at the time. 124My opinion is that the words used by Mr Chamos in his email of 15 May 2007 are the most reliable guide to Mr Chamos's then state of mind. In my opinion, those words make clear that Mr Chamos did not understand Mr Brown's comment that "yes they are all fine" to mean that Gadens Brisbane had expressed any view as to whether the Pre Sale Contracts complied with Queensland law. In my opinion, what Mr Chamos understood is what he said in his 15 May 2007 email: see [119]-[120] above.

What representation did Mr Brown make on 15 May 2007? 125When all these circumstances are considered together, my conclusion is that all Mr Brown represented by saying "yes they are all fine", and all that Mr Chamos understood Mr Brown to represent by saying those words, was that, based on Gadens Brisbane's consideration of the Pre Sale Contracts, he, and thus BankWest, believed, and thus accepted, that the Pre Sale Contracts satisfied Condition Precedent 7 and were thus "Qualifying Pre Sale Contracts". 126I do not accept the submission that Mr Brown was making any further representation. In particular I do not accept the submission that Mr Brown was making any representation as to the legal status of the Pre Sale Contracts including whether they were enforceable or whether they were compliant with Queensland legislative requirements. 127I accept that, when assessing whether conduct constituted by a representation is misleading or deceptive, it is necessary to consider the "effect or likely effect [of the representation] on the person to whom it is directed": Heydon v NRMA Ltd [2000] NSWCA 374; (2000) 51 NSWLR 1 at [431] per McPherson A-JA; Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 at 666. 128But where, as here, the representation is directed to an individual (rather than the public at large) the "effect or likely effect" on that individual must be considered in the context that the ultimate question is: was the representation misleading or deceptive or likely to mislead or deceive? 129In Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, French CJ said at [26]: - "In the case of an individual it is not necessary that he or she be reconstructed into a hypothetical, 'ordinary person'. Characterisation may proceed by reference to the circumstances and context of the questioned conduct. The state of knowledge of the person to whom the conduct is directed may be relevant, at least in so far as it relates to the content and circumstances of the conduct". 130When consideration is given to the terms of Mr Chamos's emails of 5 April 2007 and 15 May 2007, and his knowledge of the words used in the emails passing between BankWest and Gadens Brisbane on 20 April 2007, I cannot conclude that Mr Chamos understood Mr Brown to be saying anything other than as I have set out at [125]. 131I should add a further comment. 132As I have mentioned (see [111] above), the second paragraph of the definition of Condition Precedent 7 provides:- "We may require these contracts be reviewed by our solicitors. If this occurs, they must confirm to us that the terms of these contracts are acceptable." (emphasis added). 133It was implicit in aspects of Mr Southwick's submissions that Mr Brown's statement on 15 May 2007 that "yes [the Pre Sale Contracts] are all fine" conveyed a representation that the Pre Sale Contracts were "acceptable", in some objective sense, for the purposes of this paragraph; and that the Pre Sale Contracts were not "acceptable" because they did not comply with s 212 of the BCCM Act. 134Underlying that submission was the (unstated) proposition that the words at [132] comprised an operative part of Condition Precedent 7, such that compliance with the requirements of Condition Precedent 7 was not possible unless the Pre Sale Contracts were "acceptable". 135If that is the submission, I reject it. In my opinion, on the proper construction of Condition Precedent 7, the words at [132] do not form an operative part of the condition precedent. Rather, they comprise a statement by BankWest as to steps it might require be taken (namely review by its solicitors) to satisfy itself that the condition precedent has been met.

Such a representation was not misleading or deceptive 136There is no dispute that, as a matter of fact, Mr Brown, and thus BankWest, was satisfied, and did accept, that the Pre Sale Contracts satisfied the requirements of Condition Precedent 7. 137Accordingly such representation as Mr Brown made on 15 May 2007 was neither misleading, nor deceptive.

The 31 May 2007 conversation 138The position is even clearer in relation to the 31 May 2007 conversation. In that conversation Mr Brown said that Condition Precedent 7 "has been satisfied". 139In my opinion, in the context I have described, that statement conveyed no more than a representation by Mr Brown that BankWest was prepared to accept that Condition Precedent 7 had been met.

The result 140My conclusion is that BankWest, through Mr Brown, represented no more than it was satisfied, or was prepared to accept, that the Pre Sale Contracts satisfied Condition Precedent 7 and were thus "Qualifying Pre Sale Contracts" for the purposes of the condition precedent. 141I reject the submission that BankWest thereby represented that the Pre Sale Contracts were enforceable or compliant with the law of Queensland. 142Those findings are sufficient to dispose of the defendants' defence to these proceedings. 143CBA is entitled to judgment. 144I invite the parties to bring in short minutes to give effect to these reasons.

********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 November 2012