Supreme Court New South Wales Medium Neutral Citation: Perpetual Nominees Limited v Licata [2011] NSWSC 1592 Hearing dates: 09/11/2011, 10/11/2011, 11/11/2011, 17/11/2011 Decision date: 19 December 2011 Jurisdiction: Equity Division Before: Associate Justice Macready Decision: (1)On the plaintiff's claim: (a)Judgment against the first defendant in the sum of $10,216,462.60; (b)Judgment against the second defendant in the sum of $10,435,462.60; (c)Judgment against the third defendant in the sum of $10,435,462.50; (d)Judgment against the fourth defendant in the sum of $10,216,462.60; (e)Judgment against the fifth defendant in the sum of $1,825,000; (f)Judgment against the sixth defendant in the sum of $1,825,000; (g)Judgment against the seventh defendant in the sum of $1,460,000; (h)Judgment against the eighth defendant in the sum of $1,460,000; (i)Judgment against the ninth defendant in the sum of $1,460,000; (j)Judgment against the tenth defendant in the sum of $1,460,000; (k)Judgment against the eleventh defendant in the sum of $876,000; (l)Judgment against the thirteenth defendant in the sum of $438,000; (2) Dismiss the first and second cross claims; (3) Order that the defendants, except the twelfth defendant, pay the plaintiffs' costs of the claim and cross claims. Catchwords: GUARANTEE - enforcement of guarantee - whether plaintiff has standing - whether demand on guarantors - sale of property as mortgagee in possession - whether mortgagee complied with duty of good faith - whether right to set off Legislation Cited: Civil Procedure Act 2005 Corporations Act 2001 Real Property Act 1900 Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005 Cases Cited: Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Ltd (2002) 10 BPR 19,565 Bank of Western Australia Limited v Usalj [2010] NSWSC 991 Bond v Larobi Pty Ltd (1992) 6 WAR 489 Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 Emerson v Custom Credit Corporation Ltd [1994] 1 Qd R 516 Esso Petroleum Co Ltd v Alstonbridge Executor Trustee Australia Ltd v Deloitte Haskins Sells (1996) 22 ACSR 270 GE Capital Australia v Davis (2002) 180 FLR 250 Gye v McIntyre (1991) 171 CLR 609 Hawkesbury Valley Developments Pty Ltd v Custom Credit Corp (1994) 8 BPR 15,581 Hong Kong Bank of Australia Ltd v Larobi Pty Ltd (1991) 23 NSWLR 593 Morris v Hallet Brick Industries (1996) 67 SASR 328 National Westminster Bank plc v Skelton [1993] 1 WLR 72 Novamaze Pty Ltd & Ors v Cut Price Deli Pty Ltd & Ors (1995) 128 ALR 540 Properties Ltd [1975] 1 WLR 1474 Scott v Avery (1856) 5 HL Cas 811 Skinner v Jeogla Pty Ltd [2001] NSWCA 15 Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540 Ultimate Property Group Pty Ltd v Lord [2004] NSWSC 114; (2004) 60 NSWLR 646 Waterhouse v Waterhouse (1999) 46 NSWLR 449 Texts Cited: Fisher and Lightwood's Law of Mortgage, Australia edition, Butterworths, 1995 Phillips and O'Donovan, Modern Contract of Guarantee, 2nd Edition, Lawbook Company Limited 1992 Category: Principal judgment Parties: Perpetual Nominees Limited (plaintiff) Renato Licata (first defendant) Pasquale Gilio (second defendant) Alex George Fahd (third defendant) Maracaz Pty Ltd (fourth defendant) Domonic Sorbara (fifth defendant) Australian Customs Professional Consulting Services Pty Ltd (sixth defendant) Diego Iaria (seventh defendant) Iaria Holdings Pty Ltd (eighth defendant) Gianfranco Placanica (ninth defendant) Placanica Developments Pty Ltd (tenth defendant) Miroslav Barac (elevenenth defendant) Josanica Pty Ltd (twelfth defendant) Zdenko Herceg (thirteenth defendant) Representation: AJ McInerney (plaintiff) F Salama (third defendant) F Assaf (fifth, sixth, ninth and tenth defendants) Gadens Lawyers (plaintiff) Belgrave Lawyers (third defendant) Thomsons Lawyers (fifth, sixth, ninth and tenth defendants) File Number(s): 2009/297206 Judgment 1The Plaintiff ("Perpetual") sues thirteen defendants ("the Defendants") for alleged breaches of various guarantees said to have been given in respect of loans made to the principal debtor, Stateland Developments Pty Ltd ("Stateland"). It does not proceed against the twelfth defendant as that company has been deregistered. 2In response, some of the Defendants cross-claim against Perpetual claiming that in exercising its power of sale as mortgagee in possession it: (a)Breached its equitable duty of good faith; or (b)Alternatively, it acted in breach of the duty imposed upon Perpetual as mortgagee by s 420A of the Corporations Act 2001. (c) Engaged in unconscionable conduct under s 51AC of the Trade Practices act. Background to the loans 3By loan agreement dated 9 June 2006, Perpetual agreed to advance the sum of $6.375 million to Stateland to refinance an existing loan ("the Cowpasture Road Loan"). The Cowpasture Road Loan Agreement incorporates a letter of offer dated 31 January 2006 from Balmain NB Commercial Mortgages Ltd to Stateland, which sets out the terms and conditions of the loan. The Cowpasture Road Loan was assigned loan number 11355. 4Security for the Cowpasture Road Loan took the following form: (a)A mortgage in favour of Perpetual over the whole of the land contained in Certificate of Title Folio Identifier XXXX and known as XX Cowpasture Road, Wetherill Park, New South Wales ("the Cowpasture Road Property"). The mortgage, which incorporates Memorandum number X004943, was registered and given Dealing no AC384730 ("the Cowpasture Road Mortgage"); (b)A Deed of Guarantee dated 9 June 2006 between Perpetual, Stateland, the first defendant, Licata, the second defendant, Gilio, the third defendant, Fahd, and the fourth defendant, Maracaz (the "9 June 2006 Guarantee"). Together the first defendant, Licata, the second defendant, Gilio, the third defendant, Fahd and the fourth defendant, Maracaz, are referred to as "the Cowpasture Road Guarantors"; (c)A Registered fixed and floating charge over Stateland in favour of Perpetual; 5The loan was advanced on 8 June 2006. 6On 15 September 2006, Perpetual and Stateland entered into a Deed of Variation of Loan Agreement, whereby Perpetual agreed to advance a further sum of $625,000 to Stateland ("the Deed of Variation of Loan"). 7The Deed of Variation of Loan incorporates a letter of offer dated 22 August 2006 from Balmain NB Commercial Mortgages Ltd to Stateland. 8Security for the variation of the Cowpasture Road Loan included the following: (a)the Variation of the Cowpasture Mortgage was registered and given dealing number AC614576; (b)Deed of Guarantee dated 15 September 2006 between Perpetual, Stateland, Licata, Gilio, Fahd and Maracaz ("the 15 September 2006 Guarantee"). 9On about 15 September 2006, the Further Cowpasture Road Loan was advanced to Stateland. 10By Loan Agreement dated 16 January 2007, Perpetual agreed to advance the sum of $14,600,000 to Stateland to refinance an existing loan for construction of an industrial building ("the Newton Road Loan"). 11The Newton Road Loan Agreement incorporates a letter of offer dated 5 December 2006 from Balmain NB Commercial Mortgages Ltd to Stateland. 12The Newton Road Loan was split into two loan accounts and was assigned account numbers 12540 and 12535. 13Security for the Newton Road Loan took the following form: (a)a mortgage in favour of Perpetual over the whole of the land contained in Certificate of Title Folio Identifier XXXX and known as XX Newton Road, Wetherill Park, New South Wales and all buildings and improvements thereon ("the Newton Road Property"). The mortgage was registered and given Dealing number AC878751 ("the Newton Road Mortgage"). (b)a Deed of Guarantee and Indemnity dated 16 January 2007 between Perpetual, Stateland and each of the defendants ("the Newton Road Guarantee"). Together all of the defendants are referred to as "the Newton Road Guarantors"; (c)a registered fixed and floating charging over Stateland in favour of Perpetual; (d)Construction Tripartite Deed between Stateland, Perpetual and the Builder of the building on the Newton Road Property. 14The Newton Road loan was drawn down from 16 January 2007 to 13 July 2007. 15On about 7 August 2008, Stephen James Parbery and Mark Julian Robinson were appointed Receivers and Managers of Stateland. This was an event of default under the loan agreement. Sometime later Stateland was wound up. 16From March 2009 there were various demands served on Stateland and the guarantors. 17On 26 August 2010, Perpetual as mortgagee in possession exercising its power of sale, sold the property at Newton Road, Wetherill Park. The Newton Road Property was sold at auction on 26 August 2010 for $12,750,000 exclusive of GST. The Contract for Sale settled on 4 November 2010. Perpetual has not sold the property at Cowpasture Road, Wetherill Park as it did not wish to enter into possession of that property which had subsidence issues. 18As at 9 December 2010, the loan balance for the Cowpasture Road Loan, being Loan number 11355, was $5,826,963.48. 19As at 9 December 2010, the loan balance for Loan number 12540 in respect of the Newton Road Loan was $1,698,785.03. 20As at 9 December 2010, the loan balance for Loan number 12535 in respect of the Newton Road Loan was $112,031.43. Issues on the plaintiff's claim 21The issues raised by the defendants are as follows: * The standing of the plaintiff to bring the proceedings; * Whether there has been an effective demand on the guarantors; * Whether the guarantors have an equitable right of set off to enforce the mortgagor's claim for breach of the mortgagee's duty of good faith; * Whether there has been a breach of the mortgagee's duty of good faith. The standing of the plaintiff to bring the proceedings 22On the first day of the hearing there was an application to withdraw an admission to enable a defence to be raised challenging the plaintiff's standing to bring the proceedings. The basis of this challenge is that it is said that the plaintiff was the agent of a managed investment scheme, which was its disclosed principal, and as such has no standing to bring proceedings on behalf of that scheme. 23The plaintiff for its part says that it was a custodian for the managed investment scheme, and as such a trustee of the assets, in this case the mortgage, for the scheme. 24For reasons, which I then gave, I refused the application. 25The relevant pleading was: "1 The plaintiff is a company duly incorporated at law and as such is entitled to sue in and by its corporate name and style." The allegation was admitted. However arguably the admission may not have covered the point sought to be raised. 26The two relevant procedural rules contained in the Uniform Civil Procedure Rules 2005 ("UCPR") which I considered were rules 14.11 and 14.14, as follows: " 14.11 Conditions precedent presumed to have been met If it is a condition precedent necessary for a party's case in any pleading that: (a) a thing has been done, or (b) an event has happened, or (c) a state of affairs exists, or has existed at some time or times, or (d) the party is ready and willing, or was at all material times ready and willing, to perform an obligation, a statement to the effect that the condition has been satisfied is taken to be implied in the party's pleading. 14.14 General rule as to matters to be pleaded specifically (1) In a statement of claim, the plaintiff must plead specifically any matter that, if not pleaded specifically, may take the defendant by surprise. (2) In a defence or subsequent pleading, a party must plead specifically any matter: (a) that, if not pleaded specifically, may take the opposite party by surprise, or (b) that the party alleges makes any claim, defence or other case of the opposite party not maintainable, or (c) that raises matters of fact not arising out of the preceding pleading. (3) Matters which must be pleaded pursuant to subrule (2) include (but are not limited to) fraud, performance, release, statute of limitation, extinction of right or title, voluntary assumption of risk, causation of accident by unknown and undiscoverable mechanical defect and facts showing illegality." 27As I indicated in my reasons the matter had taken the plaintiff by surprise and it was not in a position to deal with the proposed defence. I did not allow the proposed matter of defence to go forward. It would be quite inappropriate to allow it to be raised now in written submissions after the conclusion of the hearing. There is no ability for the plaintiff to address any evidentiary matters that might be relevant to the point. 28Accordingly I will not consider the point. Whether there has been an effective demand on the guarantors 29The relevant clause in the guarantee is as follows: " Payment on demand If: (a)the Debtor does not pay the Guaranteed Money or any part of the Guaranteed Money on time; or (b)an Event of Default occurs and the Lender makes a demand on the Guarantor , the Guarantor must immediately pay the Guaranteed Money (or the part of the Guaranteed Money demanded) to the Lender ..." 30The plaintiff asserts that there are three valid demands, which comply with this clause. The first is said to be contained in the letters from Heidtmans Lawyers to the guarantors dated 3 and 4 March 2009. The letter dated 3 March 2009 related to the Newtown Road Guarantee and the letter dated 4 March 2009 related to the Cowpasture Road Guarantee. Both are in substantially the same terms. The letter dated 3 March 2009 states: "We act for Colonial First State Investments Limited, manager for Perpetual Nominees Limited, and we are instructed that you are the guarantor of the abovementioned loan facility pursuant to a Deed of Guarantee dated 16 January 2007. ... We enclose for your reference a copy of the Notice pursuant to Section 57(2)(b) of the Real Property Act 1900 now being served on the Mortgagor, Stateland Developments Pty Limited (controllers acting). We are further instructed to give you notice that as guarantor under the mortgage, you are personally liable to the Mortgagee for payment of the principal sum or so much thereof as remains unpaid." 31It was submitted that nothing in the above communication contains a "request", being an essential characteristic of a demand. Further, there is said to be nothing insistent or peremptory contained in the above communication. All that the above communication does is to inform the recipient of a number of uncontroversial statements of fact. 32Both parties appealed to dictionaries for the answer. The defendants to the Australian Concise Oxford dictionary for the ordinary and natural meaning of the word "demand" as "an insistent and peremptory request". 33The plaintiff referred to the Macquarie Dictionary (Federation Edition, 2001) which contains the following definition of "demand": "1. to ask for with authority; claim as a right: to demand something of or from a person. 2. to ask for peremptorily or urgently. 3. to call for or require as just, proper, or necessary: a task which demands patience. 4. Law to lay formal legal claim to. - verb (i) 5. to make a demand; inquire or ask. - noun 6. the act of demanding. 7. that which is demanded. 8. an urgent or pressing requirement: demands upon one's time. 9. an inquiry or question. 10. a requisition; a legal claim. 11. the state of being in request for purchase or use: an article in great demand. 12. Economics a. the desire to purchase and possess, coupled with the power of purchasing. b. the quantity of any goods which buyers will take at a particular price. See supply (def 11). - phase 13. on demand, subject to payment upon presentation and demand." 34The plaintiff submitted that the essence of a demand is "to ask for with authority; claim as a right". They submitted that each letter constituted a demand within that natural and ordinary meaning of the word "demand" as used in both the Cowpasture Road Guarantee and the Newton Road Guarantee. 35The letters each attached a copy of the notice issued to the borrower, Stateland, pursuant to s57(2)(b) of the Real Property Act 1900. Each s57(2)(b) notice specified the balance outstanding under the relevant loan. Thus it was said that each letter of demand of 3 March 2009 and 4 March 2009, when read together with the s57(2)(b) notice, specified the amount of the debt the subject of the demand. It was submitted that any reasonable recipient of each of the letters could be left in no doubt that the plaintiff was making a claim on the guarantor for payment of the principal sum, or so much thereof as remained unpaid, of the loan made to Stateland. The problem with this approach is that the notice was directed to the borrower, not the guarantor. 36The plaintiff also referred to Morris v Hallet Brick Industries (1996) 67 SASR 328, where Perry J held that a letter written to a guarantor saying "we extend this opportunity for you to settle the account through our office or to make some other suitable arrangement" was a demand for the purposes of the guarantee. 37In my view if a recipient asked himself when he was being asked to pay the sum he would find no answer in the document. In my view it is not a demand under the guarantee. 38The second demand is said to be contained in a mortgagee's certificate served on each defendant on 26 October 2011. The certificates claimed different amounts from each guarantor due to the individual provisions of each guarantee. The form of each was as follows: "This Mortgagee's Certificate is issued pursuant to clause 12.9 of the Guarantee. The Mortgage hereby gives notice to the Guarantor that: 1.Events of Default (as that term is defined by the Guarantee and the Loan Agreement) have occurred in that: (a)As at March 2009, the Borrower defaulted in the due and punctual payment of interest; (b)As at March 2009, the Borrower defaulted in the due and punctual payment of the Principal Sum; (c)On or about 10 March 2009, a receiver (or a receiver and manager) was appointed for the whole or any part of the undertaking, property or assets of the Borrower; (d)On or about 6 July 2009 a receiver (or a receiver and manager) was appointed for the whole or any part of the undertaking, property or assets of the Borrower; (e)On or about 18 May 2001, a petition was presented for the winding up of the Borrower; and (f)On or about 30 September 2011 an order was made for the winding up of the Borrower. 2.The Borrower did not pay the Guaranteed Money (as that term is defined in the Guarantee) on time. 3.The Lender made a demand on the Guarantor for payment of the outstanding principal sum under cover of letters dated 3 March 2009 and 4 March 2009. 4.The Guarantor failed to comply with the Demands. 5.As at 30 September 2011, the amount payable by the Borrower to the Lender under the Loan Agreement is $3,503,348.65 as detailed in the schedules enclosed and marked "A" and "B". 6.As at 30 September 2011, the amount payable by the Guarantor to the Lender under the Guarantee is $2,628,000.00. 7. The Lender hereby demands that the Guarantor make immediate and full payment to the Lender of the sum of $... being the amount outstanding under the Guarantee as at 30 September 2011. 8. The Lender hereby demands that the Guarantor make immediate and full payment to the Lender of the sum of $... being the amount outstanding under the Guarantee as at 30 September 2011." 39The pleading of this demand, which is after commencement of the proceedings, was in the amended statement of claim and was permissible under s 64(3) of the Civil Procedure Act 2005. In my view it is a valid and effective demand. 40The third way it was said there was a valid demand was by virtue of the service of the Statement of Claim that sought repayment of the amount said to be due under each guarantee. As the guarantors are principal debtors there is no need for a demand before action: see Esso Petroleum Co Ltd v Alstonbridge Properties Ltd [1975] 1 WLR 1474 at 1482. 41In my view service of the Statement of Claim was an effective demand. 42My conclusions do not depend upon the conclusiveness of the "Dobbs" certificates issued pursuant to clause 12.9 of the guarantee. However as the certificates will be relied upon for other purposes I should comment on them. Clause 12.9 is as follows: "A notice from or demand by the Lender stating: (a) that a specified sum of money is owing or payable (or both) under a Relevant Agreement; or (b) that an Event of Default has occurred; or (c) something relevant to the rights or obligations of the Lender or the Guarantor under a Relevant Agreement, is admissible in proceedings and is conclusive evidence of the matters stated except if there is a manifest error." 43The problem that I raised in argument is the use of the word "or" which usually has a disjunctive sense and would mean that only one of the alternatives could be included in each certificate. This is not what happened in this case. 44The plaintiff's submissions on this point were as follows: (1)It is one thing to say that a Dobbs clause must be interpreted strictly; it is another to interpret a Dobbs clause in a fashion which frustrates its purpose of expeditiously and finally establishing the debt owed by the customer to the bank (See State Bank of NSW v Chia (2000) 50 NSWLR 587 at 609 per Einstein J). (2)The purpose of a Dobbs clause is to produce a statement in the sense of a written communication of specified information; it matters not what form the statement takes if it communicates in writing the specified information (See Koompahtoo Aboriginal Lank Council v KLALC Property v Investment Pty Ltd [2006] NSWSC 856 at [35]). (3)Clause 12.9 is to be construed by ascertaining the objective intention of the parties which is to be determined by reference to the terms of the guarantee and the relevantly mutually known extrinsic facts (See Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]...). (4)Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure (See McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22]). The guarantee is to be construed to give a common sense or commercially workable meaning. Commercial agreements are to be construed to avoid absurdity or inconsistency (See Fitzgerald v Masters (1956) 95 CLR 420 at 426 and 437...). (5)In RF Brown & Company Ltd v T & J Harrison (1927) 43 TLR 633 at 639, Atkin LJ said: "I disagree with the learned judge in his view that the word "or" can never have a conjunctive sense. I think it quite commonly and grammatically can have a conjunctive sense. It is generally disjunctive, but it may be plain from the collocation of the words that it is meant in a conjunctive sense, and certainly where the use of the word as a disjunctive leads to repugnant or absurdity it is quite right within the ordinary principles of construction adopted by the court to give the word a conjunctive use." (6)The plaintiff submits that the word "or" where used in clause 12.9 should not be read as strictly disjunctive. The use of the word "or" is not to indicate that one category, and only one category, can be included in a notice or demand to the exclusion of any other category. (7)Instead the use of the word "or" in clause 12.9 of the guarantees is used as a kind of hybrid of disjunctive and conjunctive, equivalent to "or, or as well", conveying the meaning that the notice or demand may include either or one or more of the kinds of conduct referred to (See Minister for Immigration and Ethnic Affais v Baker (1997) 153 ALR 463 at 470). (8)Clause 12.9 does no more than identify that a notice or demand may include one, or more than one, of the categories of information described in sub-clauses (a), (b) and/or (c) described in clause 12.9. (9)In other words, the use of the word "or" is merely expressive of the categories of information which can be included within a notice or demand (See Unity APA Ltd v Humes Ltd (No 2) [1987] VR 474 at 482). (10)Shortly stated, the use of the word "or", read in context in clause 12.9 of the guarantees, signifies "and/or" (See Federal Commissioner of Taxation v Industrial Equity Ltd (2000) 171 ALR 1 at 5). 45Having regard to the cases referred to in the submissions I accept that in the present circumstances the word "or" is used in both the conjunctive and disjunctive senses. Whether the guarantors have an equitable right of set off to enforce the mortgagor's claim for breach of the mortgagee's duty of good faith 46The plaintiff submits that as a result of certain clauses in the guarantees the guarantors presently have no right of equitable set off, nor are they subrogated to the right of the mortgagor, to sue: (i)for the alleged breach of the mortgagee's duty of good faith and s420A of the Corporations Act ; or (ii)because in the sale of the Newton Road Property the plaintiff engaged in unconscionable conduct under s51AC of the Trade Practices Act 1974 (Cth). 47The relevant clauses of the guarantees are as follows: Clause 4.1 of the Guarantee provides: "This is a continuing guarantee and indemnity which: (a) is not wholly or partially discharged by the payment of any of the Guaranteed Money, the settlement of an account or any other matter (other than an unconditional written release by the Lender); and (b) applies to the present and future balance of the Guaranteed Money." Clause 4.2 of the Guarantee states: "The liability of the Guarantor is not adversely affected by anything which would otherwise reduce or discharge the liability of the Guarantor under the law relating to sureties, guarantees and indemnities. In particular, the liability of the Guarantor is not adversely affected by: (a) the Lender granting time or any other indulgence or concession; or (b) the Lender increasing the amount, or otherwise varying the type or terms, of financial accommodation provided to the Debtor; or (c) any transaction or agreement (or variation of a transaction or agreement) between the Lender and the Debtor, a Co-Surety or any other person (even though the relevant transaction, agreement or variation may adversely affect the Guarantor); or (d) the Insolvency or Incapacity of any person, or the Lender becoming a party to or bound by the Insolvency or Incapacity; or (e) any judgment or order against the Debtor, the Guarantor or any other person; or (f) (i) an obligation of the Guarantor, the Debtor or a Co-Surety; or (ii) a Relevant Agreement, or any provision of a Relevant Agreement, being void, voidable, unenforceable, defective, released, waived, impaired, transferred, enforced, or impossible or illegal to perform; or (g) the Guaranteed Money not being recoverable or the liability of the Debtor, a Co-Surety or any other person to the Lender ceasing (including as a result of a release or discharge by the Lender); or (h) the Lender failing to enforce a Relevant Agreement; or (i) property secured under a Collateral Security being destroyed, forfeited, extinguished, surrendered or resumed; or (j) any default, misrepresentation, negligence, misconduct, acquiescence, delay, mistake or other action or inaction of any kind by or on behalf of the Lender or any other person; or (k) any change to a partnership or in the membership of any partnership, joint venture or association." Clause 5.1 of the Guarantee provides: "Until the Lender has received all the Guaranteed Money and the Lender is satisfied that it will not have to repay any money received by it in connection with the Guaranteed Money, the Guarantor must not (either directly or indirectly): (a) claim, exercise or attempt to exercise a right of set-off or any other right which might reduce or discharge the Guarantor's liability under this document; or (b) claim or exercise a right of subrogation or a right of contribution or otherwise claim the benefit of a Collateral Security; or (c) unless the Lender has given a written direction to do so: (i) prove, claim or exercise voting rights in the Insolvency or Incapacity of the Debtor or a Co-Surety in competition with the Lender; or (ii) otherwise claim or receive the benefit of a distribution, dividend or payment arising out of the Insolvency or Incapacity of the Debtor or a Co-Surety; or (d) demand, or accept payment of, any money owed to the Guarantor by the Debtor or any Co-Surety." 48It was submitted by the plaintiff that the effect of clauses 4.1, 4.2 and 5.1 of the Guarantee is that unless and until, (i)the Lender has received all of the Guaranteed Money, and (ii)the Lender is satisfied that it will not have to repay any money received by it in connection with the Guaranteed Money, the guarantor has contracted away its right to claim, exercise or attempt to exercise a right of set-off or any other right which might reduce or discharge the Guarantor's liability under this document and its right to claim or exercise a right of subrogation or a right of contribution or otherwise claim the benefit of a Collateral Security. 49This argument, if it is successful, is a complete answer to the defendants' cross claim. 50The defendants' answer is that firstly, clause 5.1 is contrary to public policy and void as it attempts to oust the Court's jurisdiction. Second, in any event, the borrower in this case, Stateland, is insolvent and in liquidation such that the defendants have a statutory right of setoff by virtue of section 553C of the Corporations Act . The defendants also refer to a suggestion by the plaintiff that the defendants had waived their rights to bring a cross-claim, saying that this is not pleaded nor established by the evidence. 51On the first point the defendants pointed to the following general statements on the matter of public policy. In Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643, Rich, Dixon, Evatt and McTiernan JJ said at 6523: "What no contract can do is to take from a party to whom a right actually accrues, whether ex contractu or otherwise, his power of invoking the jurisdiction of the courts to enforce it. ... No contractual provision which attempts to disable a party from resorting to the course of law was ever recognised as valid. It is not possible for a contract to create rights and at the same time to deny to the other party in whom they vest the right to invoke the jurisdiction of the courts to enforce them." 52In Scott v Avery (1856) 5 HL Cas 811 Justice Coleridge said (at 841): "The courts will not enforce or sanction an agreement which deprives the subject of that recourse to their jurisdiction, which has been considered a right inalienable even by the concurrent will of the parties. But nothing prevents parties from ascertaining and constituting as they please the cause of action which is to become the subject matter of decision by the court." 53Likewise, in Novamaze Pty Ltd v Cut Price Deli Pty Ltd (1995) 128 ALR 540, Drummond J explained at 548-549 that: "At the core of this head of public policy is the notion that the citizen is entitled to have recourse to the court for an adjudication on his legal rights. A contractual agreement to deny a person that "inalienable right" contravenes this public policy and is void. A disincentive to a person to exercise his right of recourse to the court can, depending on how powerfully it operates to discourage litigation, amount to a denial of this right just as complete as an express contractual prohibition against litigation." 54The point the plaintiff makes in answer to these statements is that there is not an ouster of jurisdiction, merely a postponement of the right to recover. In GE Capital Australia v Davis (2002) 180 FLR 250, Bryson J observed that clauses similar to clauses 4.1, 4.2 and 5.1 quoted above precluded the guarantor setting up cross-claims against the creditor unless and until the money payable by the guarantor to the creditor had been paid. 55The clause before Bryson was: "8.1 As long as the Guaranteed Money or other money payable under this guarantee and indemnity remains unpaid, the Guarantor may not without the consent of GE Capital: (a) in reduction of its liability under this guarantee and indemnity, raise a defence, set off or counterclaim available to itself, the Debtor or a co-surety or co-indemnifier against GE Capital or claim a set off or make a counter claim against GE Capital; or (b) make a claim or enforce a right (including without limitation, an Encumbrance) against the Debtor or any other Guarantor or against their estate or property; or (c) prove in competition with GE Capital if an Insolvency Event occurs in respect of the Debtor or any other Guarantor whether in respect of an amount paid by the Guarantor under this agreement and indemnity, in respect of another amount (including the proceeds of a Security Interest) applied by GE Capital in reduction of the Guarantor's liability under this guarantee and indemnity, or otherwise; or (d) claim to be entitled by way of contribution, indemnity, subrogation, marshalling or otherwise to the benefit of a Security Interest or guarantee or a share in it now or subsequently held for the Guaranteed Money or other money payable under this guarantee and indemnity." 56Bryson J (at [85]) observed: "The obligation of the guarantor to the principal creditor arises under the contract between them; however protection extended in Equity to the guarantor has the effect that the guarantor can raise an equitable defence in part or in whole against a claim for its contractual liability. The protection extended to the guarantor in Equity is related to the guarantor's right to be subrogated to the rights of the principal creditor against the security if the guarantor pays out all the secured debt. The protection extended in Equity may have had its origin in this right of subrogation. The availability of protection is subject to any provision in the contract between the guarantor and the principal creditor which qualifies or limits the guarantor's rights; in this case the qualification is of high importance, because of provisions of the guarantee with which I will deal. The guarantor cannot complain of any conduct of the creditor, or of any dealing with the secured security property which was authorised by the terms of the contract of guarantee, or by the terms of the security granted by the debtor." 57Further, in GE Capital Australia v Davis , Bryson J said at [93]: "Primacy of the plaintiff's right to payment: ouster of jurisdiction. [93] The effect of the obligations in cl 8.1 is that the guarantors were contractually bound to pay the amount of money owing by the debtor when it was demanded. It was a contract to make an amount of money available when it was demanded. It was not an element of the obligation that it was subject to or limited by any process of ascertaining whether the debtor should be allowed any credits or set-offs, in respect of the security or of any other matter. Irrespective of the existence of security, and irrespective of the state of progress of any attempt at realising the security, it was and remains the obligation of the guarantors to provide to GE Capital the money amount of the debtors' obligation. The provisions relating to suspension of the guarantor's rights including cl 8.1 give effect to the amplitude of this obligation, and remove the possibility that the guarantors might in any way compete with GE Capital in attempts to recover from the debtors. Clause 8.1 does not bar the guarantors from making any claims or enforcing any rights against either GE Capital or the debtors; it suspends those rights so long as the guaranteed money remains unpaid, and the suspension can be ended at once if the guarantors meet their contractual obligation and pay the amount of the guaranteed money. Once they do that, they can bring any proceedings they wish against GE Capital or against the debtors, notwithstanding cl 8.1; but the effect of cl 8.1, and of cl 8.1 generally, is that until they make that payment they are contractually bound to the proposition that they are not entitled to bring any claims or proceedings or to act in any of the manners referred to. The jurisdiction of the Court is not ousted in any respect, the rights of the guarantors are suspended but otherwise not impaired, and they can pursue their rights as they wish if they first comply with what the Guarantee and Indemnity makes their primary obligation." 58He further put the matter (at [97] - [98]) as follows: "The jurisdiction of courts and the rights of parties to make claims before courts are not conferred by contract and cannot be ousted by contract. However there is in my opinion no infringement of this principle where parties agree that in stated circumstances a particular sum of money will change hands without the opportunity at the same time to obtain judicial disposition of any other claim between them. In the contract of guarantee there is no infringement of the principle where parties agree to ensure that the guaranteed sum will be paid, and make this the more certain by postponing litigation raising any cross-claim or set-off. The effect in substance of the provisions of the guarantee including cl.8.1(a) is that there is no limit on the right to resort to the courts if the guarantor first meets the obligation the protection of which is the primary purpose of the guarantee and indemnity, and pays the amount of the debt. It is well established in this area of the law that the guarantor can have recourse to securities given by a principal debtor to indemnify himself, but that he cannot do so until he has paid the whole debt. The validity of modifications of what would under the general law be the rights of guarantors is well established. These contractual provisions extend the ways in which the guarantors' remedies are postponed, and extend the creditor's freedom from competition in enforcement of its rights. The condition which must be fulfilled is directly related to the purposes of the agreement." 59There are other earlier cases where a similar result has ensued. See: Hong Kong Bank of Australia Ltd v Larobi Pty Ltd (1991) 23 NSWLR 593 and Bond v Larobi Pty Ltd (1992) 6 WAR 489. 60The decision of Bryson J on this aspect has received approval in later cases such as Permanent Custodians Ltd v AGB Developments Pty Ltd [2010] NSWSC 540 and Bank of Western Australia Limited v Usalj [2010] NSWSC 991. 61Considering the matter for myself, the logic of Justice Bryson's arguments seems quite correct and I am not of the view that the clause is against public policy. 62It was also suggested by the defendants that s 420A of the Corporations Act conferred a direct right of action on the guarantors. That section is in the following form: "420A Controller's duty of care in exercising power of sale (1) In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for: (a) if, when it is sold, it has a market value-not less than that market value; or (b) otherwise-the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold. (2) Nothing in subsection (1) limits the generality of anything in section 180, 181, 182, 183 or 184." 63Bryson J dealt with a similar submission made to him in GE Capital Australia v Davis from paragraphs [43] to [57]. His conclusion at [56] was as follows: "56 In my view there is nothing to indicate that it was the intention of the legislature that subs.420A(1) should confer any right or remedy on guarantors or other persons who involve themselves contractually in consequences of the exercise of the power of sale, but the guarantor is entitled to rely on the availability to the mortgagor of a remedy, whether the remedy was that previously established by Pendlebury v. Colonial Mutual Life Assurance Society Ltd [1912] HCA 9 ; (1912) 13 CLR 676 or is now the remedy available to the mortgagor on breach of the duty declared by subs.420A(1); the guarantor is entitled to have an equitable remedy on the basis that the mortgage accounts are taken on whatever may be the principle truly applicable to taking mortgage accounts. In my opinion the equitable remedies which in an earlier state of the law were available to a guarantor where there was a breach of the mortgagee's duty to a mortgagor corporation are now to be tested by reference to whether there was a breach of the duty stated in subs.420A(1)." 64This conclusion was subject to further argument in Ultimate Property Group Pty Ltd v Lord [2004] NSWSC 114; (2004) 60 NSWLR 646 where Young J gave further consideration to the matter. He said at [83] to [95] and at [107]: "83 Mr Ashhurst submits that Bryson J was in error in holding that some equitable rights flowed though to the mortgagor and guarantor by virtue of section 420A. 84 First, Mr Ashhurst says that Bryson J overlooked the fact that under s 1311(2) and (5) of the Corporations Act 2001, there is a penalty of five penalty units for a breach of s 420A. 85 Secondly, Mr Ashhurst puts that the absence of reference to s 420A in sections such as s 1317H of the Corporations Act is a strong indication that the purpose of s 420A was to control controllers not to give rights to mortgagors. 86 Thirdly, Mr Ashhurst points to the drafting history which he rightly says points to a deliberate omission of a right of action. 87 There is a lot of force in those submissions. However, I consider that other factors support the view that Bryson J took in the GE Capital case . 88 My starting point is the decision of the Full Court of this Court in Castlereagh Motels Ltd v Davies-Roe (1966) 67 SR (NSW) 279. In that case it was decided that on the form of the legislation that existed in 1966, the predecessor of s 181 of the Corporations Act did not give rise to a civil action. The Court asked whether the statutory intendment was to provide a civil cause of action at law. The Court noted that there was already in equity an action for breach of a similar duty if the director concerned was guilty of self dealing. In the light of this, and in the light of there being a criminal penalty imposed for breach of the section, it was hardly likely that a statute would have intended that the company itself should have an action for damages no matter whether the company suffered loss or not. The Court applied the test stemming from O'Connor v S P Bray Ltd (1937) 56 CLR 464 and which has been applied on many occasions since. 89 The Corporations Act is odd in that it provides various remedies in various parts of the statute, but contains no overall provision for the enforcement of duties. The closest provision (putting aside s 423) that might be applicable to the instant case is s 598, the problem being, however, that the present plaintiffs are not eligible applicants. 90 In my view it would be a complete nonsense to say that s 420A was inserted into the Corporations Act with no consequences at all (other than the obtaining of an injunction if someone had asked in time) if there was a breach. It is not a civil liability provision; it is not a criminal provision, except to a very minor extent and there is no other way in which it can be enforced. 91 The legislature could not have meant a solemn farce. The Act does not provide any realistic scheme for controlling controllers with respect to price. The purpose of the section, viewed in the light of its drafting history was to give some protection to borrowers. I thus conclude that the legislature intended that there be a private action. 92 The next question is what sort of private action? 93 As I have indicated earlier, the trend of authority is away from even Cuckmere damages, being damages in tort to the idea of equitable damages and, though it probably does not matter, in my view that is the appropriate remedy here. 94 In my view the breach of 420A gives rise to an action for equitable damages against the controller in the same way as there would have been an action to recover surplus proceeds of sale in equity where a mortgagee had wrongly sold the property contrary to the Pendlebury rule. This is much the same conclusion that Bryson J reached in the GE Capital case . 95 It was odd that there was not much argument placed on the key concept in s 420A, namely the term "market value". ... 107 It must follow from the above discussion that the plaintiffs' claim must wholly fail as neither the general equitable duty nor s 420A operate to give a "wronged party" damages or compensation. Their only effect is to adjust the accounting. However it is necessary to pursue the remaining issues as there may need to be some adjustment in 3048/2002" 65In any event the rights which are available are subject to the restrictions which have been agreed between the parties. The defendants sought to avoid this result by recourse to s 1324(1) and 1324(10) of the Corporations Act which are in these terms: " 1324 Injunctions (1) Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute: (a)a contravention of this Act; or (b)attempting to contravene this Act; or (c)aiding, abetting, counselling or procuring a person to contravene this Act; or (d)inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or (e)being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or (f)conspiring with others to contravene this Act; the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the firstmentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing. ... (10) Where the Court has power under this section to grant an injunction restraining a person from engaging in particular conduct, or requiring a person to do a particular act or thing, the Court may, either in addition to or in substitution for the grant of the injunction, order that person to pay damages to any other person." 66It was submitted that once there has been a breach of s 420A, the Court has power to grant an injunction within the meaning of s 1324(1) and 1324(10). Whether the Court actually exercises that power is a matter of discretion. It is said that it matters not that the Court would not, or did not, grant an injunction in order to enliven the Court's jurisdiction to award damages under s 1324(10). 67There is no prospect of an injunction being ordered under s1324(10) of the Corporations Act to restrain a breach of s420A as all the events relating to the exercise of the power of sale have been completed and there is no prospect that conduct relating to exercise of the power of sale will be repeated or continued under s1324(10). 68The cases demonstrate that where there is simply no prospect of the grant of an injunction, there is no room under sub-s1324(10) for ordering payment of damages: see GE Capital Australia v Davis at [58]-[61]; Bank of Western Australia Ltd v Usalj at [26]-[28]. 69In Skinner v Jeogla Pty Ltd [2001] NSWCA 15 referred to by the defendants the Court of Appeal said: "6 Before his Honour, it was common ground that s420A was an appropriate basis for the Plaintiffs' claim for an award of damages. In written submissions filed in this Court, the Appellant indicated a wish to agitate, for the first time, an issue as to whether or not s420A could lead to an award for damages. No doubt, before his Honour, the parties had in mind the provisions of s1324(10) of the Corporations Law . It is not, however, necessary to reach a concluded opinion on the substance of the issue, or on the ability of the Appellant to raise the issue for the first time on appeal." Plainly the Court of Appeal has not decided the question. In these circumstances I will follow the other authorities. 70No claim for injunctive relief under s1324(10) has been made in the proceedings. Section 1324(10) does not permit a court to award damages in the absence of an actual claim for injunctive relief. See Executor Trustee Australia Ltd v Deloitte Haskins Sells (1996) 22 ACSR 270 at 278-279; Waterhouse v Waterhouse (1999) 46 NSWLR 449 at 490-491; Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Ltd (2002) 10 BPR 19,565 at [132]. 71The claim under s 420A and s1324(10) fails. The claim under s 553C of the Corporations Act 72Another way in which the defendants' claim is put arises because the borrower is now in liquidation. Therefore it is said that s 553C of the Corporations Act applies. The section is as follows: "Insolvent companies--mutual credit and set-off (1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company : (a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings ; and (b) the sum due from the one party is to be set off against any sum due from the other party; and (c) only the balance of the account is admissible to proof against the company , or is payable to the company , as the case may be." 73It was pointed out that the statutory right of setoff contained in section 553C is a self-executing provision and prevails over any contrary agreement between the parties. Reference was made to Gye v McIntyre (1991) 171 CLR 609, where the High Court held at 622 that the equivalent bankruptcy provision to section 553C is self executing in that its operation is automatic and not dependent upon either party taking the step to prove in the bankruptcy or liquidation. Moreover, the High Court held that the better view was that there could be no contracting out of such a provision. However it did not decide the question. 74There is however a serious procedural problem in respect of this defence and that is that it has not been pleaded and was only raised in closing submissions. Certainly it was not pleaded in the defence and this was no doubt because it was only in the Commercial list cross claim response filed on 9 November 2011 on the first day of the hearing that the plaintiff raised the effect of clause 5.1 of the guarantee. Although UCPR 14.4 only provides that a party "may" file a reply, UCPR 14.14 would plainly require the pleading of this matter of further defence. 75There is an additional problem in this regard and that is the necessary factual matters to enable reliance on s 553C. The plaintiff suggested that the following would have to be proved to raise the defence: "(a) that there had been mutual credits, mutual debts or other mutual dealings between Stateland and the plaintiff; (b) that Stateland "is being wound up"; (c) that the plaintiff was "a person who wants to have a debt or claim admitted against the company"; (d) that "an account is to be taken of what is due from the one party to the other in respect of those mutual dealings"; (e) that there is a "sum due from the one party" which "is to be set off against any sum due from the other party"; (f) "the balance of the account" which "is admissible to proof against the company, or is payable to the company, as the case maybe"; (g) having regard to the steps identified in sub-paragraphs (a) to (f) above that the borrower's, Stateland's, liability to the plaintiff under the loan agreements and mortgage, has been discharged; (h) that the discharge of the borrower's liability to the plaintiff has the consequence that the liability of each guarantor to the lender, the plaintiff, has been discharged." 76However the defendants only rely on the amount of Stateland's claim on the wrongful sale of the Newton Road property as the set off against the claim on the guarantee. This issue is fully pleaded and is the subject of evidence before me. There is thus no serious procedural problem.. There is evidence of the liquidation of Stateland. 77There are three other reasons why the plaintiff says that the section is not applicable. The first is that each guarantor's liability under the Cowpasture Road Guarantee and the Newton Road Guarantee is as a principal debtor. The effect of clauses 2.2, 4.1, 4.2, 5.1 and 6.2 of the Cowpasture Road Guarantee and the Newton Road Guarantee is to make each guarantor liable as a "principal debtor": see Phillips and O'Donovan, Modern Contract of Guarantee , 2 nd Edition, Lawbook Company Limited 1992, pp28-29. 78It is submitted by the plaintiff, therefore, that it matters not that Stateland's liability to the lender, the plaintiff, has been discharged: see National Westminster Bank plc v Skelton [1993] 1 WLR 72 at 79-80. (In any event the plaintiff denied that Stateland liability had been discharged.) 79This would appear to be the case. 80The other two reasons raise the contractual arrangements between the parties in clauses 4.2 and 5.1 of the guarantees. However given the High Court's preferable view in Gye v McIntyre on the inability to contract out of the section, I would not accept these arguments. Whether there has been a breach of the mortgagee's duty of good faith or care 81The Newton Road property was sold at auction on 26 August 2010 for $12,750,000. Prior to the auction the plaintiff obtained a valuation from Savills on 18 August 2010, who valued the Newton Road property at $13 million, having expressed the opinion that the value range was "$12,700,000 to $13,400,000". 82Each party called expert evidence of the market value. Mr Hyam for the defendants valued the land at $14,400,000 to $14,500,000. Mr Ball of Savills swore to his earlier valuation of $13,000,000 and commented on Mr Hyam's report. 83As the defendants point out, as at about 26 August 2010 the total amount outstanding under the Newton Road mortgage was about $14,700,000 comprising: * $13,760,854 owing under loan number 12540; and * $950,351 owing under loan number 12535. 84Thus had the plaintiff sold the property for what the defendants contend is its true market value of $14.5 million then the amount owing under the Newton Road mortgage and the amounts owing by the defendants, would have been reduced to $211,205 as at August 2010. 85In these circumstances the defendants submit that the Court should undertake an accounting between the parties to determine the true value of the indebtedness of the defendants, if any, to the plaintiff. 86The question of the proper sale of the Newton Road property has no bearing on the relevant guarantor's liability for the default in respect of the Cowpasture Road loan, which at 9 December 2010 was $5,826,963.48 and by 30 September 2011 had increased with interest to $7,588,462.60. 87I will deal with the following aspects: * The principles to be applied, * Whether reasonable care was taken in marketing the property, and * The market value of the property. The principles to be applied 88The general law obligation of good faith of a mortgagee exercising a power of sale is the subject of many irreconcilable decisions. A useful description of this obligation was stated by McLelland CJ in Eq in Hawkesbury Valley Developments Pty Ltd v Custom Credit Corp (1994) 8 BPR 15,581 at 15,582-15,583: "It is necessary to consider the nature and extent of the relevant obligations owed by the mortgagee to the mortgagor when exercising the mortgagee's power of sale, independently of such statutory provisions as s232 and s420A of the Corporations Law, the enactment of which was subsequent to the relevant events in the present case. The powers of sale exercised by Custom Credit were statutory powers conferred by s58 of the Real Property Act. That section empowers a mortgagee to "sell the land mortgaged ... or any part thereof ... either altogether or in lots by public auction or by private contract, or both such modes of sale, ... subject to such conditions as he thinks fit ...". In exercising the power thus conferred, the mortgagee is, however, subject to obligations arising from the application of equitable principles equivalent in nature and extent to the obligations similarly arising in respect of legal or equitable mortgages under the general law (as is implicit in the decision in Pendlebury v Colonial Mutual Life Assurance Society). Those obligations apply to the exclusion of any duty of care arising from the principles of the law of negligence (Coroneo v Australian Provincial Assurance Association 35 SR 391; Colin D Young v Commercial and General Acceptance (Court of Appeal 24 August 1982 unreported); Downsview v First City Corp 1993 AC 295). The content and scope of the relevant equitable obligations were considered by the High Court in Pendlebury. That case is authority for the proposition that in exercising its power of sale, a mortgagee must act in good faith, which involves an obligation to deal fairly with the interests of the mortgagor, which in turn involves an obligation to refrain from acting in wilful or reckless disregard of those interests. Subsequent discussion of the question in the High Court (particularly in Forsyth v Blundell (1973) 129 CLR 477; 1 ALR 68, Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co (1978) 139 CLR 195 and Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491; 38 ALR 225) has not displaced the authority of the decision in Pendlebury, although in Bangadilly a mortgagee was said by Aickin J (with whose judgment Stephen and Jacobs JJ agreed) to be in breach of its obligation to the mortgagor where there was "a serious departure from accepted standards in seeking to obtain the best price then available" (at 288). This is an area of the law where particular phrases used in judgments should not be construed and applied as if embodied in an Act of Parliament (cf Australian Apple & Pear Marketing Board v Tonking (1942) 66 CLR 77 at 110). What matters is the underlying equitable principle, which in the modem idiom usually finds expression in terms of unconscionability. The mortgagee in equity is not answerable for what Isaacs J in Pendlebury describes (at 700) as "mere negligence or carelessness in carrying out the sale". Any departure from reasonable standards must be so serious as to be properly characterised as unconscionable, in order to render the mortgagee accountable. If a failure by a mortgagee to take reasonable steps to obtain a proper price is sufficiently serious to be characterised as unconscionable as that expression is understood in equity, then in the taking of accounts between the mortgagee and the mortgagor, the mortgagee will be accountable on the basis of wilful default for the price which would have been obtained if the mortgagee had not been guilty of unconscionable conduct." 89As is apparent, his Honour was not dealing with s 420A. The defendants point out that in respect of that section it imposes a higher duty on the mortgagee. This is particularly so in this case where there is a market value. 90It was the plaintiff's submission that the following principles have emerged from the cases dealing with s 420A: * Section 420A(1)(a) applies to situations where the market value can be determined with certainty whereas s420A(1)(b) applies where the property's market value cannot be ascertain with certainty. * A sale below the estimated market value of the property does not itself mean that the duty to take reasonable care has not been satisfied. * The question that needs to be answered is whether the process utilised to effect the sale of the property for market value was undertaken with reasonable care. * In deciding whether there has been breach of s420A, a court looks at the process that the controller of the corporation has gone through in selling the property. * The enquiry is whether, in the course of that process, the controller has taken all reasonable care to sell the property for not less than its market value. * Once a breach of s420A is established, the question is whether the sale price could be equated with the market value of the property. * Market value is the starting point of the inquiry once breach has been established. * The market value is not determined by the nature of the sale. * That the sale is conducted by the mortgagee is irrelevant. There can be only one market value. They referred to GE Capital Australia v Davis (2002) 180 FLR 250, Forgale Uniforms Pty Ltd v Orders (2004) 11 VR 54, Investec Bank (Australia) Ltd v Glodale Pty Ltd (2009) 24 VR 617, and Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty Ltd (2002) 10 BPR 19,565. 91As Young CJ observed in Ultimate Property Group Pty Ltd v Lord at [69]: "... unless it can be demonstrated .... that the property in fact sold for under the market price, it is merely a case of injuria sine damnum." 92On the question of mortgagee sales and market value it is useful to note that in Emerson v Custom Credit Corporation Ltd [1994] 1 Qd R 516, Davies and Williams JJA observed (at 521): "The received view is that generally "the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring 'What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?'". Spencer v. The Commonwealth (1907) 5 C.L.R. 418 at 432; see also at 441. That approach has been applied as the correct way to find "value", "market value" and "market selling value" in various other contexts: see for example Brisbane Water County Council v. Commissioner of Stamp Duties [1979] 1 N.S.W.L.R. 320 at 324, Kin Kin Resorts Pty Ltd v. Water Authority (W.A.) [1990] W.A.R. 48 at 61, Peko-Wallsend Operations Ltd v. Commissioner of State Taxation (W.A.) (1989) 20 A.T.R. 823 at 836, In the Marriage of Dunbar (1987) 11 Fam.L.R. 901 at 911, Nischu Pty Ltd v. Commissioner of State Taxation (W.A.) (1990) 21 A.T.R. 391, and Stanfield v. Brisbane City Council (1990) 70 L.G.R.A. 392 at 412, 413 - value or market value, Australasian Jam Co. Pty Ltd v. Federal Commissioner of Taxation (1953) 88 C.L.R. 23 at 31, 32 - market selling value." Their Honours went on to explain: "No doubt, as the appellant says, mortgagee's sales are often forced sales. But that is not invariably the case and sales by registered proprietors are also sometimes forced, perhaps often so in the current market. But we think that the purpose of a phrase such as "market value" is to enable a hypothetical value to be determined disregarding the desire to sell of particular vendors or classes of vendors. Furthermore, there is no suggestion in the common law cases concerning a mortgagee's duty that the phrase or any similar one should be construed as the appellant contends. In Cuckmere Brick Co. v. Mutual Finance Ltd [1971] Ch. 949, for example, Salmon L.J. appears to have used the phrase "the true market value" and Cairns L.J. the phrase "proper price" in a general objective sense: see at 966, 978. Nor is there anything in the analyses of s. 85 in the various judgments in Commercial and General Acceptance Ltd v. Nixon (1981) 152 C.L.R. 491 which would indicate any other meaning ..." 93There is a useful discussion on the proper marketing of property in Fisher and Lightwood's Law of Mortgage , Australia edition, Butterworths, 1995, pp461-5 at [20.22]-[20.25]. The following clearly appears: "The mortgage should obtain a valuation of the property on which the offering price for the property or the reserve price for any auction can be based. The valuer should be independent and unconnected with the selling mortgagee"... "It is quite clear that the selling mortgagee will not usually fulfil his duty by selling the property in a sum simply sufficient to pay off the mortgage debt." ... "The property for sale must be adequately and properly advertised. The property must be properly described in the advertisements and the advertisements must be sufficient in number and content to reach the appropriate market." ... "The selling mortgagee must obtain the best price for the property in the circumstances" ... "There is no obligation on the selling mortgagee, beyond proper advertising etc, to seek out a market for the property..." Whether reasonable care was taken in marketing the property 94The time line for the events leading up to the auction is as follows: 95The Newton Road Property was advertised by DTZ DTZ (NSW) Pty ("DTZ"). On about 25 June 2010, DTZ entered into a sale inspection report and exclusive agency agreement with the plaintiff, as mortgagee in possession, for the sale of XX Newton Road, Wetherill Park, New South Wales. 96At the time the Director of Direct Investments at DTZ was Mr Garland. 97DTZ ran a number of advertisements for the sale of the Newton Road property. Advertisements were run in the Financial Review on 21 July 2010, 28 July 2010 and 4 August 2010. Three advertisements were run in the Sydney Morning Herald on 24 July 2010, 31 July 2010 and 7 August 2010. 98A sign board was erected at the Newton Road property advertising the sale. The sign board was erected in the first week of marketing and was contained at the front boundary of the Newton Road property so it was visible from the street. 99On 26 August 2010 the auction of the Newton Road property was conducted at the Sydney Morning Herald Auction Centre. The Newton Road property was the first property to be sold. 100Five of the serious potential purchasers attended the auction on 26 August 2010. Those five parties were: * City Freeholds; * Avron Sank; * Hyperion Property Syndicates; * Parin; and * Thorn Lighting, the existing tenant. 101Mr Garland's recollection was that the reserve set for the auction was $13 million. At the auction, Mr Garland was advised that City Freeholds and Avron Sank had decided to form a consortium. 102There were three bidders at the auction on 26 August 2010, namely: * the City Freeholds/Sank consortium; * Hyperion Property Syndicates; and * Parin. 103Parin commenced bidding at $12.25 million. Parin increased its bids during the auction to $12.75 million. Mr Garland and Mr McDonald spoke to the other bidding parties at the auction to see if they would continue to bid and they indicated they would not do so. The reserve price was adjusted to $12.75 million, and the property was sold to Parin. The contract for the sale of the Newton Road Property was exchanged at the conclusion of the auction for $12.75 million. 104There were suggestions by Mr Sorbara the fifth defendant and a Mr Pretti a real estate agent who was a friend of the first defendant that there was only one bidder at the auction. Mr Sorbara's evidence on this aspect was not definite and given the way Mr Pretti gave his evidence I would not accept him. Mr Pretti was prepared to make unwarranted assumptions and plainly was not independent. I will accept Mr Garling's evidence on this aspect as he was in a better position to know who was bidding. He knew the parties concerned. 105The areas where the defendant complains about the conduct of the auction are as follows: * The marketing campaign to was inconsistent with an earlier marketing campaign suggested by Colliers International who were not engaged by the plaintiff as marketing agents, * the marketing campaign recommended by the chosen marketing agents DTZ was not followed in respect of: a)advertising b)The gap between the advertising finishing and the auction * Errors in the marketing material namely: c)Describing the current net annual rental as $1,223,640 when in fact the current net annual rental was in the order of $1,260,349 as per the registered lease; d)Describing the building area as 10,910 square metres when the actual building area was in the order of 11,666 square metres" e)omitting to mention in any advertising material that the rental on the Property was due to increase by 3% in October 2010. * A failure to provide the information memorandum until 16 days before the auction. * The failure to defer the auction until October 2010 when the rental for the Property was due to increase to 3%. 106I will deal with each of these complaints in turn. The marketing campaign was inconsistent with an earlier marketing campaign suggested by Colliers International who were not engaged by the plaintiff as marketing agents 107In their marketing submission to the plaintiff dated 6 May 2009, Colliers International recommend the following: A six week marketing campaign with an auction to be held in the seventh week immediately thereafter; Direct contact with key prospective purchasers including overseas purchasers; Four advertisements in the Australian Financial Review and three advertisements in the Sydney Morning Herald." 108In contrast in their marketing proposal to the plaintiff in May 2010, DTZ recommended the following: "A four week marketing campaign with an auction to be held in the fifth week immediately thereafter; three advertisements in the Australian Financial Review and three advertisements in the Sydney Morning Herald." 109A six week marketing campaign and a five week marketing campaign referred to by DTZ was the subject of evidence by Mr Garland from DTZ who said that his campaign was appropriate. No evidence was called from Colliers to suggest that their campaign was preferable to that suggested by DTZ. 110The second matter of difference, namely, the direct contact with key perspective purchasers, including overseas purchasers, was something which was the subject of evidence from Mr Garland. The company had a data base of clients which was used as a mailing list for the auction and that overseas invested were included in their data base. Although Mr Garland did not contact any overseas investors it is clear that those on the list would have received information. He also gave evidence that in his experience the overseas investors were not very excited about buying industrial property in Australia and it was normally only commercial retail property or residential development sites, which would attract overseas investors. There is nothing to contradict this evidence and it seems to me that appropriate steps were taken in respect of notifying overseas purchasers. 111So far as the advertising differences were concerned there was evidence from Mr Garland that it was appropriate to have high impact advertisements across the first three weeks of the marketing programme and that that approach was preferable to have more advertisements. The marketing campaign recommended by the chosen marketing agents DTZ was not followed in respect of advertising 112It is apparent that after Mr Garland made his proposal he gave advice to Perpetual that it would be preferable to use high impact advertisements and have three weeks of those rather than four weeks of lower impact advertisements. Mr Garland did not accept that this was not appropriate. 113Part of the evidence to which I have just referred to about Mr Garland was that in his view the gap of a week between the end of the advertising and the auction was useful as it enabled those potential purchasers to have sufficient time to undertake their own due diligence before the auction. Certainly this was not what he originally advised but it seems to me that such a gap would not indicate a want of reasonable care. 114In my view the differences between what was initially recommended and what was put into practice are not sufficient, having regard to the evidence, to demonstrate a lack of reasonable care. Errors in the marketing material namely: Describing the current net annual rental as $1,223,640 when in fact the current net annual rental was in the order of $1,260,349 as per the registered lease. 115The rent actually specified under the lease was the second figure mentioned. The specification of the other figure of $1,223,640 seems to be based on a previous lease prior to the registration of the current lease in July 2010. 116This is a serious error which shows a want of reasonable care. Describing the building area as 10,910 square metres when the actual building area was in the order of 11,666 square metres 117This dispute between the parties concerns a determination of what is the gross lettable area of the premises which is normally calculated in accordance with the Property Council of Australia method of measurement of the lettable area. The information memorandum, which was put out used the figure of 10,910 square metres which excluded what is described in the evidence as "storage and loading area at one end of the warehouse". Real Serve who apparently prepared real estate plans and surveys did the calculations of the area. There is evidence of the nature of the area which was excluded and which was described as "storage and loading area". Plainly there is no connection between that area and the inside of the warehouse so that there can be no question of loading into the warehouse from that area. It seems to be a discreet area open to the weather. 118When determining the gross lettable area one normally includes everything within the external building walls according to the code. This means according to the code that loading docks that are fully enclosed and capable of being secured are to be included in the gross lettable area. Where a loading dock or similar structure has open sides it should be excluded from the tenancy area calculations and may be measured and recorded separately. 119Having regard to these parts of the definition and the factual layout it would seem to me that the area should not be included in the gross lettable area and accordingly, the correct lettable area for the purposes of advertising and valuation matters which will be dealt with later is 10,908.7 square metres. Omitting to mention in any advertising material that the rental on the Property was due to increase by 3% in October 2010 120Given that the lease provided for this increase any purchaser inspecting the contract would become aware of that information. It would be unlikely that any serious purchaser would not inspect the contract. There may be some persons who might have been further interested if on reading the advertisement they saw that there was to be an increase but I would not regard it as a lack of reasonable care. I note that the information memorandum, which was a more substantial document than the advertisements, included the rent reviews of 3% being the annual fixed increase. A failure to provide the information memorandum until 16 days before the auction 121The evidence is that although it was not provided to purchasers until 16 days before the auction it was supplied to purchasers who indicated an interest in receiving the information memorandum. Although all but one of the 31 people who made enquiries were sent the information memorandum, the one person who was not supplied was not interested as he wanted a larger property. The failure to defer the auction until October 2010 when the rental for the Property was due to increase to 3% 122Given that the persons who enquired were given the information memorandum all proposed purchasers, even if they had not received a contract, would have been aware of the rental increase which was due shortly after the auction, and would no doubt have taken this into account. In these circumstances, this is not a valid criticism. 123It was also said that there were some inconsistencies in the information provided and the marketing campaign. In respect of the area there were three descriptions. One of 10,898 square metres, one of 10,908 square metres and one of 10,910 square metres. The correct area is 10,908.7 square metres and I would not have thought that the difference was so substantial as to show a lack of reasonable care. 124In respect of the net annual rental there are figures of $1,223,640 and $1,255,349. The second figure is not substantially different from the actual current net rent and the other difference is a net 3% difference. 125A3% difference makes a difference of $400,000 and is a major mistake that would affect buyer's interest. It shows a lack of reasonable care in marketing the property. The market value of the property 126As I have earlier indicated Mr Hyam for the defendants valued the land at $14,400,000 to $14,500,000 and Mr Ball of Savills swore to his earlier valuation of $13,000,000 which was made prior to the auction. He also commented on Mr Hyam's report. It goes without saying that these are the only two valuations at the relevant time and although there was some view of likely selling prices in earlier valuations, they would not be relevant given the passage of time and their nature to the question which I have to determine. 127Mr Ball did two valuation exercises when determining what value would be appropriate. The first was the capitalisation approach and the second a discounted cash flow approach. The discounted cash flow was a secondary valuation approach for the property. He expressed his view on the reconciliation of the values obtained by these approaches in these terms: 15. RECONCILIATION OF VALUES We have derived a value range of $12,700,000 to $13,400,000 under the static approach and have produced a value of $13,100,000 under the DCF approach based upon a discount rate of 10.50%. Based upon the above results we have adopted a value of $13,000,000. On analysis the adopted value reflects an initial yield of 9.69%, an initial yield adjusted for non-recoverable outgoings of 9.24%, an equated market yield of 9.01%, an IRR of 10.57% and a rate of $1,192/m2 of Lettable Area, all of which appear reasonable having regards to the comments contained within the market commentary section of this report. Discounted cash flow analysis and static valuation calculations are annexed to this report. 128Mr Hyam's valuation of the subject property was in these terms: "14. Valuation of Subject Property. Based on my examination of the foregoing sales evidence, and having regard to scale values disclosed by the comparable sales listed above, I consider that the subject property had a value at 26 August 2010 equivalent to a rate of approximately $700 per sq m of land area improved, or a rate of $1250 per sq m of GLA. I have calculated the values as follows: 11,666 sq m of GLA (of the subject property) @$1,250 = $14,582,500 say $14,500,000 20590 sq m of land are improved @ $700 = $14,413,000 I consider that the market value of the subject property, as at 26 August 2010, is within the range $14,400,000 to $14,500,000." 129As submitted by the plaintiff, there were two fundamental differences between the two valuers: (b)The first concerned the $rate/m for the gross lettable area. Mr Ball was of the opinion that the $rate/m for the gross lettable area was $1,192/m whereas Mr Hyam's opinion was that the rate/m was $1,250/m; and (c)The second was the gross lettable area. Mr Ball assumed that the gross lettable area, consistent with the RealServe Survey dated 26 July 2010, was 10,908.7 m; whereas Mr Hyam assumed that the gross lettable area was 11,660 m. 130I have already dealt with the question of the gross lettable area and concluded that the correct amount is $10,908.7m2. Using that amount and Mr Hyam's rate for the gross lettable area his value would equate to $13,635,875. 131Interestingly, under cross examination Mr Hyam conceded that Mr Ball's valuation of $1,192/m for the gross lettable area was "within the permissible range of tolerance of valuation", being a range within which both experts doing the best that they can, where valuation is an art not a science, can reasonably differ and both opinions are valid. 132Adopting the correct floor area using a figure of a value of $1,192/m for the rate for the gross lettable area the valuation result is $13,003,170. 133The defendants in their submissions: * Criticised Mr Ball's failure to adopt the existing lease rate under the lease to Thorn of $1,260,340. * Suggested that the leasing comparables did not support his net market rental. * Criticised his capitalisation rate of 8.75% to 9.25%. * Suggested his assessment of passing income at $1,200,840 was incorrect. 134On the plaintiff's part, in their approach to Mr Hyam's report: * Pointed out his concessions to which I have already referred. * Criticised his methodology in determining the rate of rental. * Criticised his use of the lettable area figure of 11,660 m2 rather than the figure, which I have found, is appropriate. * Dealt with Mr Hyam's comparables. 135In respect of Mr Ball's failure to use the existing rent rather than a market rent derived from an analysis of his comparables, he did address this matter in these terms in his valuation. "We acknowledge that our adopted market rent is less than the current passing rent for the subject property, along with the commencing rent from July 2007 of $1,188,000 per annum. Discussions undertaken with the leasing agent involved in the negotiations for the subject property lease indicated the commencing rent reflected the higher build costs as a result of a particular specifications required for Thorn, together with the high office content. The deal was also agreed in more favourable conditions to the present." It was suggested that his explanation in cross-examination was not convincing. Having considered that cross-examination I do not agree. His explanation is logical and should be accepted. There was no evidence to suggest that the discussions were not correct. 136The next criticism of Mr Ball's valuation is that Mr Ball's assessment of net market rent of $105/m net was unreliable because the leasing evidence on which he relied was not comparable. 137Mr Ball explained, at pages 43 to 47 of his report that, having regard to the leasing evidence to which he had referred, he had obtained a rental range of $95/m to $113/m net, and had therefore concluded that an appropriate net market rent for 43 Newton Road was $105/m net. 138The comparables put forward by Mr Ball to support his leasing rate were the subject of cross-examination. Mr Ball rejected the suggestion put to him that the comparable leasing properties to which he had regard were not, in truth, comparable. Although none of the properties had an 8 year term with a 5 by 5 option to renew and none had a lettable area of about roughly 10900 sq metres, such precision can not be expected. A consideration of their details shows that they are in what might be called an appropriate range of lease term and size to call them comparables. 139No other evidence of rental returns has been put forward to undermine Mr Ball's evidence in respect of this issue. Accordingly I will accept his conclusions. 140I turn to the capitalisation rate of 8.75% to 9.25% used by Mr Ball and the criticisms of that use. Other evidence on the matter was that in their valuation of 10 November 2009, DTZ utilised a capitalisation rate of 8.75%. In their marketing proposal to the plaintiff dated 7 May 2010, Colliers International opine that the likely yield range for the Property will be 8.5% to 8.75%. 141In his expert report of 2 November 2011, Mr Hyam makes the following comments on the capitalisation rate: "Based on my examination of the comparable sales evidence I consider that the range of capitalisation yields is too high, having regard to the security provided by the existing lease and the Lessee. Based on my inspections, local knowledge of most of the areas within which sales evidence has been selected, at my examination of the description of the sale properties, a property with a safe, secure and renowned Lessee, such as is the case with subject Property, commands a lower capitalisation rate, and thus a higher value, than properties which do not enjoy the security of such lessees. The prestigious nature of the improvements on the subject Property is likely to attract lessees who are prepared to pay a higher rental than similar premises which are not as prestigious and of lesser quality than subject Property. Many of [sic] sales relied on by Savills are old and predate the GFC, which renders them unsafe to rely on." 142He did not however suggest what would be an appropriate capitalisation rate. Mr Ball rejected this criticism on the basis that although the lease to Thorn Lighting appears quite favourable the lease structure itself has a number of detrimental provision which he considered had an adverse impact on value, such as the potential for non-recoverable outgoings, an un-ratcheted effective market review at option, and a first right of refusal clause in favour of the tenant. That response was not the subject of cross-examination or further evidence and they seem to be to be appropriate reasons for not accepting a lower capitalisation rate. 143The rate was also criticised in respect of the comparable sales used to determine the rate. These are at p 49-57 of his report. In his cross examination he rejected the criticisms of his comparables. It was suggested by Mr Hyam that many were old and predated the GFC. This does not appear to be the case. 144Mr Hyam preferred his first 3 comparable sales. These were addressed in detail by Mr Ball at pages 92 -94 of his report in which he gives good reasons for their rejection. A problem is that Mr Hyam does not suggest what is an appropriate rate based upon his sales and his information on the sales does not allow the use of them to determine a rate. This was because his approach to the valuation exercise was a different one. 145I will accept Mr Ball's range of capitalisation rates. 146It is suggested that Mr Ball should not have deducted from the actual rent non-recoverable outgoing amounts of $59,500 as the tenant was paying them. Mr Ball's reason was that although the tenant was paying these expenses he was not obliged to do so. In these circumstances, which are supported by the terms of the lease, I am satisfied that Mr Ball was correct to deduct the amounts. 147I have set out above Mr Hyam's conclusion on valuation. In his supplementary report Mr Ball made the following comments on that conclusion: * "The application of a rate per square metre of land area improved to arrive at a value for the subject property in my opinion is unreliable, mainly on account of the large variations in the developed land area among comparable sales used. * The adopted rate per square metre of GLA applied is considered high in my opinion." 148There was no cross-examination of Mr Ball on the first point and it seems a reasonable criticism. However it is only one of the bases for Mr Hyam's conclusion. In only four of his sales does he give a Gross lettable area figure. They show a wide variability. He gives no explanation or reasons for his adoption of $1250 as the figure. In contrast Mr Ball has eight properties used in his leasing analysis and their minor variability is explained by the nature of the differences. A consideration of the nature of his valuation and all the factors I have referred to above leads me to the conclusion that I should accept Mr Ball's valuation. 149Although the valuation was expressed as $13,000,000 this was a mid point of a range as I have indicated above. Thus in my view the property was sold at its market valuation. Unconscionability 150The defendants' claimed that Perpetual had engaged in unconscionable conduct within the meaning of s51AC of the Trade Practices Act . As the plaintiff submitted, "unconscionability" is a concept which requires a high level of moral obloquy and refers to actions showing no regard for conscience or that are irreconcilable with what is right or reasonable. See Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557 at [121]; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262. In the circumstances of this case, I do not find that there is evidence that Perpetual engaged in conduct that amounted to unconscionable conduct within the meaning of s51AC of the Trade Practices Act . 151The cross claim should thus be dismissed. Orders 152The orders I make are as follows: (1)On the plaintiff's claim: (a)Judgment against the first defendant in the sum of $10,216,462.60; (b)Judgment against the second defendant in the sum of $10,435,462.60; (c)Judgment against the third defendant in the sum of $10,435,462.50; (d)Judgment against the fourth defendant in the sum of $10,216,462.60; (e)Judgment against the fifth defendant in the sum of $1,825,000; (f)Judgment against the sixth defendant in the sum of $1,825,000; (g)Judgment against the seventh defendant in the sum of $1,460,000; (h)Judgment against the eighth defendant in the sum of $1,460,000; (i)Judgment against the ninth defendant in the sum of $1,460,000; (j)Judgment against the tenth defendant in the sum of $1,460,000; (k)Judgment against the eleventh defendant in the sum of $876,000; (l)Judgment against the thirteenth defendant in the sum of $438,000; (2) Dismiss the first and second cross claims; (3) Order that the defendants, except the twelfth defendant, pay the plaintiff's costs of the claim and cross claims. ********** 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: 19 December 2011