Equiticorp Financial Services Ltd v Bank of New Zealand

32 NSWLR 50

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(Decision by: KIRBY P)

Between: Equiticorp Financial Services Ltd (in liq) (Receiver and Manager Appointed)
And: Bank of New Zealand

Court:

Judges: Kirby P
Clarke JA
Cripps JA

Subject References:
Companies
Management and administration
Directors and other officers
Fiduciary position
Corporate group
Breach of fiduciary duty
Application of liquidity resources to discharge of subsidiary debt
Equity
Duress
Economic duress
Apparent consent
Pressure enduring
When regarded as illegitimate
Commercial pressure not of itself sufficient
Application to corporate group
Decision to apply liquidity reserves to discharge of subsidiary debt
As constructive trustee
Failure to consider creditors
Liability for breach

Case References:
Abalos v Australian Postal Commission - (1990) 171 CLR 167
Agip (Africa) Ltd v Jackson - [1990] Ch 265; [1991] Ch 547
Austotel Pty Ltd v Franklins Self Serve Pty Ltd - (1989) 16 NSWLR 582
Australian National Industries Ltd v Greater Pacific Investments Pty Ltd (In Liq)(No 3) - (1992) 7 ACSR 176
Australian National Industries Ltd v Greater Pacific Investments Pty Ltd (In Liq) - (Cole J, 14 December 1990, unreported)
Baden v Societe Generale pour Favoriser le Developpement du Commerce et de l'Industrie en France SA (1983) - [1992] 4 All ER 161; [1983] BCLC 325
Bank of New Zealand v Fiberi Pty Ltd - unreported 13 July 1993 (CA)
Bank of New South Wales v Vale Corporation (Management) Ltd (In Liq) - (Court of Appeal, 21 October 1981, unreported)
Barnes v Addy - [1874] LR 9 Ch App 244
Barton v Armstrong - [1973] 2 NSWLR 598; [1976] AC 104
Belmont Finance Corporation Ltd v Williams Furniture Ltd (No 2) - [1980] 1 All ER 393
Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd - (1990) 3 ACSR 649; [1992] 2 VR 279
Charterbridge Corporation Ltd v Lloyds Bank Ltd - [1970] Ch 62
Consul Development Pty Ltd v DPC Estates Pty Ltd - (1975) 132 CLR 373
Coulton v Holcombe - (1986) 162 CLR 1
Crescendo Management Pty Ltd v Westpac Banking Corporation - (1988) 19 NSWLR 40
Eagle Trust plc v SBC Securities Ltd - [1992] 4 All ER 488
Equiticorp Financial Services Ltd (NSW) v Equiticorp Financial Services Ltd (NZ) - (1992) 29 NSWLR 260
Freeman & Lockyer (a Firm) v Buckhurst Park Properties (Mangal) Ltd - [1964] 2 QB 480
Re Halt Garage (1964) Ltd - [1982] 3 All ER 1016
Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd - (1991) 22 NSWLR 298
Hely-Hutchinson v Brayhead Ltd - [1968] 1 QB 549
Hindle v John Cotton Ltd - [1919] 56 Sc LR 625
Re Horsley & Weight Ltd - [1982] Ch 442
Howard Smith Ltd v Ampol Petroleum Ltd - [1974] 1 NSWLR 68
Industrial Equity Ltd v Blackburn - (1977) 137 CLR 567
Jones v Dunkel - (1959) 101 CLR 298
Kinsela v Russell Kinsela Pty Ltd (In Liq) - (1986) 4 NSWLR 722
Lend Lease Development Pty Ltd v Zemlicka - (1985) 3 NSWLR 207
Mills v Mills - (1938) 60 CLR 150
Re Montagu's Settlement Trusts - [1987] Ch 264; [1992] 4 All ER 308
Nelson v Larholt - [1948] 1 KB 339
New South Wales Rugby League Ltd v Wayde - (1985) 1 NSWLR 86
Nicholson v Permakraft (NZ) Ltd (In Liq) - (1985) 3 ACLC 453
Northside Developments Pty Ltd v Registrar-General - (1990) 170 CLR 146
Pau On v Lau Yiu Long - [1980] AC 614
Pavey & Matthews Pty Ltd v Paul - (1987) 162 CLR 221
Qintex Australia Finance Ltd v Schroders Australia Ltd - (1990) 3 ACSR 267
Reid Murray Holdings Ltd (In Liquidation) v David Murray Holdings Pty Ltd - [1972] 5 SASR 386
Selangor United Rubber Estates Ltd v Cradock (No 3) - [1968] 1 WLR 1555; [1968]2 All ER 1073
Re Smith and Fawcett Ltd - [1942] Ch 304
Stephens Travel Service International Pty Ltd (Receivers and Managers Appointed v Qantas Airways Ltd - (1988) 13 NSWLR 331
Story v Advance Bank Australia Ltd - (1993) 31 NSWLR 722
Suttor v Gundowda Pty Ltd - (1950) 81 CLR 418
United States Surgical Corporation v Hospital Products International Pty Ltd - [1983] 2 NSWLR 157
Universe Tankships Inc of Monrovia v International Transport Workers Federation - [1983] 1 AC 366
Walker v Wimborne - (1976) 137 CLR 1
Warren v Coombes - (1979) 142 CLR 531
Williams v Bayley - (1866) LR 1 HL 200
ANZ Executors & Trustee Co Ltd v Qintex Australia Ltd - (1990) 2 ACSR 57; 8 ACLC 788
Advance Bank Australia Ltd v Fleetwood Star Pty Ltd - (1992) 7 ACSR 387; 10 ACLC 703
Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation - (1988) 164 CLR 662
Australian Capital Television Pty Ltd v Minister for Transport & Communications (Cth) - [1989] 86 ALR 119
Carl Zeiss Stiftung v Herbert Smith & Co (No 2) - [1969] 2 Ch 276
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd - (1975) 133 CLR 72
David Securities Pty Ltd v Commonwealth Bank of Australia - (1992) 175 CLR 353
Director of Public Prosecutions for Northern Ireland v Lynch - [1975] AC 653
Dovey v Cory - [1901] AC 477
Eaves v Hickson - [1861] 30 Beav 136; 54 ER 840
Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd - (1988) 78 ALR 193
Fyler v Fyler - [1841] 3 Beav 550; 49 ER 216
International Sales and Agencies Ltd v Marcus - [1982] 3 All ER 551
Re Lands Allotment Co - [1894] 1 Ch 616
Lipkin Gorman v Karpnale Ltd - [1989] 1 WLR 1340
Midgley v Midgley - [1893] 3 Ch 282
Rolled Steel Products (Holdings) Ltd v British Steel Corporation - [1986] Ch 246
Royal British Bank v Turquand - (1855) 5 El & Bl 248; [1855] 119 ER 474; (1856) 6 El & Bl 327; [1856] 119 ER 886
Russell v Wakefield Waterworks Co - [1875] LR 20 Eq 474
Sandell v Porter - (1966) 115 CLR 666
3M Australia Pty Ltd v Kemish - (1986) 10 ACLR 371; 4 ACLC 185
Williams v Williams - [1881] 17 Ch D 437
Yorke v Lucas - (1983) 80 FLR 143; 49 ALR 672

Hearing date: 31 May, 1, 2, 3, 4 June
Judgment date: 5 October 1993

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Decision by:
KIRBY P

The Court has before it one of the consequences of the many corporate collapses of the late 1980's. Involved in the appeal are various corporations in the Equiticorp Group of companies which operated principally in New Zealand and Australia. The lead banker of those companies was Bank of New Zealand. When the collapse came, the liquidators of two of the Equiticorp Group companies sought to prosecute certain claims against Bank of New Zealand upon the basis that they were entitled to recoup from it certain funds paid to it before the collapse but when the companies were in a situation of economic jeopardy.

The claims, relevant to the appeal, were framed alternatively, asserting that the payments were made to Bank of New Zealand:

(a)

Without authority of the companies involved;

(b)

In breach of the fiduciary duties owed by the directors of the companies in circumstances which sufficiently fixed Bank of New Zealand with knowledge of such breaches, obliging it to account to the companies for the sums received; and

(c)

Following economic duress exerted by officers of Bank of New Zealand upon officers of, and others connected with, the companies which was so illegitimate and unconscionable as to entitle the companies to redress.

The redress claimed varied according to the several causes of action relied upon. It included claims for moneys had and received; for equitable compensation and account; and for common law damages.

Bank of New Zealand resisted all of the claims. It asserted:

1.

That authority was proved or at least that, so far as Bank of New Zealand was concerned, there was such authority;

2.

That there was no breach of fiduciary duty on the part of the officers of the companies or, at least, if there was, that Bank of New Zealand was not liable to recoup or account for funds received by it for breaches by the officers of their fiduciary duties;

3.

That there was no economic duress but, at most, commercial pressure of the kind which was perfectly legitimate, which in turn resulted from commercial pressure existing upon Bank of New Zealand at the same time and was such that no remedy to the companies was available or called for;

4.

That in any case, in answer to the alleged want of authority or economic duress, the companies had sufficiently ratified the decisions impugned; and

5.

That, finally and in any case, any remedies available to the companies were ultimately provided by the law to permit rectification of any unjust enrichment extracted by Bank of New Zealand from the predicament of the companies. As Bank of New Zealand had itself released valuable share scrip and taken certain other steps, pursuant to the transfer of the funds complained of it, which in aggregate had a greater value than those funds, no remedy was available to the companies. If, within the Equiticorp Group, the share scrip was not properly dealt with, that was not the concern of Bank of New Zealand; nor did it give rise to the legal entitlements claimed against it.

Necessarily, I have stated the issues in terms of generality with some consequent loss of accuracy. But this is an extremely complex case. Some simplification is essential if the Court is to perform its function.

In the Commercial Division, Giles J dismissed the companies' claims. Relevantly, he held that:

(a)

It had been established that Mr Allan Hawkins, the chief executive of the Equiticorp Group had effective control of all the companies in the group. Although not a director of one of the litigating companies, he had actual implied authority on behalf of those companies to take the impugned decisions and he did take those decisions;

(b)

No breach of fiduciary duty on the part of the directors of the litigating companies was shown by the application of the test accepted by all parties, viz, what an intelligent and honest person in the position of a director would do having in mind all relevant facts. Having reached this conclusion, the consequential question of whether, had a breach of fiduciary duty been shown, Bank of New Zealand was liable for the consequences of it in respect of the funds it had received as a result of it, did not arise;

(c)

Although Bank of New Zealand exerted commercial pressure upon the Equiticorp Group for the release of the funds in question, such pressure was not illegitimate. It did not therefore constitute economic duress of the kind which would give rise to a legal remedy in those who were subject to it.

There was a fourth head of claim litigated at the trial. This was based upon an asserted breach by directors of the duties imposed upon them by the Companies ( New South Wales ) Code , s 229(2), then in force. It was asserted that, by way of the right of revocation conferred by s 229(7) against the directors and the role of Bank of New Zealand in aiding, abetting, counselling or procuring the offence, Bank of New Zealand was, by virtue of the Companies and Securities ( Interpretation and Miscellaneous Provisions ) Act 1980 ( Cth ), s 38(1), and the common law, liable both criminally and upon a civil claim for the recoupment of the moneys lost as a result of the breach of s 229(2) of the Code. Giles J rejected that claim. A challenge to that decision was included in the grounds of appeal filed. But it was abandoned during argument.

At the outset of the hearing in this Court, a question arose as to whether Mr Hawkins should have been a party to the proceedings. He was not a party, but a witness at the trial. The Court was informed that he had been convicted and imprisoned for criminal offences in New Zealand. He was engaged there in defending substantial civil and criminal litigation. He was therefore unavailable for proceedings in Sydney.

The decision of Giles J is reported: see Equiticorp Financial Services Ltd ( NSW ) v Equiticorp Financial Services Ltd ( NZ ) (1992) 29 NSWLR 260. A number of the Equiticorp Group of companies had, during the course of the long litigation before his Honour, settled various claims as between each other which arose on the pleadings. Bank of New Zealand had an outstanding claim against one of the companies, Equiticorp Finance Ltd. No set-off having been found, based upon the rejected claims of the companies, and no other defence being raised to Bank of New Zealand's claim in that regard, Bank of New Zealand was held to be entitled to judgment against Equiticorp Finance Ltd.

Necessarily, in the conclusions upon the principal claims, no question of ratification by the companies, or of resistance by Bank of New Zealand to the remedies sought, arose to be decided.

It is from the orders disposing of the proceedings in the foregoing way that the relevant Equiticorp companies, Equiticorp Finance Ltd and Equiticorp Financial Services Ltd (Aust), have appealed to this Court. The appellants accepted that they bore the onus of showing want of authority, breach of fiduciary duty and economic duress.

The primary hearing and the appeal:

The facts from which the parties invited the Court to derive its conclusions were extremely voluminous and complex. In effect, the Court was taken into the detail of many months of the corporate dealings of inter-related companies and their banks, principally Bank of New Zealand. The trial, before Giles J, once it commenced, lasted twenty-three days. There were nineteen volumes of trial documents. There were three volumes of exhibits. There were three additional volumes containing pleadings, affidavits and the judgment. Thus, twenty-five volumes in all.

The hearing before this Court lasted five days, all of which were fully consumed. The written submissions, which elaborated nearly 250 pages of argument and transcript, comprise hundreds of pages. In addition, Bank of New Zealand and the two litigating companies prepared, at the direction of the Court, narrative statements of facts which followed the Court's Practice Direction. Together, these statements comprise nearly 140 pages.

I record these statistics not out of complaint but to indicate the complexity of the factual and legal issues presented. If courts, especially appellate courts, are to perform their functions effectively in relation to such complex litigation, new procedures are plainly called for. Continuous oral argument, even supplemented by written submissions, presents difficulties for effective decision-making which will be obvious to the informed.

It is appropriate to say at the outset how much I have been assisted by the judgment of Giles J. It is a model of synthesis and clarity. His Honour's reasons carry their own conviction. After a careful presentation of extremely complex facts, he reaches the four principal legal questions posed to him. He answers these with clarity. In the circumstances, he did so with commendable speed and in remarkable brevity.

It would be less than honest to deny that, faced with such a decision and a mountain of appeal papers, submissions and argument, there is the strongest possible temptation to endorse the primary conclusion and to pass to other tasks of life, at once simpler and more congenial. Such human feelings are reinforced by a proper reflection upon the advantages which Giles J had in deciding this case. He had a longer time with it. He therefore had more time to consider the complex factual evidence. He had a larger opportunity to reflect upon the interesting and important issues of law presented for decision. In a case like the present, I have always thought that these considerations amount to infinitely more important advantages of the primary judge than the supposed capacity to tell truthful from untruthful witnesses by reason of their appearance, something science denies: see Lend Lease Development Pty Ltd v Zemlicka (1985) 3 NSWLR 207 at 209f.

To a very large extent at least, this is not a case where the oft repeated advantages of the primary judge restrain the appellate court in the performance of its functions: see Abalos v Australian Postal Commission (1990) 171 CLR 167 at 178 and cases there cited. Whereas the documentary evidence of the trial was enormous, the oral evidence was not. Bank of New Zealand called no oral evidence. None of its officers entered the witness box. Senior counsel for Bank of New Zealand, who took responsibility for that decision, justified it upon the basis that Bank of New Zealand's position was fully chronicled by contemporaneous minutes and records, all of which went into evidence. Neither could the written evidence of the Equiticorp Group of companies be challenged by Bank of New Zealand's officers. Nor did the bank wish to challenge the oral evidence given by Equiticorp's witnesses, notably Mr Allan Hawkins and the group treasurer from 1988, Mr Brian Fitzgerald. Some of the oral evidence especially of those two witnesses, was clearly relevant to the evaluation of the issues of authority, breach of fiduciary duty and economic duress. But this is not a case where the ultimate decision depended upon Giles J's believing some witnesses and rejecting the credit of others.

Essentially, the answer to the legal problems presented is to be found in a full appreciation of the detailed facts. That detail is overwhelmingly contained in contemporaneous letters, minutes, memoranda and financial statements - all of which have been presented to this Court. To that extent, this is a case less like Abalos and more like Warren v Coombes (1979) 142 CLR 531 . This Court has before it an appeal by way of re-hearing. It is only such an appeal which could justify the deep involvement which the Court was obliged to accept in the explanation of the facts of the case. As in Warren (at 551), this is a case where the Court is, generally speaking, in as good a position as the trial judge to decide on the proper inferences to be drawn from the facts which are undisputed or which, having been disputed, are established by his findings. We must, of course, give respect and weight to the judge's conclusion. We must especially do so in this case because of the considerations which I have already mentioned. But, in the words of Gibbs ACJ and Jacobs J and Murphy J in Warren (loc cit): "... once having reached its own conclusion [the appellate court] will not shrink from giving effect to it."

In a sense, it is the extremely clear way in which Giles J has tendered the issues to this Court, by the way in which his judgment is presented, that affords the Court the opportunity to play its full role as envisaged by the Supreme Court Act 1970 . Amongst the massive detail of the facts of this case are found issues of considerable importance for Australian company law:

(a)

To what extent may the effective "leading light" of a group of companies, who is not himself a member of the board of directors of an individual company in the group, make decisions on behalf of those companies later to be defended - not as the ostensible acts of the companies sustained by the ignorance of outsiders as to their internal management - but as done with the actual authority of the company implied from the relationship of that person to all companies in the group?

(b)

To what extent does the basal rule that directors must act bona fide for the benefit of the company as a whole, as expressed in Mills v Mills (1938) 60 CLR 150 , submit to qualification or variation where the practical reality of the company's life includes its membership of an inter-connected group of companies and its involvement in a "round robin" of financial transaction involving the shifting of funds within the group? see Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68 at 73f. Does the law acknowledge, and accommodate, the group relationship to the extent of permitting directors of various companies within a group to take into account the implications for one company of significant actions of outsiders affecting other companies within the group?

(c)

Where the directors have been involved in breaches of their fiduciary duties to the company as a whole, what knowledge is required to fix the company's bank with notice of the breach, in such a way as to render the bank liable to the company (its members and creditors) for transactions in which the bank was involved which affected the company, its members and creditors? and

(d)

When does pressure, such as that exerted by a bank on a customer in difficult economic times and, itself the result of pressure upon the bank of rules of the central bank, cross the line which separates permissible commercial pressure from unlawful economic duress which is unconscionable or illegitimate and gives rise to a claim for damages?

Again, these questions have been expressed in terms of generality. But now the time has come to descend into the detail of this case. I can do so with more confidence because the parties accepted that the broad outlines of the facts contained in Giles J's reasons were accurate. From their opposing standpoints, they each urged relatively minor corrections. In the case of the appellant companies, they argued that his Honour had failed sufficiently to attend to additional facts, said to be relevant. What follows is taken from my own appreciation of the facts. This, in turn, is built upon his Honour's reasons, as elaborated by the narrative statements prepared by the parties, as described above.

The Equiticorp Group of companies:

Equiticorp Finance Ltd was incorporated in 1971. It was then known as Associated Securities Finance Ltd. In 1980 it became Associated Midland Corporation Ltd. Its shareholders were the commissioners of the State Bank of Victoria and Midland International Holdings Ltd, a merchant bank. In mid-1987, the company was taken over by Equiticorp Finance Holdings Ltd. It remained a wholly owned subsidiary of that company, which in turn, was a wholly owned subsidiary of Equiticorp Australia Ltd. The Equiticorp Group originated in New Zealand. It is enough to say that in June 1984, Equiticorp Holdings Ltd was floated on the New Zealand Stock Exchange. Its chairman was Mr Allan Hawkins. About 40.9 per cent of the shares of Equiticorp Holdings Ltd were controlled by Mr Hawkins or by interests associated with him. The balance of the shares in the capital of Equiticorp Holdings Ltd were held by members of the public as a result of the float.

With the passing of time, the group of companies expanded. At its height here were over 140 companies associated with the group. They spread within New Zealand and then to Australia, Hong Kong, England and elsewhere. They did so through a series of subsidiary and related companies, all within the group.

Both sides to the present contest agreed (and the evidence showed) that the group comprised basically two separate arms. These were the industrial and trading concerns (the "Industries Group") and those companies involved in the lending of money (the "Finance Group"). At the head of the Industries Group was Equiticorp Industries Group Ltd. This was 100 per cent owned by Equiticorp Holdings Ltd. For the purposes of the proceedings, the relevant companies in the Industries Group were Equiticorp Industries Ltd; Equiticorp Tasman Ltd and Uruz Pty Ltd. Neither Equiticorp Tasman Ltd nor Uruz Pty Ltd were wholly owned members of the Equiticorp Group.

At the head of the Finance Group was Equiticorp Finance Group Ltd. This was 100 per cent owned by Equiticorp Holdings Ltd. The Finance Group was, in turn, divided. There was the Australian Finance Group and the New Zealand Finance Group. The Australian Finance Group comprised amongst others) Equiticorp Australia Ltd, Equiticorp Finance Ltd, Equiticorp Financial Services Ltd - a company incorporated in New South Wales and Equiticorp Finance Holdings Ltd. The New Zealand Finance Group comprised Equiticorp Finance Group Ltd and Equiticorp Financial Services Ltd - a company incorporated in New Zealand. The relationship between the corporations just mentioned, and their relationship with each other within the Equiticorp Group, is shown in the attached diagram:

In May 1988, coinciding with some of the events which will later be described, it became known that a restructuring programme for the Equiticorp Group was planned for the second half of 1988. It was intended that the ultimate parent company should become Equiticorp International Plc as a non-resident company based in the United Kingdom with assets in Hong Kong. Bank of New Zealand was the principal banker to the various corporations in the Equiticorp Group, although other banks were occasionally involved with various of the companies and their activities.

The companies and their directors:

It is necessary to say something about the two appellant companies.

When the Equiticorp Group finally collapsed, liquidators were appointed on 23 January 1989. They now control both of the appellant companies' affairs. A receiver was appointed to Equiticorp Finance Services Ltd (Aust) on the following day.

Equiticorp Finance Ltd was a finance company. It provided consumer and commercial finance on leasing, real estate, hire purchase and consumer credit transactions. As previously stated, Equiticorp Finance Ltd commenced under another name in 1971. It was acquired in June 1987 by a wholly owned subsidiary of Equiticorp Australia Ltd.

Equiticorp Finance Services Ltd (Aust) was a finance company which raised money from the public, mostly from small investors. From 29 July 1986, Equiticorp Financial Services Ltd (Aust) was subject to the terms of a trust deed. Under the deed, National Mutual Life Nominees Ltd was appointed trustee. Pursuant to this deed, Equiticorp Financial Services Ltd (Aust) charged its assets and undertaking to the trustee to secure its obligations to debenture holders. The trustee required (amongst other things) that the business of Equiticorp Financial Services Ltd (Aust) be conducted in a proper and efficient manner (cl 7.05(b)) and that certain liquidity ratios be maintained, suitable to a company involved in borrowing and lending money to the public (cl 8.01). The directors of Equiticorp Financial Services Ltd (Aust) were obliged to give regular certificates to the trustee concerning the maintenance of these ratios. Equiticorp Financial Services Ltd (Aust) was also subject to restrictions upon its transactions, including those as a member of Equiticorp Group. Thus, under cl 7.02(a) of the trust deed, it covenanted that it would not, without prior consent of the trustee in writing, dispose of its undertaking, or its assets, to any non guaranteeing subsidiary or to its holding company or to any subsidiary of its holding company which was not a guarantor, otherwise than for full consideration and on the condition that such consideration was paid either wholly or partly on settlement, and any portion thereof not so paid be secured to the satisfaction of the trustee. By cl 9.01(q) of the trust deed, a breach of covenant on the part of Equiticorp Financial Services Ltd (Aust), if the default continued for more than fourteen days, rendered the security given by Equiticorp Financial Services Ltd (Aust) enforceable by the trustee. This entitled the trustee to take possession of the assets of the company and to realise them for the benefit of secured creditors. These are not unfamiliar provisions governing the corporate arrangements of a company raising funds from the public and bound to a trustee as a guarantor for the financial probity of its transactions.

Two other corporations should be mentioned in this cast of corporate dramatis personae. Equiticorp Tasman Ltd, a member of the Industries Group was a public company listed on the Australian Stock Exchange. Thirty-one per cent of its issued capital was owned by Feltex International Ltd (later Feltrax International Ltd). Equiticorp International Pty Ltd owned 43 per cent of the capital. The balance was held by members of the public. As to Feltrax International Ltd, only 56 per cent of its issued capital was held by Equiticorp International Pty Ltd. The balance was held by members of the public.

Giles J recorded some doubt about the exact constitution of the relevant boards of directors of the two appellant companies, Equiticorp Finance Ltd and Equiticorp Finance Services Ltd (Aust). However, it appears that, at material times, there were some common directors. They comprised Mr David Adams, Mr Brian Fitzgerald, Mr Dennis Cowell, Mr David Crick, Mr Brian Chittenden and Mr Dennis Teroxy. At least, it was not seriously contested that they were directors. Mr Allan Hawkins was a director of Equiticorp Finance Services Ltd (Aust). He held no office (including director) of Equiticorp Finance Ltd. Mr Cowell was the managing director of Equiticorp Financial Services Ltd (Aust) and Equiticorp Finance Ltd. Mr David Morbey held no office with either Equiticorp Financial Services Ltd (Aust) or Equiticorp Finance Ltd. He was the secretary of Uruz Pty Ltd. Mr Trevor Daley held no office with either appellant company. The significance of these facts will appear.

Equiticorp Financial Services Ltd (Aust) and Equiticorp Finance Ltd held board meetings from time to time. Decisions affecting these companies were made also at board meetings of Equiticorp Australia Ltd where the common concerns of the Australian Finance Group were discussed. Such meetings were attended by the directors of Equiticorp Financial Services Ltd (Aust) and Equiticorp Finance Ltd, together with senior management of both companies. The liquidity requirements of the companies were, as the minutes disclose, regularly discussed, as one would expect of directors and managers of companies involved in financial operations, one of which (Equiticorp Financial Services Ltd (Aust)) was bound, as described, to a trustee. The concerns of both the Australian Finance Group and the New Zealand Finance Group were also dealt with at the board meetings of Equiticorp Finance Group Ltd. No evidence was adduced before Giles J that any of the corporations mentioned (and in particular Equiticorp Finance Ltd and Equiticorp Financial Services Ltd (Aust) had, by resolution of the directors or otherwise, conferred expressly on Mr Allan Hawkins actual authority to commit Equiticorp Finance Ltd or Equiticorp Financial Services Ltd (Aust) to transactions affecting the liquidity reserves of either company.

Origin of the Uruz Pty Ltd facility:

By a letter dated 1 June 1987, Bank of New Zealand offered to Equiticorp Tasman Ltd (a member of the Industrial Group) or to a wholly owned subsidiary of that company, a facility of $200 million to finance the purchase of up to 100 per cent of the ordinary shares in Monier Ltd. The facility was for a term of six months. It was to be "taken out" by a "syndicated three year facility" to be arranged by Bank of New Zealand. It was to be secured by lodgment of Monier shares and (if the borrower were a wholly owned subsidiary of Equiticorp Tasman Ltd and not Equiticorp Tasman Ltd itself) a guarantee from Equiticorp Tasman Ltd. Uruz Pty Ltd was chosen as the vehicle for this transaction. It was a wholly owned subsidiary of Equiticorp Tasman Ltd.

Bank of New Zealand acted as the lender and agent for this transaction. On 21 July 1987, the loan agreement between Uruz Pty Ltd as borrower and Equiticorp Tasman Ltd as guarantor was executed with Bank of New Zealand "as a participant and as agent for the participants". Another party to the agreement was Vajudi Pty Ltd, itself a wholly owned subsidiary of Uruz Pty Ltd and the purchase vehicle for the Monier shares. Although it was contemplated that another bank or financial institution might join Bank of New Zealand as a participant in the provision of the facility, none did. Bank of New Zealand alone stood exposed.

By 21 October 1987, Bank of New Zealand had advanced to Uruz Pty Ltd $165 million. The remaining $35 million was advanced on 21 December 1987.

Clause 9 of the loan agreement contained a provision which referred to the "repayment dates". This was defined to mean the first anniversary of the date of the loan agreement. By cl 9 the participants agreed to review the continuation of the facility:

"... not later than 1 December 1987 with a view to extending the Repayment Date by two years. If all the Participants agree to extend this facility, the Agent shall promptly notify the Borrower of the date to which the Participants have agreed to extend the Repayment Date."