In 2007 the Anglican Diocese of Bathurst decided that the Anglican Development Fund Diocese of Bathurst (the ADF) would be the vehicle for the centralisation of diocesan borrowing by borrowing on a larger scale from commercial banks and thereafter lending on sums as needed to the various diocesan and parish bodies. The Commonwealth Bank of Australia (the Bank) was the commercial bank chosen to provide the credit facility to the ADF and that credit facility was agreed upon in the sum of $40 million. As the Anglican Church was one of a limited number of religious organisations approved for these purposes, no security other than a sealed letter of comfort from the diocesan bishop was required by the Bank. Under the letter of comfort, responsibility was accepted on behalf of the Diocese of Bathurst for any advanced sums; the diocese undertook to use its best endeavours and powers conferred by legislative or other means to resolve any issues that might arise with the loan facilities; and the diocese agreed take control of the ADF's affairs to facilitate clearance of any outstanding loan amounts if so requested by the Bank.

The ADF's borrowing enterprise failed, in substantial part as a result of the failure of two new schools funded by the ADF to the extent of $28 million. The ADF defaulted on its loan from the Bank and judgment was entered against the ADF and receivers for the ADF were appointed. The Bank requested that the diocese fulfil its duties under the letter of comfort to assist in the discharge of the outstanding sums. Three actions were brought. First, the receivers brought an action against the ADF board members for breach of statutory duties to exercise care and diligence in good faith in the best interests of the ADF. That case was settled with a verdict in favour of the ADF for $11.3 million. Second, the Bank sued the Bishop-in-Council (BIC) under the letter of comfort, arguing that it was obliged to ensure that the sums owing were paid out of church trust property held on behalf of the diocese. Third, the ADF sued the BIC, claiming that it was required under the Anglican Development Diocese of Bathurst Ordinance 1998–2008 (the ADF Ordinance) to levy funds from the parishes to cure the ADF's deficiency.

The BIC defended the claims, arguing, inter alia, that the letter of comfort did not give rise to any legal obligations as the diocese has no legal personality and therefore the bishop had been acting for a non-existent principal in providing the letter and that in any event there was no intention to create legal relations. The court accepted that the diocese, being a voluntary association, does not have any existence in law apart from its members. The court therefore addressed the question of with whom the Bank had been contracting when the letter of comfort was executed. It was held that the word ‘diocese’ had a number of meanings but that the contracting party in this case could not have been the large and constantly changing body of all communicant members of the Anglican Church in the diocese. It was held that the contracting party was the BIC (as constituted from time to time), as being those persons within the diocese who were able to use their best endeavours and had powers to facilitate clearance of the loan amount. The bishop, in signing the letter of comfort, had ostensible, if not actual, authority to bind the BIC in this way. The court also held that the formality of and circumstances surrounding the execution of the letter of comfort clearly showed an intention to create legal relations.

The BIC also argued that the Bank had no standing to require the BIC to take steps to fulfil its duties under the Bathurst Anglican Church Finance Ordinance 1959–2010 and the ADF Ordinance to recover parochial and other property in discharge of the debt. Those ordinances were part of the private compact between members of the voluntary association of the Church in the diocese, to which the Bank was not party. That argument was rejected on the basis that section 2 of the Anglican Church of Australia Constitution Act 1961 made those ordinances binding in general law, as they were capable of being used for a purpose relating to church trust property. The Bank had a direct interest in the fulfilment of those duties. It had standing to pursue the claim.

The BIC argued that the ADF and the Bank could not require the recovery of the debts from church trust property as that property was held on separate trusts, the trustees of which could not make the payments or transfers sought without being in breach of the trust purposes. The BIC argued that the purposes of those trusts were often to be construed from the consecration or long usage of the land. The court held that consecration or long usage did not have the effect of narrowing the clear terms of express trusts of land granted for the general benefit of the Church. It would be to the general benefit of the Church to honour the letter of comfort by discharging the liabilities of the ADF and repaying the Bank, such that that use did not fall outside the purposes of the trusts. The court held that the letter of comfort and other documents relied upon by the ADF and the Bank gave rise to legally binding obligations on the BIC and indicated no reservation in granting the declarations and mandatory relief sought by those parties. The proceedings were stood over to enable the settling of the appropriate orders. [RA]