New South Wales Supreme Court CITATION : Bridgecorp Finance Limited v Judith Comer & 2 Ors [2005] NSWSC 225 HEARING DATE(S) : 18/03/05 JUDGMENT DATE : 18 March 2005 Equity Division JURISDICTION : Commercial List JUDGMENT OF : Einstein J DECISION : Subject to quantification summary judgment appropriate to be given in favour of plaintiff and cross-claim to be dismissed. CATCHWORDS : EQUITY - subrogation - defendant guarantors - plaintiff creditor - plaintiff creditor takes additional security via a second mortgage - mortgagee owes equitable duty to act conscionably towards mortgagors - depreciation in value of mortgaged property - first mortgage exhausts proceeds from sale of property - position of second mortgagee requested to agree to a discharge of its mortgage during alleged market downturn - summary judgment to be ordered for plaintiff on General Steel principles China and South Sea Bank Limited v Tan Soon Gin [1990] 1 AC 536 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 125 CASES CITED : Mailman v Challenge Bank Ltd (1991) 5 BPR 11,721 O'Day v Commercial Bank of Australia Ltd (1933) 50 CLR 200 Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646 Bridgecorp Finance Limited (Plaintiff) Judith Adrienne Comer (First Defendant) PARTIES : Isaac Comer (Second Defendant) Herbert Flagmeier (Third Defendant) FILE NUMBER(S) : SC 50135/04 Mr J White (Plaintiff) COUNSEL : Mr V Bedrossian (Defendants) Kemp Strang (Plaintiff) SOLICITORS : Roderick B Harris & Co (Defendants) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMERCIAL LIST Einstein J Friday 18 March 2005 ex tempore Revised 21 March 2005 50135/04 Bridgecorp Finance Limited v Judith Comer & 2 Ors JUDGMENT 1 There is before the Court an amended notice of motion filed on 11 March 2005 in which the plaintiff, Bridgecorp Finance Limited, ["Bridgecorp Finance"] seeks summary judgment in these proceedings and for the cross claim to be dismissed. The summons 2 The summons was filed on 23 September 2004. It is unnecessary to repeat the record suffice to say that the manner in which the amended notice of motion was argued meant that there was an essential agreement as to the essence of that which was pleaded in the summons concerning matters such as: · the fact that Lonhro Developments Pty Limited ["Lonhro Developments"] as borrower entered into a Deed of Loan with Bridgecorp Finance as lender; · pursuant to that Deed Bridgecorp Finance advanced on 24 November 2003, sums totalling some $1.9 million to Lonhro Developments; · the fact that the terms of the Deed as pleaded are self-explanatory. 3 There is no issue on the motion but that the first, second and third defendants, [" the guarantors"] entered into a Deed of Guarantee with Bridgecorp Finance on 24 November 2003, the terms of which are generally pleaded in paragraph 9 of the summons. 4 There were no submissions addressed during the course of the hearing of the motion by way of putting in issue the making of the demands or the failure of the defendants to pay the amounts claimed to be due and payable. The points of defence and cross claim 5 The other pleadings before the Court are the points of defence filed on 10 February 2005 and a cross claim filed on the same day. 6 Here again it is unnecessary to repeat the record. Suffice it to say that both the points of defence and the cross claim assert that Bridgecorp Finance as creditor owed particular equitable duties to the defendants as guarantors of Lonhro Developments' obligations to Bridgecorp Finance in particular terms. 7 Those pleadings then include allegations of correspondence passing from one or other of the guarantors or other persons to Bridgecorp Finance with information regarding what is alleged to have been particular offers for the property at 574 Botany Road, Alexandria ["Botany Road"] in respect of which property there had at all material times been, as the evidence discloses, a first mortgage to the Commonwealth Bank of Australia, Bridgecorp also taking a second mortgage over that same property by way of security for its loan to Lonhro Developments. Hence the defence and cross claim are replete with allegations of communications made to Bridgecorp Finance of opportunities to obtain a price for Botany Road. Communications said to have contended that delays in Bridgecorp Finance acting on the alleged opportunity to sell Botany Road may result in a withdrawal of particular offers, suggesting a market downturn and complaining that Bridgecorp Finance was refusing to provide a discharge of the second mortgage. The sale of Botany Road 8 The evidence before the Court is that on 7 December 2004 Botany Road was sold at public auction and that the entirety of the proceeds of the sale of the property were applied so as to discharge the debt owing to the Commonwealth Bank, being first ranking mortgagee. 9 The evidence in relation to the contract for sale [which has been admitted without objection] is comprised of a one-page copy of the front page of the contract for sale which identifies a purchase price of $1.6 million. Counsel for Bridgecorp Finance has sought to rely upon the duty stamp identifying a dutiable amount of $1,820,743.00 but it is essentially unnecessary for the Court to determine the precise amount of the sale and I am content to proceed upon the assumption that one may infer that the purchase price procured was at least $1.6 million but arguably $1,820,000. Counsel have not suggested that there is any particular determinative issue as between which of the two prices was achieved. Nor does the issue prove determinative in terms of the approach which I take to the motion before the Court. The principles applicable upon applications for summary judgement 10 The principles which apply upon an application to have summary judgment are clear: · Barwick CJ in General Steel Industries v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 to 130 enunciated the principles; · his Honour adopted the summary of authorities by Dixon J, as his Honour then was, in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91: "A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle a court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process." · Barwick CJ goes on to comment at 130: "In my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal." The test to be applied has been variously expressed: "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not permit of argument"; "discloses a case which the court is satisfied cannot succeed"; "no possibility that there can be a good cause of action"; "manifestly faulty so that to allow the pleading to stand would involve useless expense."" · as Barwick CJ said in General Steel at 129, the subject expressions occur in cases of different types. However, once it appears, as his Honour pointed out, that there is a real question to be determined, whether of fact or law, and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action. 11 My own view is that the present is a very clear case where against the above principles it is appropriate to give summary judgment in terms of the orders sought in the amended notice of motion. The reasons to be given will make plain why that is so. The inchoate position of the first mortgagee 12 Before one even moves into the content of the relevant obligation of a mortgagee exercising a power of sale the salient consideration on the notice of motion presently before the Court is that the guarantors failed to: · plead any contention that the Commonwealth Bank of Australia had agreed to or was prepared itself to accept that a particular sale [being put to Bridgecorp Finance as requiring its acquiescence/discharge of the second mortgage] should be consummated; · endeavour to put before the Court any evidence to the effect that the Commonwealth Bank of Australia had agreed to or was prepared itself to accept that a particular sale [being put to Bridgecorp Finance as requiring its acquiescence/discharge of the second mortgage] should be consummated. 13 The position of a second mortgagee in such a circumstance is of course quite different to that of a first mortgagee. 14 An essential causal link in any claim which could possibly made to the effect that Bridgecorp Finance breached an equitable duty by refusing to consent to a particular sale of the Botany Road property for a particular amount at a particular point in time and/or by refusing to agree to its second mortgage being discharged to permit such sale, must involve the integer that first mortgagee was prepared to and would have agreed to such a sale. 15 To my mind the allegations here made in the pleading against the second mortgagee simply have no relevant nexus with any suggested claim of breach of duty by Bridgecorp Finance for the simple reason that the position of the Commonwealth Bank of Australia has been and remains totally inchoate. It is inchoate on the guarantors' pleadings. It is inchoate on the evidence before the court. The Court is completely unaware as to what was the indebtedness of Lonhro Developments to the Commonwealth Bank of Australia: · at any particular point in time; · at any of the points in time referred to in the defence or cross-claim as being occasions when Bridgecorp Finance is said to have breached its equitable obligations. The content of the relevant duty of a mortgagee 16 The content of the relevant duty of a mortgagee has been said to be an obligation to act in good faith: cf Fisher and Lightwood, Law of Mortgage, Australian Edition at 458; and cases there cited. In Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646 Young CJ in Eq at 652 held that a mortgagee owes an equitable duty to act conscionably towards the mortgagor and persons under the mortgagor. 17 The problem for the guarantors in the present proceedings is that: · the pleadings do not on their face disclose any material capable of sustaining a finding of a breach of any such duty; · there is not a scintilla of evidence put forward on the summary judgement application to permit it to be said that there is an arguable case which could sustain a finding of a breach of any such duty. 18 In Mailman v Challenge Bank Limited (1991) 5 BPR 11721, the New South Wales Court of Appeal rejected the submission that a creditor must act to enforce a security in the case of a request by a guarantor since even in that situation, the guarantor clearly has the option of paying off the debt and enforcing the security himself. 19 Sheller JA in Mailman at 5 BPR 11727/8 [following Lord Templeman's judgment in China and South Sea Bank Limited v Tan Soon Gin [1990] 1 AC 536 at 545], made the point that if the surety is worried that the mortgage securities may decline in value, the surety may request the creditor to sell and if the creditor remains idle the surety may bustle about, pay off the debt, take over the benefit of the securities and sell them: cf O'Day v Commercial Bank of Australia Ltd (1933) 50 CLR 200 at 224 per McTiernan J. 20 Clearly as Mailman holds, a mortgagee may sell when it considers it appropriate. Clearly also the mortgagee is not bound to postpone the sale in the hope of obtaining a better price later but is required to allow sufficient time to permit matters such as proper advertising so that the best price reasonably obtainable may be obtained. The mortgagee is entitled to look to its own interests but in this country the good faith test has been, as I have already observed, generally applied. 21 Neither the pleaded case nor the evidence adduced on the hearing of the contested motion for summary judgment put forward any question of fact or law by way of a real question to be determined. 22 As I have said a very particular problem facing the defendants in the instant proceedings is that in the face of the evidence as to the existence of the first mortgage there is absolutely no evidence at all before the Court to satisfy the Court as to the position of the first mortgagee at material times nor indeed as to the amount of the indebtedness at material times of Lonhro Developments to that first mortgagee. Mailman points up the other obstacles which presently stand in the defendants' path. 23 Mr Bedrossian, counsel for the defendants, has sought to rely upon a Land and Property Information Title Search identifying the Botany Road property as having a registered proprietor as at 17 March 2005 in the name of Bridgecorp Holdings (Australia) Pty Limited. In order to establish some form of legal wrongdoing by Bridgecorp Finance the guarantors would have to have gone considerably further than they did in tendering this document. The document is of little weight in the attempt to prove a particular association of the names Bridgecorp Finance Limited and Bridgecorp Holdings (Australia) Pty Limited. However even if such an association might be inferred it is difficult to see that this takes the guarantors any particular distance bearing in mind the manner in which the notice of motion has been argued. There is no reference to any such association in the pleadings. The document does not assist the guarantors. 24 Subject to issues of quantification which are consensually to be stood over for further consideration next week the proper exercise of the Court's relevant jurisdiction is to make orders as sought in the amended notice of motion. 25 I stand the proceedings over to Monday at 10.00am before me. I certify that paragraphs 1 - 25 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 18 March 2005 ex tempore Revised 21 March 2005 ___________________ Susan Piggott Associate 21 March 2005 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.