Land and Environment Court New South Wales Medium Neutral Citation: Cudgegong v Transport for NSW (No 3) [2015] NSWLEC 185 Hearing dates: 20 August 2015, additional written submissions 9 and 16 September 2015 Date of orders: 01 December 2015 Decision date: 01 December 2015 Jurisdiction: Class 3 Before: Pain J Decision: See par [93] Catchwords: CONTRACT – construction of contract for sale of land – whether partly oral and partly written EQUITY – general principles – priority and notice – competition between a mortgagor's equity of redemption and the interest of a purchaser under an uncompleted contract for the sale of land – whether the equity of redemption is subject to a properly exercised power of sale by the mortgagee MORTGAGES – whether breach of mortgagee's duty owed to mortgagor when exercising power of sale under s 420A of the Corporations Act 2001 (Cth) or the general law duty REAL PROPERTY – compulsory acquisition of land – compensation – remitter from Court of Appeal – determination of entity with compensable interest in the acquired land – whether mortgagor in default owner of land or incoming purchaser has the compensable interest at the date of compulsory acquisition Legislation Cited: Conveyancing Act 1919 (NSW), ss 23C, 52A, 54A Corporations Act 2001 (Cth), s 420A, Dictionary Land Acquisition (Just Terms Compensation) Act 1991 (NSW), Pt 3 Div 5 Cases Cited: Artistic Builders Pty Ltd v Elliot & Tunhill (Mortgages) Pty Ltd [2002] NSWSC 16; (2002) 10 BPR 19,565 Australia and New Zealand Banking Group Limited v Bangadilly Pastoral Co Pty Limited [1978] HCA 21; (1978) 139 CLR 195 Boz One Pty Ltd v McLellan [2015] VSCA 68 Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Commonwealth Bank of Australia v Hadfield [2004] NSWCA 350 Concrete Constructions Group Ltd v Litevale Pty Ltd [2002] NSWSC 670; (2002) 170 FLR 290 Cudgegong Australia Pty Limited v Transport for NSW [2014] NSWLEC 19 Equuscorp Pty Ltd v Glengallen Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 Florgale Uniforms Pty Ltd v Orders [2004] VSC 65; (2004) 187 FLR 142 Forsyth v Blundell [1973] HCA 20; (1973) 129 CLR 477 Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Limited [2015] NSWCA 100; (2015) 319 ALR 151 Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (1995) NSW ConvR 55-731 Hope v RCA Photophone of Australia Proprietary Limited [1937] HCA 90; (1973) 59 CLR 348 Hoyt's Proprietary Limited v Spencer [1919] HCA 64; (1919) 27 CLR 133 Jones v Dunkel (1959) HCA 8; (1959) 101 CLR 298 Kennedy v De Trafford [1897] AC 180 Kuhl v Zurich Financial Services [2011] HCA 11; (2011) 243 CLR 361 Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; (2009) 261 ALR 382 McMahon v National Foods Milk Ltd [2009] VSCA 153; (2009) 25 VR 251 Pendlebury v The Colonial Mutual Life Assurance Society Limited [1912] HCA 9; (1912) 13 CLR 676 Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2014] NSWCA 440 Raphael Shin Enterprises Pty Limited v Waterpoint Shepherds Bay Pty Limited [2014] NSWSC 743 Skyrise Consultants Pty Ltd v Metroland Funds Management Ltd [2011] NSWCA 406 Strong v Woolworths Ltd [2012] HCA 5; (2012) 246 CLR 182 Texts Cited: C Croft and R Hay, The Mortgagee's Power of Sale, (3rd ed 2013, LexisNexis Butterworths) E Peden and J W Carter "Entire Agreement – and similar – Clauses" 2006 JCL 1 H K Lucke "Contracts in Writing" 40 ALJ 265 N Seddon, R Bigwood and M Ellinghaus, Cheshire & Fifoot Law of Contract (10th ed 2012, LexisNexis Butterworths) Category: Principal judgment Parties: Cudgegong Australia Pty Limited (Applicant) Transport for NSW (First Respondent) Golden Mile Property Investments Pty Limited (Second Respondent) Representation: Counsel: Mr M Young SC (Applicant) Mr I Hemmings SC (First Respondent) Mr M Hall SC with Mr G Stapleton (Second Respondent) Solicitors: Bransgroves Lawyers (Applicant) Hunt & Hunt (First Respondent) ERA Legal (Second Respondent) File Number(s): 30171 of 2013 Judgment 1. This matter has been remitted by the Court of Appeal following Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Limited [2015] NSWCA 100; (2015) 319 ALR 151 (Cudgegong CA) for the purpose of hearing and determining according to law the priority of the competing interests of Cudgegong Australia Pty Limited the Applicant and Golden Mile Property Investments Pty Limited the Second Respondent in land resumed under the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Just Terms Act) in Cudgegong Street, Rouse Hill (the land). The date of compulsory acquisition of the land by Transport for NSW (Transport) the First Respondent was 21 September 2012. The land was then subject to two mortgages to Stacks Managed Investments Limited (Stacks) and RTS Super Pty Limited. Stacks was in the process of exercising the mortgagee's power of sale by selling the land. The sale was not completed by the date of acquisition. The mortgagees are represented in these proceedings by the evidence of Mr Stack but are not a party to the proceedings. 2. The Court of Appeal considered a number of issues which arose as at the date of compulsory acquisition of 21 September 2012. It determined that Golden Mile (then deregistered), or Australian Securities and Investments Commission, as the owner of the bare legal interest in the land had capacity to seek to intervene in the exercise by Stacks of the power of sale under the two mortgages when Stacks entered into a second contract for the sale of land with Cudgegong on 21 June 2012 (the second contract). Consequently Stacks potentially owed duties as mortgagee to Golden Mile the mortgagor at that time, Cudgegong CA at [88], [90]. 3. The parties agree that as a result of Cudgegong CA, as summarised at [115], the respective interests of Cudgegong and Golden Mile in the land depend on the determination of whether Stacks the mortgagee breached their duty to Golden Mile the mortgagor under either s 420A of the Corporations Act 2001 (Cth) or under the general law duty to act in good faith (identified in Pendlebury v The Colonial Mutual Life Assurance Society Limited [1912] HCA 9; (1912) 13 CLR 676 in exercising their power of sale under the two mortgages when they entered into a second contract with Cudgegong which was on foot on the date of resumption. If the second contract was not voidable then the Court of Appeal held that Cudgegong had the compensable interest and is entitled to the remaining compensation. If the second contract is voidable for breach of the mortgagee's duty under s 420A of the Corporations Act or under Pendlebury so that the second contract is vitiated then the compensable interest under the Just Terms Act is held by Golden Mile (Cudgegong CA at [82]-[84], [115]). 4. Section 420A of the Corporations Act provides: 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. The Dictionary to the Corporations Act provides: controller, in relation to property of a corporation, means: (a) a receiver, or receiver and manager, of that property; or (b) anyone else who (whether or not as agent for the corporation) is in possession, or has control, of that property for the purpose of enforcing a security interest; and has a meaning affected by paragraph 434F(b) (which deals with 2 or more persons appointed as controllers). 1. The parties agreed that Stacks is a controller for the purposes of the Corporations Act and is subject to the general law mortgagee's duty to a mortgagor when exercising the power of sale as stated in Pendlebury. 2. The Conveyancing Act 1919 (NSW) relevantly provides: 23C Instruments required to be in writing (1) Subject to the provisions of this Act with respect to the creation of interests in land by parol: (a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person's agent thereunto lawfully authorised in writing, or by will, or by operation of law, … (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same or by the person's will, or by the person's agent thereunto lawfully authorised in writing. … 54A Contracts for sale etc of land to be in writing (1) No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged. (2) This section applies to contracts whether made before or after the commencement of the Conveyancing (Amendment) Act 1930 and does not affect the law relating to part performance, or sales by the court. (3) This section applies and shall be deemed to have applied from the commencement of the Conveyancing (Amendment) Act 1930 to land under the provisions of the Real Property Act 1900. Court of Appeal decision 1. In Cudgegong CA the Court of Appeal considered the relevant facts concerning the sale and resumption of the land at [23]-[57] in the context of four issues. Issues 1 and 2 are relevant to this remitter. Emmett JA (MacFarlan and Gleeson JJA agreeing) relevantly stated (footnotes omitted): 43. Mr Stack did not obtain a further valuation of the Resumed Land between the time of the 2007 Valuation Report and the entry into the Second Contract, because he was of the view that it was not required. He considered that any upward market movement would not assist Stacks in recovering further moneys because the price under the Second Contract enabled the original principal sums secured by the First Mortgage and the Second Mortgage to be repaid. That may be of some significance, in that Mr Stack's attitude appears to have been that his only concern was to obtain a price that would ensure repayment, to the two mortgagee companies of which he was a director, of the amounts secured. That attitude appears to ignore the interest of Golden Mile as the mortgagor (as well as its unpaid creditors). Issue 1: whether the second contract was an extension of the first contract 78. Golden Mile does not impugn the First Contract. The effect of the First Contract was to extinguish, or at least suspend, the equity of redemption of the First Mortgage that was vested in Golden Mile at that time. If the Rescission Agreement was interdependent with, or otherwise conditional upon the entry into of, the Second Contract, then Golden Mile's equity of redemption may not have revived. It would follow that, as from 22 September 2008 (the date of the First Contract), Golden Mile no longer had an interest of any value in the Resumed Land. While Golden Mile continued to be registered as the proprietor of a legal fee simple in the Resumed Land, that fee simple was subject to the First Mortgage, in favour of Stacks, and the Second Mortgage, in favour of RTS. 79. Evidence was given before the Land and Environment Court as to the circumstances in which the Rescission Agreement and the Second Contract were entered into by Stacks, Cudgegong and the Guarantors. Those circumstances are critical in relation to allegations by Golden Mile that, in entering into the Second Contract, Stacks breached its duty to Golden Mile as mortgagor of the Resumed Land. Cudgegong contends, in effect, that the Rescission Agreement was entered into only on the basis that, at the same time, the Second Contract would be entered into. That is to say, it submits that Stacks was not in a position to enter into the Second Contract unless Cudgegong and the Guarantors first agreed to rescind the First Contract and that the Rescission Agreement was interdependent with the Second Contract. 80. Although the trial judge agreed (at [132]) with the submissions by Cudgegong (at [102]) that the Second Contract should be viewed as an extension of the First Contract (relying on the evidence of Mr Stack), it is not clear either that her Honour accepted the specific contention by Cudgegong referred to above or, if so, what the reasoning was that led to that conclusion. The contention depends, in effect, on whether Cudgegong would have been in a position to complete the First Contract. The Rescission Agreement and the Second Contract appear to have been for the benefit of Cudgegong, in so far as they represented an indulgence for a purchaser who could not complete in the time frame fixed by the First Contract. 81. The trial judge did not examine the question of whether or not the Rescission Agreement and the Second Contract were, as a matter of law, interdependent, such that, after the Rescission Agreement was entered into, it would have been open to Stacks to explore further the question of what was the market value of the Resumed Land or what was the best price that was reasonably obtainable, having regard to the circumstances existing at the time when the Second Contract was entered into. That is to say, her Honour did not enquire as to whether Cudgegong was not in a position to complete the First Contract, such that Stacks, as vendor, was in a position to bargain for much more favourable terms as a condition of granting an indulgence, or alternatively to decline to enter into the Rescission Agreement in the first place. If Cudgegong was not able to complete the First Contract, default by it may have given Stacks the opportunity to terminate it and then resell the Resumed Land on more favourable terms. The evidence indicates that Stacks simply did not turn its mind to the possibility of obtaining a higher price in the light of the significant changes that would affect the market value of the Resumed Land. That may well be a breach of duty by Stacks in the exercise of its power of sale. Nonetheless, the failure to explore those matters was an error of law. Issue 2: whether Stacks breached its duty in entering into the second contract 82. Where a mortgagee in improper exercise of the power of sale enters into a contract for sale of land under the Real Property Act, the mortgagor can, before completion (and whether or not the purchaser had knowledge of the facts establishing the impropriety) restrain the mortgagee and the purchaser under the contract from completing the sale. In such circumstances, and putting to one side the mortgagor's registered legal interest, the competition would be between the mortgagor's interest (the equity of redemption) on the one hand, and the purchaser's interest under the contract, on the other hand. On the ordinary rules as to priority (qui prior est tempore potior est iure), the mortgagor's interest would prevail, subject to any postponing conduct on the part of the mortgagor. The position may be different where completion has already taken place: in that situation, the mortgagor's interest may be a "mere equity" and may not prevail over the equitable interest of the purchaser. 83. For those reasons, if the Second Contract was entered into by Stacks in breach of a duty owed by it to Golden Mile as mortgagor, then the interest acquired by Cudgegong under the Second Contract would not prevail over the interest of Golden Mile, namely, Golden Mile's right, as mortgagor, to redeem the First Mortgage and the Second Mortgage by tendering the amounts secured by them. While that right may have been suspended by the First Contract, it revived when the Rescission Agreement came into force or would have revived on termination of the First Contract by reason of default by Cudgegong. The Second Contract did not suspend that right and interest of Golden Mile to redeem, much less extinguish it, if it was not a valid exercise of the power of sale conferred by the First Mortgage. 84. Thus, it was incumbent upon the trial judge to enquire into the circumstances surrounding the entry into the Second Contract by Stacks in order to determine whether or not it was a valid exercise of the power of sale by Stacks. If it was not a valid exercise, then whether or not Cudgegong was aware of the breach, the interest of Golden Mile, being the right to redeem, continued and would prevail over any interest acquired by Cudgegong under the Second Contract. Cudgegong, if unaware of a breach of duty by Stacks, would be entitled to assume that Stacks was not acting in breach of duty. There has been no suggestion that that assumption was not one that any conduct of Golden Mile would have caused Cudgegong to make. … 90. It is tolerably clear that the trial judge based her decision that there was no breach of duty by Stacks in the exercise of the power of sale on the fact that, at the relevant time, Golden Mile did not exist and, therefore, there was no mortgagor to whom a relevant duty could be owed. It is also tolerably clear that her Honour concluded that, because Golden Mile did not exist at the time of the Second Contract, there was no entity with the capacity to seek to intervene in the exercise by Stacks of the power of sale by taking proceedings to restrain an improper exercise. That reasoning was erroneous, as a matter of law, since, for the reasons indicated above, ASIC had that capacity. 91. The trial judge appears to have failed to take into account the fact that, whether the right to complain was vested in Golden Mile or ASIC, Stacks, in exercising the power of sale, ignored the possible consequences of failing to ensure that the Resumed Land was sold, under the Second Contract, either for not less than the market value or for the best price that was reasonably obtainable, having regard to the circumstances existing at the time of the Second Contract. Her Honour did not explore the extent to which it might have been possible for Stacks to take further steps to ensure that, once the Rescission Agreement was effective, the price obtained under the Second Contract was not less than the market value or the best price that was reasonably obtainable. That was an error of law. … Issue 4: whether Cudgegong's interest trumps Golden Mile's interest … 114. The Compensation Moneys provided under the Deed of Release were accepted by Stacks and RTS on the basis that the Second Contract was a valid exercise of the power of sale by Stacks and that they were not entitled to any more than they would have received on completion of the Second Contract. To the extent of the shortfall, however, Golden Mile would continue to be liable on its personal covenant to repay the loans together with interest. Whether or not the Second Contract is rescinded on the basis that it was not a valid exercise of the power of sale, Golden Mile would still be liable to Stacks and RTS under its personal covenant pursuant to the First Mortgage and the Second Mortgage. That will be so even if the result of the Cudgegong Appeal is that the value of the Resumed Land ought to have been determined in the higher amount contended for by Cudgegong. 115. For present purposes, the only question is whether Cudgegong had an interest in the Resumed Land. The effect of the acquisition of the Resumed Land by Transport NSW was to convert the interest and rights of Golden Mile, as mortgagor (and of Cudgegong, as purchaser), into a right to receive compensation. To the extent, if at all, that the value of the Resumed Land, as determined by the Valuer-General, or by the Land and Environment Court in the Cudgegong Appeal, exceeded the amounts secured by the First Mortgage and the Second Mortgage, that excess represents the value of the interest of Cudgegong. On the other hand, of course, if the exercise of the power of sale by Stacks was not valid and effective, that excess represents the value of the interest of Golden Mile in the Resumed Land. Chronology 1. The parties relied on parts of the chronology of relevant events contained in the appeal book and these are extracted as follows: 12 Oct 2004 Golden Mile was registered as proprietor of Lot 71 in DP 208203, being 35 Cudgegong Road, Rouse Hill "the Property", pursuant to a transfer (AB45509E) 12 Oct 2004 First mortgage (AB44510V) to Stacks Managed Investments Limited for $2,340,000.00 Repayment Date: 1 Nov 2005 12 Oct 2004 Second mortgage (AB75426P) to Taree Lands Pty Limited ("Taree Lands") for $400,000.00 Repayment Date: 1 Nov 2005 12 Oct 2004 Second mortgage was transferred from Taree Lands to RTS Super by dealing AB415708M (executed by the same secretary and director for both Taree Lands and RTS Super. P. A. Stack and R. T. Stack) 28 Nov 2005 Variation of the second mortgage (AB951309K) which increased the principal sum to $503,000.00 and changed the term to 1 Nov 2006 14 Sept 2007 – 21 April 2012 Bruce Gleeson was appointed liquidator of Golden Mile by the Supreme Court of NSW, Equity Division, no. 004200/07 Cudgegong (ACN 132 709 543) was registered 13 Aug 2008 • Pritam Singh Benipal (25 ordinary beneficially held shares) • Pardeep Singh Gill (25 ordinary beneficially held shares) (secretary) • Sukhdev Singh (25 ordinary beneficially held shares) 22 Sept 2008 Stacks Managed Investments Limited exercising power of sale pursuant to mortgage no. AB45510 entered into a contract for sale with Cudgegong as Trustee for the Cudgegong Farming Unit Trust for consideration of $2,250,000.00 (the first contract) Completion date is: • 1 June 2012 (front page of the Contract for Sale) • Notice to Complete – 14 days reasonable time (special condition 32) • 1 July 2012 (special condition 46) Oct 2011 Land reclassified in Area 20 21 Feb 2012 Offer to purchase Land by Transport for $4,285,00.00, Stacks aware of Transport offer 21 April 2012 Golden Mile was deregistered Transport issued a proposed acquisition notice to: • Golden Mile (Bruce Gleeson as Official Liquidator) • Stacks Managed Investments Pty Limited 31 May 2012 • RTS Super Pty Limited • Cudgegong • Jasjit Singh (as a result of his caveat dated 10 March 2008) • Bruce Gleeson (as a result of his caveat dated 20 September 2007) 21 June 2012 Agreement to rescind the contract for sale dated 22 September 2008 between Stacks Managed Investments Pty Limited and Cudgegong as Trustee for the Cudgegong Farming Unit Trust and Dilbagh Singh Billing, Sukhdev Singh and Pritam Singh Benipal (as guarantors) 21 June 2012 Stacks Managed Investments Limited entered into a second contract for sale, as mortgagee claiming to exercise the power of sale, with Cudgegong as Trustee for the Cudgegong Farming Unit Trust for a consideration of $2,888,648.00 (the second contract). Completion date was 1 July 2013 with time of the essence 21 Sept 2012 Notice of the acquisition published in the NSW Government Gazette 12 Dec 2012 Valuer-General's Notice of Determination: Transport compulsory acquired the property for $4,223,400.00; that is market value of $4,205,000.00 and disturbance of $18,400.00 16 & 18 Jan 2013 Transport and Stacks Investments Ltd & RTS Super Pty Limited entered into a Deed of Release and Indemnity on 19 December 2012 to discharge the mortgagee's interest in the subject land in full and final settlement in the sum of $3,043,760 1. Ultimately at issue is which party has the compensable interest in the balance of the compensation money of about $1 million and the right to pursue an appeal under Pt 3 Div 5 of the Just Terms Act. Affidavit/oral evidence 1. The parties agreed that Cudgegong Australia Pty Limited v Transport for NSW [2014] NSWLEC 19 (Cudgegong (No 1)) at [55]-[79] represented an accurate summary of the evidence at first instance as to the matters referred to by the witnesses. They dispute what conclusions should be drawn from these matters. In these remitter proceedings the parties did not seek to rely on additional evidence. They emphasised different parts of the evidence of Mr Stack and Mr Sukhdev Singh heard in Cudgegong (No 1). Mr Stack is the director of Stacks. In his affidavit sworn 5 July 2013 Mr Stack stated that on 21 June 2012 the first contract the sale of land for $2,250,000 (the first contract) was rescinded and the parties to the first contract entered into a new contract for the sale of land (the second contract) for $2,888,648. That affidavit stated that the first contract was rescinded because it was likely that Cudgegong would not be able to raise finance for the purchase of the property and required additional time to do so. 2. Mr Stack expanded on this evidence in his second affidavit sworn 16 August 2013 which outlined the history leading up to the first contract and entry into the second contract in far more detail. This affidavit evidence was summarised in Cudgegong (No 1) at [56]-[60]. 3. Mr Stack entered into the first contract with Cudgegong for purchase of the property on 22 September 2008 after negotiating over a period of approximately six months. Cudgegong was only prepared to pay less than $1.4 million, but increased its offer to the price shown in the first contract ($2.25 million) because of the terms offered. For Mr Stack, this seemed the best option as Stacks had a chance to obtain back most of the principal sum and it was approximately double what they might get on the open market. Mr Stack then assisted Cudgegong in having the property rezoned, which occurred some years later. 4. At the time of negotiating the second contract, the principal sum and interest due to Stacks was approximately $4.8 million (TS 30/08/13, p 107.33-35). Cudgegong (No 1) at [58]-[59] stated: 58 … Cudgegong advised that it required additional time to raise finance in order to be able to complete the purchase. Accordingly Mr Stack negotiated with Cudgegong terms that resulted in the second contract, which was a method of extending the first contract for a further 12 months. [Negotiations for this extension commenced in or about March 2012] Mr Stack believes that both parties benefitted by entering the second contract. For Mr Stack, if Cudgegong had obtained the finance and completed the first contract he would have received his entitlement under the first contract but if Cudgegong could not obtain the finance he would have had the right to terminate the first contract. For Cudgegong it was beneficial because even though the purchase price was higher they did not have to put in any more money as the interest was being capitalised. 59 To the best of Mr Stack's recollection the negotiations were only for an extension of the first contract and it was only towards the end of negotiations that Cudgegong's then solicitor suggested that be done by way of a new contract. Mr Stack was happy with this as it would achieve the same result for both parties. Mr Stack did not obtain a further valuation in the period leading up the second contract because he did not think it was required. Mr Stack was aware of Transport's offer to Cudgegong in early 2012 of approximately $4.2 million. Transport's offer of $4.2 million did not influence Mr Stack's decision concerning the purchase price in the second contract as he was initially bound by the first contract and subsequently by the extension of the first contract being the second contract. 1. Any upward market movement would not assist Stacks in recovering monies under the relevant mortgages. The price under the second contract enabled the original principal sums of the first and second mortgage to be repaid and enabled Cudgegong to obtain some of their monies back. 2. Mr Stack's third affidavit sworn 28 August 2013 was extracted (pars 5, 7, 8) in Cudgegong (No 1) at [61]: Mr Stack attests that he was told by Cudgegong during negotiations to extend the first contract, that Cudgegong could complete it by 1 July 2012 and would obtain alternative sources of finance to do so. 3. Mr Stack's cross-examination on matters raised in his affidavit sworn 16 August 2013 was summarised at [64]-[69]: 64 Mr Stack's second affidavit par 18 and 19 refer to negotiations between him and Cudgegong concerning the second contract. No other parties were negotiated with (TS 98). Mr Stack was aware in April 2012 of an offer to be made to Cudgegong by Transport of approximately $4.2 million to purchase the resumed land outside the compulsory acquisition process (TS 98). Mr Stack was then aware that the resumed land was unlikely to realise less than $4.2 million if sold on the open market, similarly if Cudgegong resold the resumed land (TS 99). Mr Stack was shown the second contract and he identified the new conditions 49 to 52 which were not in the first contract (TS 99 -100). The first and second contract were otherwise in similar terms with an extra $500,000 in the second contract plus capitalised interest (TS 100). 65 No sale of the resumed land was advertised at any time when Mr Stack was acting as mortgagee in possession. There was no point advertising regarding the first contract because the sale price was going to be approximately $1 million and there was $3 million owing under the mortgages. Mr Stack later negotiated with the former directors of Golden Mile over six months in which they indicated they would pay a higher price. The second contract was not an independent contract but an extension of the first contract. Golden Mile was then in liquidation and had been removed from the register. In these circumstances there is no need to re-advertise a property when you are extending a contract for sale as a mortgagee (TS 101 -102). 66 In an email dated 30 April 2012 Mr Stack made the first contract time of the essence (TS 103). Mr Stack said it was not the case that one of the reasons why the second contract was negotiated was because Cudgegong had indicated that they needed more time to pay than provided by the first contract (TS 103). Mr Stack stated that Cudgegong had indicated that they may get outside finance and they had approached other people. If they had gotten the outside finance the matter would have been settled but in his view the contract was extended and there was consideration for doing so (TS 103). Mr Stack disagreed with the proposition that he was not told by Cudgegong that they were in a position to complete the first contract (TS 106). 67 Mr Stack denied that the only consideration when entering the second contract was to recover the debt that was payable to his firm. At that stage the debt owing to the mortgagees was $4.8 million, the contract would have come to an end and the mortgagees would have gotten the majority of that back from Transport. That was in Stacks' interests if Cudgegong could not obtain their finance. If Cudgegong obtained the finance then the matter got completed and Stacks got less money. The agreement to extend the contract was probably entered into in about May and Cudgegong still had six weeks to complete the first contract which was a win-win situation in Mr Stack's view. Stacks would get more money for the resumed land, Cudgegong did not have to take the risk that perhaps they would not get finance. Mr Stack felt that Cudgegong would get the finance because the resumed land was worth $4.2 million and the finance they needed was approximately $2.3 to 2.4 million (TS 106). 68 Mr Stack agreed that the two considerations were to recover his own debt and enable Cudgegong to achieve any upside in the changing value of the resumed land. Cudgegong had spent about $900,000 in interest payments during the period of the contracts and he would have liked them to achieve what he felt they were entitled to (TS 106). 69 Golden Mile was in liquidation and the debt owed to Stacks was $4.8 million. If Golden Mile had been involved they would not have gotten anything as the compensation offered was $4.2 million. In Mr Stack's view Golden Mile was not legal and not relevant (TS 107). Mr Stack agreed that the extent of the answer he gave was reasoning in hindsight about the contract that he made. Mr Stack did not consider taking any additional steps beyond negotiating with Cudgegong to realise a higher price for the resumed land. However Mr Stack disagreed with the proposition that these thoughts only occurred to him in the course of these proceedings 1. Mr Sukhdev Singh is a director of Cudgegong and was a director of Golden Mile. In his affidavit sworn 8 July 2013 Mr Singh stated that the first contract was rescinded as Cudgegong required an additional 12 months in order to be able to raise finance for the purchase of the property. In cross-examination Mr Singh disagreed with the statement that in the first half of 2012 he did not have the money available to settle the first contract and would need more time. He stated he was fully ready to settle the contract and he would have raised the money with six other people. As part of the negotiations Mr Singh asked Mr Stack for more time, with the first request made as early as March 2012. In negotiations Mr Singh stated that he wanted to keep his cards close to his heart and that Mr Stack was "another party on the other side". Mr Singh would not have told Mr Stack he could not complete the first contract and it would not have happened (TS 30/08/13, p 123.30-124.50). 2. Cudgegong relied on the following transcript passages. In the course of the cross-examination of Mr Singh, the following exchange took place (TS 30/08/13, p 125.17-22): Q. What reason did you give [Mr Stack] for asking for an extra 12 months for the contract to be completed? A. We need 12 months extra for - to have our financial situation settled and what's best for us and if I was going to settle the property it was going to cost me almost the same amount and I would have kept that money in my pocket, which is you can use it somewhere else or it's the best interval for us. 1. Mr Stack responded as follows to the proposition that Cudgegong had told him that "they would need more time to pay than was provided by the existing contract" (TS 30/08/13, p 103 42-46): No that wasn't the case. Cudgegong Australia had indicated that they may get finance outside and they had approached other people. If they had got finance outside the matter would have been settled and that would have been the end to it. But my point of view if the contact was extended and there was consideration for doing it there was a benefit in giving them extra time. 1. Mr Stack stated in cross-examination (TS 30/08/13, p 104.16-17): I had been told by them that they had actual people that could give them finance. 1. Mr Stack stated that at the time of entry into the second contract (TS 30/08/13, At p 106.22-35): …if it turned out that they could not raise the finance, at that stage the debt owing to us was 4.8 million, the contract would have come to an end and we would have got the majority of that back from Transport Australia. That was in our interests to do that if it turned out they couldn't get their finance. If they got the finance then the matter got completed and we got less money. The agreement to extend the contract was probably entered into in about May and they still had six weeks at that stage to complete the contract and from my point of view it was a win/win. We would get more money for the property, in fact we were paying the capital sum of the second mortgagee. From their point of view that didn't have to go any further and take the risk that perhaps they wouldn't get the finance. I personally felt they would get the finance because the property was worth 4.2 and the finance they would have needed was approximately 2.3, 2.4 million and I would have thought they would have been able to get that finance. Documents 1. On 21 February 2012 Transport's solicitors responded by letter to an email sent by Cudgegong's solicitors seeking an offer from Transport for the purchase of the property (Exhibit 1D). Having considered an independent valuation, Transport offered Cudgegong $4.285 million in respect of the current market value subject to conditions. 2. The rescission deed for the first contract dated 21 June 2012 stated: BETWEEN: STACKS MANAGED INVESTMENTS LIMITED ACN 085 843 125 EXERCISING POWER OF SALE PURSUANT TO MORTGAGE NO. AB45510 TO GOLDEN MILE PROPERTY INVESTMENTS PTY LIMITED ACN 105 888 024 of Level 2, Suite 201, 1 Pulteney Street, Taree 2430 in the State of New South Wales ("hereinafter called "the Vendor") of the First Part AND: CUDGEGONG AUSTRALIA PTY LIMITED ACN 132 709 543 AS TRUSTEE FOR THE CUDGEGONG FARMING UNIT TRUST (hereinafter called "the Purchaser") of the Second Part AND: … (hereinafter called "The Guarantors") of the Third Part RECITALS:- A. The Vendor and the Purchaser entered into a Contract for Sale of land for property at 35 Cudgegong Street, Rouse Hill 2155 ("the land") on 22 September 2008 ("the Contract") B. The Vendor and Purchaser have mutually agreed to rescind the Contract on the terms set out hereunder. C. The Guarantors of the Contract agree and consent to such rescission. IT IS AGREED AS FOLLOWS:- 1. That the Contract is hereby rescinded as at the date of this Deed. 2. The Purchaser surrenders any interest in the land. 3. The Vendor and the Purchaser release other from any damages, costs or expenses, claims, demands or suits arising out of the Contract. 1. The second contract for sale dated 21 June 2012 between Stacks and Cudgegong included the following conditions: 34 Contract is entire Agreement 34.1 This Contract constitutes the entire agreement for the sale of the property between the Vendor and the Purchaser. 34.2 The Purchaser acknowledges that in entering into this Contract the Purchaser has not relied on any conduct, statement, representation or warranty performed, made or given by or on behalf of the Vendor other than: (a) those set out in this Contract; and (b) those implied by Section 52A of the Conveyancing Act 1919. … 37. Mortgagee exercising Power of Sale and Existing Encumbrances 37.1 The Purchaser acknowledges that the Vendor is the Mortgagee of the property exercising its power of sale pursuant to the Mortgage referred to on page 1 of this Contract ("Vendor's Mortgage"). … Special conditions … 50. The parties acknowledge that the property is in the process of being compulsorily acquired by the NSW Government – Transport NSW. The Vendor agrees to provide all necessary consents and authorities to enable the Purchasers to purse their rights in respect of the compulsory acquisition as if it were the registered proprietor but on the basis that they:- i. unless, the purchaser has either: (a) obtained alternative finance to settle the Contract at the price owing under the Contract or can otherwise satisfy the amount owing under the Contract; or (b) has the consent of the Vendor to do so: the Purchaser shall not accept any price which will not be sufficient to payout the amount owing under the Contract. In the event that the Purchaser and the Government agree on a price, the Vendor will, at the request of the Purchaser, consent to be the Vendor in the sale to the Government on the basis that the Vendor will, on receipt of the acquisition monies, account to itself for the amount owing under this Contract and account for the balance to the Purchaser. 1. By letter dated 3 May 2013 Cudgegong's solicitors replied to a letter from Golden Mile's solicitors dated 17 April 2013 stating (Exhibit 1E): The Second Contract (as defined in your letter) was a variation of the First Contract (as defined in your letter). The First Contract was varied because, as it was due to expire, our client required an extension of 12 months in order to be able to complete the contract. Interest was payable and was paid by our client under mortgages for both the First and Second Contract. Further details are provided in paragraph 8 below. … In response to that request, we are instructed as follows: … On 21 June 2012 the parties rescinded the First Contract and entered into the Second Contract. The First Contract was rescinded as Cudgegong required an additional 12 months in order to be able to raise finance for the purchase of the Property. It is clear from the above chronology that the sale to Cudgegong was an arm's length sale following the mortgagee entering into possession of the Property as Golden Mile was unable to repay the principal sum following its liquidation. As the First Contract was due to expire and our client needed to raise funds for the purchase it was clear that the First Contract was varied and new contract executed. This was chosen to be done by way of a fresh contract for the purpose of clarity. We are unsure what you mean in your letter when you suggest the contract was "rejigged". Issue 1 – was the rescission of the first contract interdependent with the second contract for sale? 1. Identified as issue 1 in Cudgegong CA is whether the deed of rescission of the first contract for sale was interdependent with the entry into the second contract for sale. Cudgegong's submissions 1. Cudgegong argued that the rescission deed and the second contract were interdependent when the oral evidence of Mr Stack and Mr Singh was considered. This identified and corroborated a period of negotiation from March to June 2012 whereby they agreed orally that the first contract would be rescinded if a second contract in the terms agreed (see special conditions) was entered into. That the decision to enter into the second contract was a result of protracted negotiation strongly suggests the rescission deed and the second contract were part of the same transaction. The parties agreed an oral contract to enter into both written contracts. 2. There was no evidence from either Mr Stack or Mr Singh or otherwise which in any way suggested that Cudgegong was willing to consent to a rescission of the first contract independently of any commitment binding upon the mortgagee to enter into a new contract for sale in similar terms. The evidence instead suggested that the second contract was in effect a negotiated variation of the first contract. The oral evidence supports a finding that Cudgegong had the ability to complete the first contract if called upon and that Mr Stack considered it was likely that Cudgegong would get finance given Transport's offer of $4.285 million. There is no evidence of collusion between Cudgegong and Mr Stack and none is alleged. 3. Cudgegong submitted that it is clear from the evidence that the rescission of the first contract was closely interdependent with and conditional upon the entry into the second contract. Cudgegong would not have voluntarily surrendered its very valuable rights under the first contract without the quid pro quo of the second contract. Golden Mile's submissions 1. Golden Mile argued that, drawing on Cudgegong (CA) at [83], as a matter of law the two agreements were not interdependent as on their face there was no reference to the other, suggesting that they were separate instruments. Consequently, the mortgagee's duties to Golden Mile arose afresh at the rescission of the first contract as there was then a fresh exercise of the power of sale so that Stacks became subject to the duty under s 420A of the Corporations Act and the general law duty in Pendlebury. 2. Under the parol evidence rule reliance on an oral contract is prevented where it contradicts the written terms. Further the alleged oral agreement purports to convey an interest in land, which must be in writing, as required by the ss 23C and 54A of the Conveyancing Act. It requires a finding of fact that Cudgegong and Stacks intended such an agreement. The evidence is that they did not turn their minds to that at all. 3. Only in exceptional cases in which evidence of prior negotiations may supplement or explain a written contract, the terms of a separate or collateral contract cannot be inconsistent with the main contract per Hoyt's Proprietary Limited v Spencer [1919] HCA 64; (1919) 27 CLR 133 at 147. The alleged oral agreement that obliged Stacks to enter into the second contract on entering the rescission deed is not consistent with the written terms of either agreement and cannot be applied to vary the unambiguous written terms of the contract. Issue 2 – was Stacks in breach of its duties to mortgagor? 1. Issue 2 in Cudgegong CA was whether Stacks breached its duties to Golden Mile in entering into the second contract for sale. Cudgegong's submissions 1. Stacks was not in a position in which it could simply wait for Cudgegong to default under the first contract, rescind the first contract and then be free to set its own price in a fresh sale either to Cudgegong or to another potential purchaser. Stacks believed that if Cudgegong was forced to complete the first contract that it would likely do so, albeit at a financing cost that Cudgegong would sooner avoid. Mr Stack perceived in the circumstances that the "win/win" situation he repeatedly referred to in his evidence was the best course – Stacks would give Cudgegong its extension and thereby obviate the need for Cudgegong to incur undesired financing terms in exchange for a $500,000 windfall for Stacks by reason of the new and increased sale price under the second contract. 2. Given the interdependence between the rescission deed and entry into the second contract, and given the fact that doing nothing and hoping that Cudgegong would default under the first contract was an unsafe strategy, it was not reasonably open to Stacks to obtain a higher price under the second contract than the $500,000 increase that was in fact obtained. 3. There was no incentive for Stacks to act other than to seek to maximise the sale price, as Stacks would themselves be the main losers from selling at a lower price. Putting the evidence together, it amounts in essence to this: 1. Cudgegong believed that they could obtain finance to purchase the land by 1 July 2012 if that was really necessary, but expected that the cost of such finance would be high; 2. although it would have proceeded to complete the first contract if provided with the stark choice by the mortgagee to complete or lose the benefit of the first contract, Cudgegong preferred to negotiate for a delayed completion in order to provide more time to secure financing and so that the finance would be for a shorter period and at lower cost; 3. Mr Stack was told by Cudgegong that Cudgegong could complete the first contract in time by obtaining finance from financiers it had lined up; 4. Mr Stack was unsure whether Cudgegong could complete on time, but felt they would in the circumstances that it would be clear to a financier that the land was worth far more than the finance that was required; 5. although Mr Stack realised that the mortgagees would be considerably advantaged if Cudgegong was wrong and they could not arrange finance in time, he also realised that if Cudgegong did arrange finance as Mr Singh was telling him it would then the mortgagees would have lost the benefit of a higher price Mr Stack could negotiate in return for the extension of time Cudgegong sought; and 6. Mr Stack decided to take the safer course of action by securing a definite $500,000 increase in price through the mechanism of the second contract rather than gambling upon Cudgegong being unable to secure finance. Golden Mile's submissions 1. Golden Mile submitted that neither Cudgegong nor Mr Stack adduced evidence at first instance to show that on or immediately before 21 June 2012 Stacks had: 1. taken any steps to obtain its own independent valuation of the land to check the uplift in value created by the rezoning in 2011 and to verify it against the amount of $4.285 million offered by Transport for NSW (by its solicitors Clayton Utz) on 21 February 2012; 2. taken any steps to cause the price of the resumed land in the second contract with Cudgegong to be more than $2.888 million and up to $4.285 million; 3. taken any steps to appoint an experienced real estate agent to canvass an off-market purchaser for the resumed land as an alternative to Cudgegong, or to solicit higher open-market offers to at least enable pressure to be applied to increase the price offered by Cudgegong. 1. In addition to the evidence that Mr Stack knew of the Transport offer and the likelihood of Cudgegong being able to sell the resumed land for not less than $4.2 million, the further oral evidence of Mr Stack was that on or immediately before 21 June 2012: 1. the purpose of the additional special conditions in the second contract was to ensure that any benefit obtained by the compulsory sale of the land belonged to Cudgegong; 2. the second contract was an extension of the first contract, not an independent contract, Golden Mile was in liquidation and deregistered and in those circumstances, he did not need to readvertise a property; 3. at the time of entering into the second contract, Mr Stack's two considerations were to recover his own debt and enable Cudgegong to achieve any upside in changing the value of the property and Mr Stack would have liked to see the ten gentlemen behind Cudgegong achieve what he felt they were entitled to; 4. for the reasons in paragraph (c) above, Mr Stack negotiated on the basis that the interests of Cudgegong and his business would both be appropriately served by the second contract; 5. that by "win/win", Mr Stack meant a win for his group and a win for Cudgegong; 6. Golden Mile was not relevant because it was in liquidation and the compensation being paid was less than the amount Golden Mile owed; 7. Mr Stack did not consider what additional steps he might have taken, in addition to negotiating with Cudgegong, to realise a higher price for the resumed land; and 8. Mr Stack and his firm had worked very hard to get the property rezoned on behalf of Cudgegong and felt Cudgegong were the ones that were entitled to the compensation. 1. Mr Stack ignored Golden Mile's interests and failed to take reasonable care to sell the land at market value, a breach of s 420A of the Corporations Act. The second contract price was $2.888 million when the Transport offer known to Mr Stack was $4.285 million. No steps were taken to negotiate a higher price with Cudgegong, no independent valuation was obtained to justify the price of $2.888 million or solicit other offers inter alia. Mr Stack acted solely to secure repayment of debts to the mortgagees and provide Cudgegong with the chance to benefit from the uplift in value resulting from the acquisition. Further, Mr Stack breached the common law duty in Pendlebury as he did not try to ensure a fair price for the land, and acted recklessly in sacrificing the interests of the mortgagor. 2. The evidence relied on by Cudgegong focusses solely on Mr Stack's choice to require Cudgegong to complete the first contract or to accede to Cudgegong's request to rescind the first contract and enter into the second contract. The evidence relied on by Cudgegong supports the observations of the Court of Appeal in Cudgegong CA at [43], [81] and [91]. Mr Stack stated explicitly that he wished to assist Cudgegong. The inherent improbability of a mortgagee not sacrificing its own interest was not in evidence here. Breach of duties by Stacks not established by Golden Mile/Cudgegong has compensable interest in acquired land 1. The parties generally agreed on the scope of the mortgagee's duties as identified in s 420A of the Corporations Act and separately the duty to act in good faith identified in Pendlebury. The parties agreed the duty imposed on a mortgagee under s 420A was more onerous than the general law duty. The test under s 420A is objective being akin to negligence, namely what would a mortgagee acting reasonably do in these circumstances. Subsection (1)(a) requires that the controller take all reasonable care to sell the property for not less than its market value, if the property has a market value. Alternatively, under subsection (b) the responsibility is to obtain the best price reasonably obtainable in the circumstances. 2. C Croft and R Hay in The Mortgagee's Power of Sale, (3rd ed 2013, LexisNexis Butterworths) at [7.37] cited Campbell J in Artistic Builders Pty Ltd v Elliot & Tunhill (Mortgages) Pty Ltd [2002] NSWSC 16; (2002) 10 BPR 19,565 at [126] on the nature of the test in s 420A of the Corporations Act as: In deciding whether there has been a breach of s 420A, a court looks at the process that a controller of property of a corporation has gone through in selling that 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. It is not necessary to prove that the property was in fact sold for less than its market value – a controller could breach s 420A, but, through luck, still manage to sell the property for its market value or more. Further, it is not necessary for me to find what actually was the market value of the property, to be able to find that s 420A(1)(a) was breached - all that I need find is that the process gone through was not one where all reasonable care was taken to sell the property for its market value, whatever that market value might be. 1. As identified by Golden Mile the general law duty was described by Griffith CJ in Pendlebury at 680 referring to the judgment of Lord Herschell in Kennedy v De Trafford [1897] AC 180 at 185 as stating that he understood Lord Herschell to mean: … The mortgagee must not recklessly or wilfully sacrifice the interests of the mortgagor and that if he does he is to be regarded as not having acted in good faith. … in the case of a sale by a mortgagee, if he omits to take obvious precautions to ensure a fair price, and the facts show that he was absolutely careless whether a fair price was obtained or not, his conduct is reckless, and he does not act in good faith. 1. In Pendlebury at 702 Isaacs J described "recklessness" as "in short, not caring whether its [sic] fair and proper value was obtained or not" and described that as "not compatible with good faith". 2. The High Court in Forsyth v Blundell [1973] HCA 20; (1973) 129 CLR 477 at 497 Walsh J (Mason J concurring) referred to Pendlebury and Kennedy and affirmed that: … there may be conduct which amounts to a reckless sacrificing of the interests of a mortgagor, although it is not shown that there is an actual intention to defraud him or that there is corruption or collusion with the purchaser. 1. In Australia and New Zealand Banking Group Limited v Bangadilly Pastoral Co Pty Limited [1978] HCA 21; (1978) 139 CLR 195 at 201, Jacob J (Stephen J concurring) said that where there was not a truly independent bargain between mortgagee and purchaser, the good faith test was not concerned with motive but with: … a genuine primary desire to obtain for the mortgaged property the best price obtainable consistently with the right of a mortgagee to realise his security. 1. There is no dispute that Stacks as represented in these proceedings by Mr Stack did not consider the interests of Golden Mile at the time of the rescission of the first contract and entry into the second contract on 21 June 2012. Mr Stack effectively stated so in cross-examination (TS 30/08/13, p 107.6-13). This evidence is recorded in Cudgegong (No 1) at [69]. Following Cudgegong CA the failure to do so may have legal consequences not considered by me in Cudgegong (No 1). That failure alone may not result in a conclusion that Stacks breached the relevant duties owed to the mortgagor Golden Mile but is a relevant consideration when the evidence as a whole is viewed. By April 2012 Mr Stack was aware that Transport had offered $4.285 million for the land, which figure was its effective market value at the time the second contract was entered into if that contract was an independent contract for sale. 2. As identified by the Court of Appeal in Cudgegong CA at [90] I determined (incorrectly) that no breach of mortgagee's duties could arise as Golden Mile did not exist at the date of acquisition. At [91] the Court of Appeal held that I appeared not to take into account the possible consequences of Stacks failing to ensure that the resumed land was sold under the second contract for not less than market value or the best price reasonably obtainable. The Court of Appeal at [83] determined that the mortgagee's duties to exercise the power of sale properly had the potential to exist at the time of entry into the second contract either because Golden Mile's equity of redemption revived upon the rescission of the first contract or would have revived following termination if Cudgegong had defaulted under the contract. The former circumstance arises directly if Stacks was exercising an independent power of sale at the time of entry into the second contract. Whether Cudgegong would have defaulted under the first contract is unknowable as that circumstance did not arise given the rescission of the first contract on 21 June 2012. Stacks' assessment of the likelihood of this occurring does inform a finding of whether Stacks acted in accordance with the mortgagee's duties to the mortgagor, as I discuss below. Issue 1 – Is rescission of first contract of sale interdependent with second contract? 1. I found in Cudgegong (No 1) that the second contract was an extension of the first contract at [102]. In Cudgegong (CA) at [78]-[81] the Court of Appeal considered but did not make a finding on whether the rescission of the first contract and the entry into the second contract were interdependent. As observed at [81] by the Court of Appeal I did not examine whether the rescission deed and the second contract were interdependent as a matter of law. This issue was identified as a key question to be determined in this remitter at [81]. At [79]-[80] the Court of Appeal identified the contention of Cudgegong that the rescission deed was entered into only on the basis that at the same time the second contract would be entered into and that this contention depended in effect on whether Cudgegong would have been in a position to complete the first contract. The Court of Appeal observed that the rescission deed and the second contract appear to have been for the benefit of Cudgegong insofar as they represented an indulgence for a purchaser who could not complete in the timeframe fixed by the first contract at [80]. The Court of Appeal identified that I did not explore Cudgegong's contention that it would only have entered into the rescission deed on the basis that the second contract would be entered into. 2. In further written submissions requested by the Court after the hearing, Cudgegong submitted that Stacks was obliged to enter into the second contract immediately after executing the rescission deed by an earlier oral agreement between Cudgegong and Stacks. That agreement fell within the second class of contractual types referred to in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 at [9]-[10] as follows (emphasis added by Cudgegong): Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution… 1. In Cudgegong's submission the binding oral agreement immediately preceded execution of the rescission deed and the second contract and made the two interdependent. Once the rescission deed and second contract were entered into on 21 June 2012 the oral contract was effectively done. These submissions did not address the "entire agreement" clause in cl 34 of the second contract, which Golden Mile relied on heavily as excluding any such oral agreement as a term of the second contract. Golden Mile focussed solely on the written terms of the rescission deed and the second contract. Golden Mile also disputed that any oral agreement was reached. 2. Cudgegong as represented by Mr Singh and Stacks as represented by Mr Stack both agree on the terms of that oral agreement according to their evidence in this case. Golden Mile disputes that an oral agreement was reached by them and says this evidence was only brought forward after notice was received of Golden Mile's interest in the proceedings. A difficulty with accepting Golden Miles' case is that it is not a party to the rescission deed and second contract it seeks to impugn. Unlike many of the authorities referred to where one party to a contract later seeks to redefine its terms, the parties to the impugned agreement Cudgegong and Stacks are in furious agreement about it. If their evidence is accepted it is difficult to find for Golden Mile on this issue. 3. I will consider whether the evidence of Cudgegong and Stacks establishes that an oral agreement was reached between them which agreement was confirmed by entry into the written contracts. The written and oral evidence concerning why Cudgegong sought to extend time for completion of the first contract which ultimately led to its rescission and entry into the second contract on the same day evolved in these proceedings. The initial affidavit of Mr Stack dated 5 July 2013 and 16 August 2013 at pars 7 and 8 and Mr Singh's affidavit dated 8 July 2013 stated that Cudgegong needed an additional 12 months to raise finance for the purchase of the property. The solicitors for Cudgegong also wrote to similar effect in pars 8(f) and 9 of their letter dated 3 May 2013 to the solicitors for Golden Mile extracted above in par 25 (Exhibit 1E). That evidence suggests that it was likely that Cudgegong would not have been able to complete the first contract by the expiry date. 4. Mr Stack's second affidavit dated 16 August 2013, filed after receipt of notice of the intention of Golden Mile to become a party in the proceedings, referred to negotiations with Mr Singh in pars 8-19. Mr Stack's third affidavit sworn on 28 August 2013 stated that Cudgegong told him it could complete the first contract by 1 July 2012. The cross-examination of Mr Stack (summarised in Cudgegong (No 1) at [64]-[69] extracted at par 16 above) confirmed his view that the second contract was an extension of the first, that the second contract was not negotiated because Cudgegong had indicated they needed more time to pay and that he was told Cudgegong may get outside finance, inter alia. 5. In oral evidence summarised at pars 17 and 18 above Mr Singh stated that he could have completed the first contract in time if pressed to do so but had approached Mr Stack as he preferred not to. Mr Stack's oral evidence extracted at pars 19-21 above is that he considered Cudgegong would be likely to get other finance if necessary to complete the first contract. 6. There is nothing in the cross-examination of these witnesses which suggests that this evidence is concocted. Collusion between Cudgegong and Stacks is not alleged. Both Mr Stack's and Mr Singh's evidence confirm that negotiations were entered into on the initiative of Cudgegong at a time that Mr Stack and Cudgegong were bound by the first contract which had a price of $2.25 million. While the stated reason for the approach by Cudgegong to Stacks seeking an extension of time changed over the course of the evidence I do not consider that undermines the affidavit and oral evidence of Mr Singh and Mr Stack in the hearing before me that negotiations took place from March to June 2012 in relation to the terms on which the first contract could be extended. This ultimately resulted in the conditional second contract. 7. Accordingly, Mr Stack's and Mr Singh's evidence establishes that an oral agreement was reached whereby the rescission of the first contract was conditional on entry into the second contract on the agreed terms. In other words, Cudgegong only entered into the rescission of the first contract on the understanding that the second contract would be executed in the terms agreed with Stacks. As Mr Stack stated he was otherwise bound by the first contract until its completion date. The evidence of Mr Singh and Mr Stack that an oral agreement to extend the first contract was negotiated which led finally to the rescission of the first contract and the execution of the second contract on the same day was consistent and is confirmed by what occurred on 21 June 2012 and should be accepted. 8. In Raphael Shin Enterprises Pty Limited v Waterpoint Shepherds Bay Pty Limited [2014] NSWSC 743 at [48] Sackar J cited the following principles in deciding whether an agreement that parties have entered is one that is wholly in writing, or partly written and partly oral, as identified by Campbell JA in Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; (2009) 261 ALR 382 at [90]: (1) When there is a document that on its face appears to be a complete contract, that provides an evidentiary basis for inferring that the document contains the whole of the express contractual terms that bind the parties; (2) It is open to a party to prove that, even though there is a document that on its face appears to be a complete contract, the parties have agreed orally on terms additional to those contained in the writing. Conversely, it is open to a party to prove that the parties have orally agreed that a document should contain the whole of the terms agreed between them. (3) The parol evidence rule applies only to contracts that are wholly in writing, and thus has no scope to operate until it has first been ascertained that the contract is wholly in writing. (4) Where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact. (5) In determining what are the terms of a contract that is partly written and partly oral, surrounding circumstances may be used as an aid to finding what the terms of the contract are. If it is possible to make a finding about what were the words the parties said to each other, the meaning of those words is ascertained in the light of the surrounding circumstances. If it is not possible to make a finding about the particular words that were used (as sometimes happens when a contract is partly written, partly oral and partly inferred from conduct) the surrounding circumstances can be looked at to find what in substance the parties agreed. (6) A quite separate type of contractual arrangement to a contract that is partly written and partly oral is where there is a contract wholly in writing and an oral collateral contract. [extensive references to case law omitted] 1. In determining whether the oral agreement and written contracts come within the second category in Masters v Cameron it is also necessary to consider whether the entire agreement clause in cl 34 of the second contract excludes any oral agreement reached earlier between the parties to the contract. Extracts from these documents are set out above at pars 23-24. The rescission deed and second contract dated 21 June 2012 make no mention of the other so that their terms do not explicitly reflect the terms of the oral agreement said to arise between Cudgegong and Stacks whereby the conditional second contract was intended as an extension of the first contract. 2. Mr Stack stated in his second affidavit at par 5 that the second contract was identical to the first except that the latter provided for a new commencement and finishing date, slightly different clauses related to payment of interest, addition of clauses specifying rights and obligations if the land was to be compulsorily acquired and an increase in the purchase price. The rescission deed stated that the parties have mutually agreed to rescind the first contract on the terms set out. The terms are that the contract is rescinded, the purchasers surrender any interest in the land and the vendor and purchaser release each other from any damages, costs or expenses inter alia arising from the contract. The second contract entered into on the same day stated that the contract is the entire agreement between the parties in cl 34. Clause 34.1 stated that the contract constitutes the entire agreement for the sale of the property between the vendor and purchaser. Clause 34.2 acknowledges that in entering into the agreement the purchaser has not relied on any conduct, statement, representation or warranty performed, made or given on behalf of the vendor other than what is set out in the contract or s 52A of the Conveyancing Act. The special conditions included cl 50 whereby the parties acknowledged that the property was being compulsorily acquired by the NSW Government. 3. By virtue of cl 34.1 the second contract appears on its face to be a complete contract. In McMahon v National Foods Milk Ltd [2009] VSCA 153; (2009) 25 VR 251 Nettle JA (Neave and Dodds-Streeton JJA agreeing) stated that "[t]he question in each case is what the [entire agreement or] merger clause 'would convey to a reasonable person having the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract'", citing Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 at 188. While this entire written agreement clause tells against there being further terms, it is a rebuttable presumption per Mason P in Concrete Constructions Group Ltd v Litevale Pty Ltd [2002] NSWSC 670; (2002) 170 FLR 290 at 317-318. Cudgegong's evidence above identifies the background understanding of Mr Stack and Mr Singh in entering into the rescission deed and second contract, and the circumstances of the execution of those contracts. This evidence is sufficiently weighty to rebut the above presumption. It demonstrates that Mr Stack and Mr Singh agreed on terms additional to those contained in writing, consistent with Masterton Homes at [48(2)]. 4. An entire agreement or merger clause can be expressed in several forms. N Seddon, R Bigwood and M Ellinghaus in Cheshire & Fifoot Law of Contract (10th ed 2012, LexisNexis Butterworths) describe them at [10.7] as a clause stating that the document contains the entire agreement of the parties (as cl 34.1 does) and that all other terms are excluded. There is no express statement in the second contract that it excludes all other terms. That absence suggests it is open to the parties to the agreement to rely on additional oral terms. Such a reading of cl 34.1 is supported by E Peden and J W Carter "Entire Agreement – and similar – Clauses" 2006 JCL 1 at 8, cited in McMahon at [39]. 5. Golden Mile submitted that the parol evidence rule specifies that where a contract is made wholly in writing, evidence of a party is not available to subtract from, add to, vary or contradict the language of the written contract. In more recent consideration of the rule, courts have tended to apply the rule in a less restrictive way with extrinsic evidence considered per Cheshire & Fifoot citing numerous authorities at 413 [10.4] and discussing Equuscorp Pty Ltd v Glengallen Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471. 6. Golden Mile submitted that the parol evidence rule applies with particular force where there is an entire agreement clause such as cl 34.1, relying on Hope v RCA Photophone of Australia Proprietary Limited [1937] HCA 90; (1973) 59 CLR 348. This, according to Golden Mile, would prevent a party from pleading the existence of additional terms. Golden Mile's submission blurs the distinction between the applicability and the effect of the parol evidence rule. In Concrete Constructions Group at 318 Mason P cited the following paragraph from H K Lucke "Contracts in Writing" 40 ALJ 265 at 273: The scrutiny, the interpretation, the application, or, in appropriate cases, the rejection of merger clauses is part and parcel of the process of establishing whether the document constitutes a contract in writing. At no stage in this process must the applicability of the rules of construction and of the parol evidence rule be assumed, since these rules apply only when it has been shown that the document is a written contract. The contention that merger clauses are rendered conclusive by the rules of construction and by the parol evidence rule is clearly based on a petition principii, on a confusion between the effects of these rules and their applicability. 1. The above passage and the statement of principle above in Masterton Homes at [48(3)] demonstrate that the parol evidence rule cannot apply to an entire agreement or merger clause unless it has been determined that the contract is wholly in writing. I have accepted Cudgegong's case that the contract in question is part oral and part written. The parol evidence rule which now appears more akin to a presumption does not apply. 2. Golden Mile further submitted that in any event the oral agreement is not consistent with the written terms of the rescission deed or the second contract. It is clear that if there is such a conflict it will preclude a conclusion that the contract is partly oral and partly in writing, per Macfarlan JA (Beazley and Meagher JJA agreeing) in Skyrise Consultants Pty Ltd v Metroland Funds Management Ltd [2011] NSWCA 406 at [13]-[15]. However, here there is no such conflict. Properly understood and identified above at 60-61, cl 34.1 of the second contract was a comprehensive statement of one aspect of a broader agreement. There is nothing within the rescission deed or second contract that is inconsistent with an oral agreement that Mr Stack's entry into the latter was to be conditional on the former. 3. Golden Mile also submitted that contracts for the sale of land must be in writing, as required by s 23C(1) of the Conveyancing Act. An oral contract for the sale of land is not valid according to Golden Mile. I do not think it is accurate to describe the oral agreement as being for the sale of land. Further, rescission of the first contract and the second contract which is clearly for the sale of land is written so that criticism is not valid in my view. 4. Cudgegong submitted that there were numerous legal remedies available to it in the event that Stacks had not entered into the second contract, such as seeking a declaration of invalidity of the rescission deed, specific performance of the oral contract, misleading and deceptive conduct, declaration that the deed of rescission was voidable and estoppel as against Stacks. As Golden Mile submitted, these remedies lie as between those two parties and do not alter the nature of the duties Stacks as mortgagee may have owed to Golden Mile the mortgagor. Golden Mile identified in its additional written submissions filed after the hearing at pars 24-26 the nature of the defences which Stacks may have to any actions by Cudgegong. For example, a defence of impossibility may be available to Stacks against a claim of specific performance by Cudgegong. A defence of avoidance of breaching the obligation under s 420A of the Corporations Act may be available. Any estoppel could only operate against Stacks not Golden Mile. At most Cudgegong would have a damages claim against Stacks, but this is a personal remedy and cannot defeat Golden Mile's equity of redemption. 5. The numerous causes of action which Cudgegong may have had against Stacks in the event that immediately following the execution of the rescission deed on 21 June 2012 Stacks had determined not to proceed with the second contract confirm the nature of the agreement made between Cudgegong and Stacks. This tends to confirm that the entire agreement consisted of the oral agreement leading to the execution of the two documents on 21 June 2012. I consider Cudgegong has established that the nature of the agreement does fit within the second category identified in Masters v Cameron. A consequence of that finding is that an equity of redemption in favour of Golden Mile did not arise again on 21 June 2012 as there was no independent exercise of the power of sale by Stacks when the second contract was entered into. 6. Golden Mile submitted in its further written submissions that the implication of Cudgegong's submission was that the alleged oral agreement was a separate contract. I do not agree as the evidence of Mr Singh and Mr Stack which I have accepted confirms that the oral and written agreement are part of the one transaction thereby coming within the second category in Masters v Cameron. The rescission of the first contract was legally interdependent with the second contract. 7. Applying these findings in light of s 420A(1) of the Corporations Act, that the market value of the land was not obtained under the second contract as referred to in s 420A(1)(a) of the Corporations Act, does not arise given my conclusion on issue 1. It would arise if Stacks was re-exercising the power of sale and I have found it was not. Section 420A(1)(b) applies as I consider below. Issue 2 – Was Stacks in breach of its duties to mortgagor? 1. Determination of whether Stacks breached its duties owed as mortgagee to Golden Mile is linked to the circumstances of the entry into the second contract. I have held the second contract is legally interdependent with the rescission of the first contract. In Cudgegong CA the Court of Appeal held at [84] that it is incumbent on me to inquire into the circumstances surrounding the entry into the second contract by Stacks in order to determine whether or not it was a valid exercise of the power of sale by Stacks and at [91] that I did not explore the extent to which it might have been possible for Stacks to take further steps to ensure that once the rescission deed was effective the price obtained under the second contract was not less than market value or the best price reasonably obtainable. 2. My finding on issue 1 that the rescission deed and second contract were interdependent legally means that Mr Stack was not exercising anew the power of sale by the mortgagee and that is the factual lens through which his actions must be considered. Mr Stack's duties as mortgagee should be assessed on the basis that the first exercise of the power of sale was continuing so that the mortgagor's equity of redemption did not arise afresh. Mr Stack's evidence confirms that he acted consistent with his belief that he was bound by his oral agreement with Cudgegong to the effect that the second contract was an extension of the first contract. That belief explains why both instruments were executed on the same day, why Mr Stack did not obtain any further valuations of the land to update the 2007 valuation and sought no other buyers. He did not perceive any utility in doing so in the circumstances as he understood them, namely that he was bound by the first contract. Nor did he consider the offer from Transport for the land was particularly relevant. 3. Under s 420A(1)(b) of the Corporations Act, the best price reasonably obtainable in light of the circumstances which applied when the property was sold must have been achieved by Stacks. Boz One Pty Ltd v McLellan [2015] VSCA 68 at [170]-[171] cited Florgale Uniforms Pty Ltd v Orders [2004] VSC 65; (2004) 187 FLR 142 as follows (footnotes omitted): 170 In Florgale Uniforms Pty Ltd (rec and mgr appt) (in liq) v Orders, Dodds-Streeton J said that, in determining whether a controller has breached s 420A, the court must have regard to all of the circumstances existing at the time of sale of the property: The expert evidence establishes that the exercise of all reasonable care by a receiver would entail a process of selecting the method of realising the highest net return, by considering the different available means of sale and weighing the prices likely to be achieved against the likely costs and expenses entailed and the relative risks of the various methods in all the circumstances. The process is informed by the objective of securing the best possible return for the secured creditor, subject to the obligations imposed by general law doctrines and s 420A. It necessarily involves the exercise of judgment, taking into account all the relevant variables and circumstances of the particular case. It does not depend on matters of price or revenue alone, or any single factor in isolation. In my opinion, the process of evaluating and balancing the competing costs and benefits and the associated risks of various methods of sale will not, in every case, require a formal comparative analysis or documented calculations. All will depend on the circumstances of the individual case, including the scale of the receivership, the value and nature of the property involved, the receiver's expertise in relation to the type of property, relevant expert advice, the advice or input of proprietors and staff, the trading history and marketing of the company, including during the receivership, and other relevant variables in a realistic commercial context. 171 Whether a controller has undertaken the process of evaluation described by Dodds-Streeton J at [170] above must be judged from a 'realistic commercial context'. Courts should be conscious that, where receivers face difficult decisions, it is easy to criticise those decisions with hindsight. Criticism of a controller's conduct made in retrospect can at times pay insufficient regard to practical reality. 1. Campbell JA in Artistic Builders quoted above at par 42 identifies that a court must look at the process followed by the controller, here Mr Stack. At issue is whether the agreement that Cudgegong pay under the second contract an additional $500,000 on top of the sale price in the first contract for extension of the completion date of 12 months was a reasonable exercise of the mortgagee's powers. 2. The separate duty in Pendlebury summarised above at pars 43-46 must also be considered in this context whereby a mortgagee must act in good faith and not recklessly in relation to a mortgagor's interest. 3. Golden Mile accepted that it bore the onus of proof of establishing that the mortgagee's duties to the mortgagor had been breached. A legal burden of proof is the burden of satisfying the trier of fact on the balance of probabilities when all the evidence has been received, per Heydon J in Strong v Woolworths Ltd [2012] HCA 5; (2012) 246 CLR 182 at [50]. Golden Mile submitted that once the evidential burden had been discharged by it in establishing that Mr Stack did not have regard to the interests of Golden Mile (as he did not) when he entered into the second contract, the evidential onus of proof of dispelling any breach of a duty then shifted to Cudgegong. 4. The evidential burden was described by Heydon J (dissenting) in Strong v Woolworths at [52]-[54] (footnotes omitted) as follows: 52 In the first sense, "evidential burden" refers to the duty of one party (usually the party bearing the legal (ie persuasive) burden, who in most instances will be the plaintiff) to call sufficient evidence to raise an issue as to the existence or non-existence of a fact in controversy … 53 In the second sense, "evidential burden" refers to circumstances in which a plaintiff calls evidence sufficiently weighty to entitle, but not compel, a reasonable trier of fact to find in the plaintiff's favour. There is then said to be an "evidential burden" in the sense of a "provisional" or "tactical" burden on the defendant: if the defendant fails to call any or any weighty evidence, it will run a risk of losing on the issue – that is, a risk that at the end of the trial the trier of fact will draw inferences sufficiently strong to enable the plaintiff to satisfy the legal (ie persuasive) standard of proof. The "provisional" or "tactical" burden raises the question whether a defendant should as a matter of tactics "call evidence or take the consequences, which may not necessarily be adverse". 54 The third sense in which the expression "evidential burden" is employed arises where a plaintiff, in discharging the evidential burden in the first sense, calls evidence so strong that a reasonable trier of fact would be bound to decide the issue in the plaintiff's favour if the defendant calls no evidence. It is sometimes said that an "evidential burden" rests on the defendant which, if not discharged, will cause the defendant to lose and which, if discharged so as to cause the trier of fact either to reject the plaintiff's evidence or to be undecided, will result in the legal (ie persuasive) burden on the plaintiff not being satisfied. 1. The second sense was explicitly adopted by the Court of Appeal in Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2014] NSWCA 440 at [53]. In considering whether Golden Mile has discharged its evidential burden, it is useful to have in mind the three senses of evidential burden identified in Strong. 2. Turning to the evidence, Mr Stack believed, mistakenly according to the Court of Appeal, that no duties to Golden Mile were owed by Stacks as it was a deregistered company at the time of entry into the second contract. There is no dispute that Mr Stack effectively did not consider Golden Mile's interest at the time of entering into the second contract. Mr Stack confirmed that he was mindful of the interests of Cudgegong at the time of rescinding the first contract and entry into the second contract. His oral evidence summarised in Cudgegong (No 1) at [67] and set out above at par 16 confirms that in his view the arrangement in relation to the second contract was a win/win in that the mortgagees would recover sufficient of the debts outstanding albeit not all and also benefit Cudgegong. Mr Stack stated in oral evidence that he considered that the directors and shareholders of Cudgegong should get the benefit of the uplift in value of the property as a result of its rezoning, see Cudgegong (No 1) at [68] extracted above at par 16. 3. Clause 50, a special condition of the second contract set out above at par 24 stated that the benefit of any uplift in value arising from the compulsory acquisition would be for Cudgegong. Events after the second contract confirm that cl 50 was complied with. Following the compulsory acquisition Stacks and RTS Super did not take the whole of the acquisition money of about $4.2 million as they were entitled to under the two mortgages. Over $4.8 million was then owed. Stacks accepted the amount of $3,043,760 million from Transport ensuring that some money remained for Cudgegong to claim in accordance with cl 50. The payment of this sum enabled Stacks to recover the principal sums of the first and second mortgages. 4. Seeking to counter that evidence, Cudgegong submitted that the interests of the mortgagees and Golden Mile were effectively the same because it was in the interests of both to maximise the amount recovered from the sale of the land. That, it was submitted, is what Mr Stack did in the circumstances of entry into the second contract. The deal struck between Mr Stack and Cudgegong at the time of rescission of the first contract and entry into the second contract was submitted to be entirely reasonable. The purchase price was increased by $500,000 above the $2.25 million in the first contract for a 12 month extension. Had the first contract been completed the mortgagees would have received much less. There was no sacrificing of Golden Mile's interests in these circumstances. The law did not require Mr Stack to gamble on Cudgegong not completing the first contract. 5. Mr Stack's evidence was that he believed Cudgegong would have been likely to obtain finance elsewhere and complete the first contract. Mr Singh's evidence before me is that if necessary Cudgegong could have completed the first contract but preferred not to. The submissions on the facts to be found based on the evidence in Cudgegong's case summarised in par 36(a)-(e) above are established by the evidence of Mr Stack and Mr Singh. 6. Golden Mile's criticism of Cudgegong boils down to whether in the summary of inferences of fact identified in par 36(f) above Mr Stack's actions were reasonable. Was Mr Stack's decision to secure a $500,000 increase in price above the first contract price a safe course of action rather than gamble on Cudgegong being unable to secure finance consistent with the mortgagee's duties to Golden Mile to obtain the best price reasonably obtainable having regard to the circumstances existing when the property was sold, as required by s 420A(1)(b). Golden Mile submits there is a gap in the evidence which Cudgegong bears the onus of filling. 7. Relying on Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389, Golden Mile submitted that more evidence should have been provided by Cudgegong, such as through Mr Stack, of the negotiations between Mr Singh and Mr Stack over three months from March to June 2012 in order for Cudgegong to demonstrate there was no breach of the mortgagee's duties. The absence of such evidence from Mr Stack was a failure to interrogate in Cudgegong's case, according to Golden Mile, which suggested the Court should draw the conclusion that such evidence would not have assisted Cudgegong. In Ferrcom Handley JA at 418G-419C stated: …One of the leading cases is Milliman v Rochester Ry Co 3 App Div 109;39 NYS 274 (1896), a decision of the Appellate Division of the Supreme Court of New York. The judgment of the Court was given by Follett J who said (at 276): In case a litigant fails to produce a person known to be friendly to him and to his cause, who is so situated that he must have knowledge of the facts in issue, the jury is permitted to presume that the testimony of that person would not have been favourable to the party … I think the rule is as applicable to a case in which a party fails to interrogate a friendly witness, so situated as to be presumed to have knowledge of the existence or non-existence of the vital facts in issue, as it is to the case of a failure to produce such a witness. Indeed I think the omission to interrogate a friendly witness in respect to facts presumably within his knowledge is more significant than the failure to call such a person as a witness, and that the presumption that the testimony would not have been favourable to the party's case is stronger than the one which arises from the failure to produce such a person as a witness. 1. More recently in Kuhl v Zurich Financial Services [2011] HCA 11; (2011) 243 CLR 361 the High Court (Heydon, Crennan and Bell JJ) considered Jones v Dunkel (1959) HCA 8; (1959) 101 CLR 298 and cited Ferrcom for the proposition that where counsel for a party has refrained from asking a witness called by that party particular questions on an issue the witness is likely to have knowledge of a court is less likely to draw inferences favourable to that party from other evidence in relation to that issue, at [63]. 2. Golden Mile submitted Cudgegong bore an evidential burden of demonstrating that the additional amount of $500,000 added to the sale price agreed in the second contract as part of negotiations was struck after hard bargaining to show that Mr Stack had acted reasonably with a view to maximising return to the mortgagee, and hence mortgagor, in entering the second contract. According to Golden Mile Mr Stack should have looked thoroughly into Cudgegong's capacity to complete the first contract given that a strong suspicion arose of whether it had sufficient funds. He should also have pressed for a significantly higher price in the second contract given the indicative market value offered by Transport in February 2012. Cudgegong argued that submission was only available if some question was not asked or part of an affidavit not included because of some fear that it would hurt Cudgegong. In Cudgegong's submission such an inference was too long an evidential bow to draw for Cudgegong because the onus of proof rested on Golden Mile. 3. Cudgegong submitted that the negotiations leading up to the second contract over a three month period demonstrated that Stacks took all reasonable care to sell the property for the best price reasonably obtainable. The written and oral evidence concerning how Cudgegong sought to extend time for completion of the first contract which ultimately led to its rescission and entry into the second contract on the same day was considered in issue 1. Apart from the timeframe of three months there is no specific information about the negotiations entered into between Mr Stack and Cudgegong. Mr Stack's oral evidence was that $500,000 was reasonable compensation at the time for extending the first contract for 12 months. 4. The reasonableness of Mr Stack's actions must be assessed in light of his evidence of his belief that Cudgegong would have been likely to obtain finance elsewhere. Mr Singh's evidence before me is that if he had to Cudgegong could have completed the first contract but preferred not to. It is not fair treatment of Mr Stack's evidence to consider the inferences arising from the evidence identified in par 36(f) separately from the circumstances in par 36(a)-(e). As identified in Florigale assessment of the actions of a mortgagee includes considering the risks and costs of particular courses of action by the mortgagee. Mr Stack's conclusion was that $500,000 was reasonable compensation at the time for extending the first contract. Mr Stack's oral evidence was that he considered the mortgagees would get back their principal sums secured. The circumstances before Mr Stack as identified in par 36(a)-(e) meant that he did not have a free hand to negotiate a particularly high price, the issue of price being referred to in par 36(f). As already identified in par 73 above, Mr Stack considered (correctly) he could not take the additional steps such as revaluing the land and finding other buyers which Golden Mile submitted were required. 5. The evidence relied on by Golden Mile satisfies the first sense of evidential burden in Strong. It is not sufficiently weighty for Golden Mile to satisfy the third sense in Strong. I consider that Golden Mile has satisfied the second sense in Strong of adducing evidence sufficiently weighty that the evidential onus shifted to Cudgegong as a tactical burden. Cudgegong in turn has brought forward evidence sufficiently weighty to discharge that tactical burden. There is no reason to apply the principle in Ferrcom that there was a failure to ask a friendly witness Mr Stack about negotiations with Cudgegong. There is no evidential basis established to draw inferences favourable to Golden Mile's case. 6. Applying these findings, s 420A(1)(b) of the Corporations Act required Stacks to have taken all reasonable care to sell the land for the best price reasonably obtainable, having regard to the circumstances existing when the land was sold. There is sufficient evidence from Mr Stack to support a finding that he took all reasonable care to sell the property for the best price that was reasonably obtainable in the circumstances, informed by my finding on issue 1, and in light of any risk of Cudgegong completing the first contract and the realistic commercial context before him (per Florgale at [170]-[171]). 7. In terms of the mortgagee's duty in Pendlebury there is sufficient evidence from Mr Stack to support the proposition that in the circumstances Stacks acted in good faith, per Bangadilly Pastoral. There was no reckless or wilful sacrifice of Golden Mile's interest, per Kennedy. Furthermore, a breach of the Pendlebury duty has been described as arising in circumstances where there is unconscionable conduct by the mortgagee, see Commonwealth Bank of Australia v Hadfield [2004] NSWCA 350 at [11] citing Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (1995) NSW ConvR 55-731. No such conduct has been identified here. Conclusion 1. I consider that Golden Mile has not satisfied its legal burden of proving that Stacks breached duties owed as mortgagee to Golden Mile. The second contract for sale of land is not voidable. Cudgegong therefore has the relevant compensable interest in the acquired land for the purposes of the Just Terms Act. Consistent with Cudgegong (No 1) the advance payment of $757,300 should be made to Cudgegong. ********** 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: 02 December 2015