Almona Pty Ltd v Parklea Corporation Pty Ltd - [2021] NSWCA 171 - NSWCA 2020 case summary — Zoe

NSWNSWCA

Almona Pty Ltd v Parklea Corporation Pty Ltd

[2021] NSWCA 171

Court of Appeal (NSW)|2020-11-19|Before: Bathurst CJ, Basten JA, White JA

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2020-11-19

Before

Bathurst CJ, Basten JA, White JA

Catchwords

[1978] HCA 21 Banque Commerciale S.A., en Liquidation v Akhil Holding Ltd (1990) 169 CLR 279
[1990] HCA 279 Barns v Queensland National Bank Limited (1906) 3 CLR 925
[1906] HCA 26 Belton v Bass, Ratcliffe and Gretton Ltd [1922] 2 Ch 449 Butler v Fairclough (1917) 23 CLR 78
[1917] HCA 9 Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425

Source

Original judgment source is linked above.

Catchwords

[1978] HCA 21 Banque Commerciale S.A., en Liquidation v Akhil Holding Ltd (1990) 169 CLR 279[1990] HCA 279 Barns v Queensland National Bank Limited (1906) 3 CLR 925[1906] HCA 26 Belton v Bass, Ratcliffe and Gretton Ltd [1922] 2 Ch 449 Butler v Fairclough (1917) 23 CLR 78[1917] HCA 9 Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425[2015] HCA 2 Chia v Rennie (1997) 8 BPR 15,601 Commonwealth Bank of Australia v Hadfield (2001) 53 NSWLR 614[2001] NSWCA 440 Davey v Durrant (1857) 1 De G & J 535(1858) 44 ER 1086 Earl of Chesterfield v Janssen (1751) 2 Ves Sen 12528 ER 82 Farrar v Farrars Ltd (1888) 40 Ch D 395 Forsyth v Blundell (1973) 129 CLR 477[1995] HCA 68 Latec Investments Ltd v Hotel Terrigal Pty Ltd (In liq) (1965) 113 CLR 265[1912] HCA 9 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537[1982] HCA 29 Potts v Miller (1940) 64 CLR 282[1940] HCA 43 Property & Bloodstock Ltd v Emerton (1968) Ch 94 Provident Capital Ltd v Printy [2008] NSWCA 131(2008) 13 BPR 25 Robertson v Norris (1858) 1 Giff 42165 ER 983 Sahab Holdings Pty Ltd v Registrar General (No 2) [2012] NSWCA 42

Judgment (36 paragraphs)

[1]

Background facts

In considering the issues it must be remembered that at the time of the exercise of the power of sale, Almona had been in default under the facilities secured by the mortgage for a considerable period. Default had occurred by 31 May 2014. On 5 June 2014, SAP confirmed to Almona that the amount owing was $58,911,301.00 and rejected a request for extension.
Notwithstanding, no action was taken at that time, and on 12 September 2014 the solicitors for SAP wrote to Almona, indicating that it was prepared to consider a forbearance letter in respect of existing breaches of the facilities on certain terms. It is not clear whether those terms were complied with.
On 12 December 2014, the solicitors for Almona wrote to the solicitors for SAP stating their client was in the process of refinancing the facility with a "major bank". Nothing appeared to result from those negotiations, and on 2 February 2015 the solicitors for SAP advised the solicitors for Almona that the amount due as at 31 January 2015 was $65,566,970.91.
On 15 April 2015, the solicitors for SAP wrote to Almona demanding payment of $66,720,149.08, and on 17 April SAP appointed receivers and managers to Almona.
It should be noted that around this time a number of valuation reports were obtained. A valuation prepared by Abbotts Valuers on behalf of Mr Con Constantine, the managing director of Almona, valued the property as at 1 June 2015 at $115 million. The valuation was not admitted into evidence as proof of the value of the land, and the receivers were not provided with a copy of the report.
The receivers obtained two valuations. One dated 29 June 2015 valued the property at $45 million on an "as is, where is" basis and at $67.5 million assuming a residential master plan over the Parklea Markets and adjoining land. The other dated 18 July 2015 valued the property at $48.7 million on an "as is - subject to continuing use" basis and at $70 million on the basis of alternative use based on a residential development scenario. The primary judge noted that it was not suggested by Almona that it was unreasonable for the receivers or SAP to rely on these valuation reports.
On 7 August 2015, Mr Dixon-Smith, a partner of King & Wood Mallesons who had commenced acting for SAP, sent a notice under s 57(2)(b) of the Real Property Act 1900 (NSW) stating the amount payable was $71,262,096.22.
On 18 August 2015, the solicitors for Almona wrote to the solicitors for the receivers, stating the target date for refinancing was 31 August 2015. In anticipation of settlement on that date, various documents were prepared necessary to effect a release of the securities, but on 31 August settlement was postponed, the solicitors for Almona requesting a payout figure as at 4 September 2015. Settlement was again postponed until 18 September 2015, then postponed to 23 September and finally to 30 September 2015. Settlement did not occur.
By the start of October 2015, Colliers on behalf of the receivers had called for expressions of interest in the property. Basten JA sets out the process leading up to the first and second round of offers (at [122]-[129] of his judgment) and it is unnecessary to repeat what is there set out.
As Basten JA has pointed out, Wesco was registered on 8 October 2015 with Mr Merhi as the sole shareholder and director. On 12 November 2015, associated companies, Visy Group Holdings Pty Ltd and Visy Projects Pty Ltd, were registered.
It should be noted that Wesco first attempted to obtain an interest in the property through negotiations with Mr Constantine. The primary judge noted that it emerged during the cross-examination of Mr Constantine that on 27 October 2015, Mr Constantine, Mr Merhi and a company, Australia International Investment Holdings Group Pty Ltd, entered into a Deed of Agreement which recited that Mr Constantine and Mr Merhi were contemplating a joint venture and/or a share sale and/or another transaction involving the assets of Almona. Clause 2 of the Deed provided that, if an agreement was reached that involved Mr Merhi injecting money into Almona to allow it to discharge all securities granted to SAP, with each of Mr Constantine and Mr Merhi holding an interest in Almona or its assets, they would procure that Almona pay a commission of $5 million to Australia International Investment Holdings Group Pty Ltd.
The primary judge stated that Mr Constantine's evidence on the issue was "most unsatisfactory", noting that he "grudgingly admitted" the existence of the Deed but seemed to deny he ever made an agreement as to some of its terms (PJ[87]). The primary judge went on to make the following remarks: "[89] In the context of Almona making a claim that SAP colluded with Dyldam and Mr Merhi to subvert the expressions of interest process, it is telling that there is no objective evidence of any representative of SAP dealing personally with Mr Merhi, or any representative, or knowing anything more about any company of his other than the submissions of expressions of interest by Wesco. The only positive evidence of any party dealing with Mr Merhi is that concerning Mr Constantine's entirely unexplained, and unauthorised, entry into the Deed of Agreement on behalf of Almona."
In a time entry narration Mr Dixon-Smith records that on 13 November 2015 he completed a review of funding arrangements required for buyers seeking funding on acquisition of assets and "advice to PAG". This is unusual, as all the buyers who were admitted to the second round of bids, including Dyldam, indicated in their expressions of interest that they had finance to complete the purchase. The time entry narrative records that the review followed meetings Mr Dixon-Smith had with representatives of PAG on 10 November and 11 November, the latter being recorded as a meeting re the sale process. It can be inferred in those circumstances that PAG by that time was interested in retaining an involvement with the property, at least as a potential financier.
On 10 December 2015, Mr Dixon-Smith travelled to Hong Kong. His time entry narrative records "Parklea Joint Venture - Meeting with Dyldam in Hong Kong. Prepare and edit Parklea Profit Distribution Table … compose email to James McMurdo and Anshumann Woodhull". The document which was emailed to Messrs McMurdo and Woodhull on 11 December was attached to an email which stated, "how I see the profit ratchet working". That document showed a distribution of net profit between Dyldam and PAG in respect of the venture, Dyldam's share of the profit increasing from a base of 25 per cent at a profit level of $50 million to 40 per cent at a profit level of $400 million, but thereafter constant at 40 per cent (presumably the ratchet).
This document demonstrates at least two things. First, to the extent that it can be concluded that it was prepared on the instructions of PAG, it demonstrates confidence that Dyldam would be the preferred bidder, notwithstanding the fact that second round bids had not come in and Wesco's initial bid was higher than that of Dyldam. Second, on its face, leaving aside the risk involved, it appeared to be a commercially attractive proposition to PAG. I agree with Basten JA that it could readily be inferred that the discussion with Dyldam representatives in Hong Kong was in connection with this proposal.
It is apparent from Mr Dixon-Smith's time entry narrative that by 21 December 2015, Dyldam was the nominated purchaser and PAG (or its associated company) would provide finance. It was also determined by that stage that the sale would be a mortgagee sale rather than a sale by the receivers. On 23 December, Mr Dixon-Smith emailed solicitors acting for Dyldam's nominee Parklea, attaching a diagram described as the "Diamond Entity Structure (based on total funding of $90m, with $51m from the senior debt facility) discussed at those meetings". The document shows two entities (Dyldam Parklea Holdings #1 Pty Ltd and Dyldam Parklea Holdings #2 Pty Ltd) holding 20 per cent and 80 per cent interests respectively in the development company (Dyldam Parklea Developments Pty Ltd). Although the document is not entirely clear, it seems to envisage equity contributions of $24 million and $2 million from PAG and Dyldam respectively and $5 million mezzanine finance. The total capital, both loan and equity, thus amounted to $82 million. The structure is silent as to where the balance of $8 million was to come from.
The structure on its face did not align with Mr Dixon-Smith's calculation of net profit share of 11 December. However, Mr Dixon-Smith explained the position in his email to the solicitors for Parklea of 24 December 2015. That email, which was copied to Mr McMurdo of PAG, was in the following terms: "1. The holdings of Parklea Holdings 1 and 2 in Parklea Corporation P/L should be 80/20 reflecting the agreed 'base' share of the economic interests between the two entities, with any 'earn up' by Dyldam Group earned through a performance based component of the Development Management Fee. Let's say Parklea Holdings 2 is the entity that PAG will primarily fund through, then it should hold 80%. 2. All units in the two trusts and shares in the two Parklea Holdings companies would be held 100% by Dyldam, presumably Dyldam Developments Pty Ltd, but we are flexible as to where. As further information, one of the challenges in PAG's arrangements is the potential impact of the thin capitalisation rules. However these rules do not apply if the borrower is an Australia resident and controlled entity, and a direct and indirect 100% ownership by Dyldam gets us into this safe harbour, together with the way we structure PAG's control rights under the documentation - which are generally negative control rights typically held by mezzanine financiers."
It is unnecessary to deal with the further negotiations leading up to the date of the contract.
Contracts were exchanged on 13 January 2016. The vendor was SAP as mortgagee exercising power of sale, and the purchaser was Parklea. As has been explained by Basten JA, the purchase price was $85,350,000 if the residence on the property, then occupied by Mr Constantine, was vacated, or otherwise $81,100,000. The contract provided for a payment of a deposit of $1 million on the date of contract, $3,267,500 within three business days from receiving written confirmation of Investment Committee approval and the balance of 10 per cent on completion.
Clause 36 of the contract provided that completion was to take place on the latest of 28 January 2016, 14 days after Investment Committee approval or any extended completion date provided for in special condition 59.1. That special condition provided that if proceedings were instituted against the receivers or vendors relating to the contract, the vendor could serve a notice delaying completion.
Clause 63 of the special conditions provided that the agreement was conditional on approval by the PAG Investment Committee. As Basten JA has pointed out, as a result PAG had control over the sale process. Investment Committee approval was required by 14 March 2016; however, the date was extended to 29 April 2016. It should be noted that prior to the latter extension being given, it appeared that the PAG Investment Committee had approved the transaction. This appears from a note in Mr Dixon-Smith's time entry memorandum of 29 February 2016 to the following effect: "Attending re Investment Committee approval to sale and advice to PAG re declaring contract to be unconditional. Emails and telephone calls with James McMurdo and Woody."
On 14 January 2016, Parklea lodged a caveat over the property claiming an "equitable interest in the land pursuant to the Contract of Sale of Land dated 13 January 2016" between SAP and Parklea.
At the time of exchange of contracts, documentation relating to the funding arrangements had not been completed. On 10 March 2016, Mr Dixon-Smith sent a draft Heads of Agreement to the solicitors for Parklea. The Heads of Agreement were ultimately entered into on 22 March 2016 along with certain other security documents.
The parties to the Heads of Agreement were Parklea ("Landowner"), a related company, Quatro 88 Pty Ltd ("Development Manager"), Parklea Holdings 1 Pty Ltd as trustee of the Parklea Holdings 1 Unit Trust ("Holding Trust 1"), Parklea Holdings 2 Pty Ltd as Trustee of the Parklea Holdings 2 Unit Trust ("Holding Trust 2") and Lord Business Holding VIII Ltd, a British Virgin Islands company ("LBH"). Clause 2.1 of the Heads of Agreement recorded that Parklea had entered into the purchase of the property based on discussions regarding the funding of the Project by members of the LBH group. It should be noted that the Project was defined as meaning "the acquisition, development and sale of the Land". It was not in issue that LBH was an associated company of PAG and SAP.
Clause 2.2 of the Heads of Agreement set out the intention of the parties, including that LBH would provide debt, credit and mezzanine finance to Parklea in its capacity as Trustee of the two Holding Trusts, and that the Development Manager would manage the Project under the Development Management Agreement.
By cl 3 LBH agreed to grant the facilities. Details of the facilities were set out in cl 8 of the Agreement and it is unnecessary to set out the somewhat complex structure. However, it should be noted that the total amount proposed to be advanced was well in excess of the amount required to discharge the mortgage.
Clause 4.1 provided that the parties would procure the entry into the Development Management Agreement, whilst cl 6 gave LBH and the Security Trustee negative control over the Project.
Clause 5 provided for the shareholding and unit holding arrangements in the entities to carry out the Project. The structure was set out in an annexure to the Heads of Agreement. It provided that 80 per cent of the shares in Parklea be held by Parklea Holdings 1 Pty Ltd, and 20 per cent by Parklea Holdings 2 Pty Ltd as trustee of the respective Holding Trusts. The structure provided that 800 units in each trust were to be issued to entities associated with Mr Fayad, the managing director of Dyldam, whilst 200 were to be issued to Visy Group Holdings, a company associated with Wesco. However, LBH VIII was granted a call option to purchase all of the Holding Trust 1 shares in Parklea in consideration for payment of $100,000. Thus, LBH VIII could by exercise of the option acquire an 80 per cent interest in Parklea, diluting the interests of entities associated with Dyldam to 16 per cent and those with Wesco to 4 per cent. Basten JA has explained the confusion in the various Heads of Agreement in [156]-[164] of his judgment.
The Heads of Agreement also provided for a "development management fee" based on the net profit of the venture. A worked example was given, which showed that the total return of what might be described as the non-PAG interests was identical to that calculated by Mr Dixon-Smith in his document of 11 December 2015.
It is not clear why the mechanism of a call option was used rather than a direct allocation to LBH of either units in Holding Trust 1 or shares in Parklea. However, nothing turns on it.
In the period between January and March 2016, Almona was still endeavouring to refinance the property.
On 22 February 2016, the solicitor for Almona wrote to the solicitors for the receivers requesting a payout figure. The email asserted that Mr Constantine had requested a payout figure just before and just after Christmas. The email stated that Mr Constantine's ability to refinance had been hindered by the lack of information about the level of debt.
The request was eventually referred to Mr Dixon-Smith, who advised the solicitors for the receivers in the following terms: "As we know, the property has been sold and (subject to the possible issue of the Investment Committee condition precedent), the equity of redemption has now been wiped out and they can't repay the mortgage. I know there are issues around the fact that the sale hasn't (I think) yet been communicated to Con, but I'd be concerned about responding in any way that could be construed as suggesting that the mortgage is capable of being refinanced. This is tricky to deal with until PAG actually have that meeting with Con, but I think we should tread warily."
As a result, the solicitors for the receivers informed Almona's solicitors on 23 February 2016 that it had referred the request for a payout figure to King & Wood Mallesons which would respond directly.
Mr Dixon-Smith's time entry narrative records that on 11 March 2016 he had a meeting with PAG senior executives to discuss completion of the sale. The entry is in the following terms: "Meetings with PAG senior executives to discuss completion of sale of Parklea Markets, including comprehensive review of status of sale, including PAG's capacity to complete, purchaser funding arrangements, review of sale process to confirm PAG has complied with all duties of mortgagee exercising power of sale, status of receivership and vacant possession issues. Recommendation to issue notice of IC Approval so as to trigger completion date. Lengthy discussion plus provide signoff regarding moving to completion of contract."
On 14 March 2016, the solicitors for Almona sent an email to Mr Dixon-Smith in the following terms: "Our client has instructed us a number of times that he has attempted to ascertain the payout figure from you to finalise a transaction that he has been negotiating for the repayment of the facilities owed to SAP III (Lender). On 22 February 2016 we brought our client's attempts to the receivers' attention through Gilbert & Tobin, their lawyers. On 23rd February 2016 we were advised that the matter would be addressed by the Lender's lawyer, King Wood & Mallesons [sic]. On Friday, 11 March 2016 we attempted to contact both Stuart Dixon-Smith and Jessica Wallis to discuss the matter and obtain a response to our email. Despite our attempts on Friday, we again attempted to contact both Stuart and Jessica this morning and were advised that the earliest that Stuart would be available would be after 11am this morning. As mentioned the failure to advise our client the level of the debt is frustrating our client's opportunity to finalise a transaction for the repayment of the facility. We have been given no reason for the lack of response or even its delay. Our client has advised us that he has reached an agreement which will allow him to repay the debt owed, subject to receiving notification of the level of the debt or the payout figure. Subject to receiving this information the repayment may occur on Friday, 18 March 2016. The failure of both the receivers and the Lender to advise our client of the level of the·debt despite his requests, including those that we have made on his behalf, amounts to a clog on the equity of redemption. It may also amount to a breach of statutory duties and unconscionable conduct. Our client has instructed us to obtain an urgent undertaking from the Lender and the receivers that: 1. no further steps will be taken to sell Parklea Markets or any other property over which security has been granted to the Lender (Secured Property); and 2. no contract of sale will be entered for the sale of any Secured Property, until the later of (i) 5 pm on 18 March 2016; or. (ii) 6 hours after the information requested in paragraph (c) is provided to our client (such date being a business day in Sydney); and 1. payout figures will be calculated promptly and provided to our client as soon as possible (but no later than 9 am on Friday 18 March 2018 [sic]) including sufficient information to determine the assets and liability of any borrower/guarantor and any of their assets controlled by the receivers. We are also instructed that our client has put to the receivers' representative this morning his request to know what is the current status and to have a meeting with the Lender and receivers to discuss the current status. Please let us know if you require any further information as we will obtain it and provide it to you from our clients. The party with whom we are instructed a deal has been reached with is Mackycorp Pty Limited. In the event that we do not receive the undertaking requested on or before 1 pm today, we have been instructed to approach the court on an urgent basis, without further notice to your clients, to obtain appropriate equitable relief. Should any transaction be entered into before our client's request is complied, with our client will be seeking appropriate equitable relief to set aside those transactions for the reasons stated above including requesting that our client's costs be recovered from each of your clients on a full indemnity basis. We look forward to receiving your urgent response."
On the same day Mr Dixon-Smith replied as follows: "I have forwarded your email to my client for instructions, but in the meantime will let you have a preliminary response to your email. You client have [sic] previously requested payout numbers in similar circumstances over the past 6 months, assured, like this time, that a repayment is imminent. We and the receivers have diligently undertaken considerable work at significant expense to provide that payout and then nothing has eventuated. In one instance we and the receivers were fully prepared for a settlement which you not only did not turn up to, but failed to give us the courtesy of even contacting us to call off. Our client has expended significant sums calculating the payout figure to no avail and your client has not reimbursed it for those significant costs. Little wonder that we have not taken your latest requests seriously. In anticipation of the instructions I have yet to receive, I would ask that you provide us with comprehensive written evidence of the refinancing arrangements so we can satisfy our client as to the bona fides of any request for a payout figure. I would also foreshadow that our client will not be in a position to participate in any refinancing payout this Friday should that be the actual time frame. In relation to the undertakings sought below in your email, you are not entitled to request those undertakings and they will not be forthcoming. I will respond further once I have had instructions from my client."
On the evening of the same day, Almona's solicitors responded in the following terms: "As mentioned in our earlier email, our client has reached an agreement with Mackycorp Pty Ltd and we have been advised that standing behind it is AMB Capital Partners. We are informed that their lawyers, Norton Rose, will by noon tomorrow provide proof of the financial capability to close the transaction. Any transaction entered into by your client or the receivers in disregard of our requests will be challenged on the basis stated in our earlier emails. Suffice to state that the record will show: (a) the picture you are trying to paint of our client's previous requests is not accurate; (b) the number of times that our requests for payout figures have been completely ignored; and (c) at the time of those requests, our client had an honest expectation that he could obtain the finance to repay the debt subject to knowing the payout figure. Your email cryptically states that 'I would also foreshadow that our client will not be in a position to participate in any refinancing payout this Friday should that be the actual time frame'. Please explain what this means. We trust that this is not another attempt to obfuscate the current status of your client's or the receivers' dealing with the Secured Property to frustrate our client's ability to repay the debt (ie another attempt to clog the equity of redemption). With respect our client may seek whatever undertakings are reasonable to request to avoid the need to commence legal proceedings, particularly where its [sic] seeks to obtain the equitable relief we have identified. We believe that our undertakings in the context of the relief sought are reasonable and prudent, and clearly designed to avoid unnecessary costs and court time. If you have any specific concerns about any aspect of the undertakings that you consider to be unreasonable or a concern to your client, please advise us what your concerns are. We look forward to your urgent response."
The transaction with Mackycorp Pty Ltd and AMB Capital Partners was not as certain as the solicitors for Almona would seem to suggest. On 14 March 2016, Mackycorp wrote to Mr Constantine, stating that a company associated with Mackycorp would offer to purchase the property for $65 million and on other terms, including the engagement of Almona to manage the market garden, with Almona having the right to retain the existing residence. It also provided for the parties to that agreement to approach SAP to negotiate the payout sum "which is understood to be no greater than $65 million". The offer was said to be subject to satisfactory due diligence and board approval.
On 15 March 2016 at 1.22pm, the solicitors for Almona emailed Mr Dixon-Smith, attaching a letter from AMB Capital Partners to Mr Constantine indicating that company was prepared to provide finance of $65 million subject to a three week due diligence period, and seeking confirmation from the receivers that they would not enter into or complete the sale of any assets of Almona during that due diligence period.
Prior to receipt of that email, Mr Dixon-Smith sent an email to PAG in the following terms: "I have thought about our action plan this week following our discussion last night and wanted to just map out how I see us proceeding this week. This is a bit long, but this is a complex situation and I wanted to give you a comprehensive action plan to achieve our objectives and cover off a few risks I see… Settlement: I propose that we settle the sale ASAP (target say Thursday) on the basis that the existing PAG fund holding the Almona debt provides vendor finance to the purchaser to enable an accelerated settlement. To this end I propose we have Gilbert + Tobin sent [sic] the purchaser notice saying the Investment Committee approved the contract in January 2016 and giving notice requiring settlement in 14 days (as the contract provides). Sending this notice is very important because it makes the contract unconditional and unquestionably shuts down any right that Almona has to refinance the facility. Notwithstanding this formal notice, we would separately agree to settle on Thursday based on amended terms discussed below… … Dealing with Con/Almona/Norman Donato I haven't replied to Norman's letter last night, I'll let the clock tick a bit. This afternoon I'll send a short reply saying my earlier email was entirely clear and I don't propose to elaborate, but saying I do not propose to take any action until I receive written confirmation from a financier's lawyer that funding has been committed, with copies of a binding term sheet, draft financing documents and a realistic timetable for financial close, at which stage I will respond to all parties. Hopefully that takes until Thursday, at which stage I can write to confirm the sale of the property has completed."
Subsequent to the receipt of the email from Almona, Mr Dixon-Smith again emailed PAG. The email attached the letter from AMB Capital Partners and made the following comments: "Woody and James, as envisaged by you, those involved in the proposed refinancing do actually have the firepower to fund this if Con can make it stack up. The good news is they are asking for 3 weeks exclusive DD to get it done, so any refinancing can't be closed by the time it is anticipated that the buyer completes the contract. I'll consider a draft reply and circulate for instructions late today."
On 21 March 2016, the solicitors for Almona were informed by Mr Dixon-Smith that the amount outstanding was $70,872,398.57 and a contract for $81.1 million had been exchanged. Basten JA has explained the circumstances in which the contract price was varied to only include that amount rather than the alternative amount if Mr Constantine gave vacant possession.
On 22 March 2016, the solicitors for Almona wrote to King & Wood Mallesons and the solicitors for the receivers, stating that whilst Almona had been aware since 18 January 2016 that a caveat had been lodged on the property, it had not been made aware of the details of the contract. The letter stated that Almona would not stand in the way of completion of the transaction.
The contract was completed on 22 March 2016.

[2]

Was Almona entitled to rely on a collusive arrangement between SAP, Dyldam and Wesco in support of its claim?

As Basten JA has pointed out, Wesco reduced its first round bid of $92 million to $79 million in the second round, thus leaving Dyldam as the highest bidder. The essence of the collusion case was that the reduction in the Wesco bid was as a result of collusion between SAP, Dyldam and Wesco, whereby Wesco agreed to reduce its bid in return for an interest in the ultimate purchaser. This essentially was an allegation that SAP, Wesco and Dyldam had fraudulently manipulated the bid process.
The first thing to note is that no such allegation was pleaded. The further amended Statement of Claim, filed in court on the first day of the hearing before the primary judge, alleged that SAP breached its duty of good faith essentially by first, failing to respond to requests for information concerning the payout figure, second, failing to advise of the terms of the proposed sale and third, implementing Mr Dixon-Smith's action plan to which I have referred at [43] above. There was no allegation of collusion to cause the reduction in Wesco's bid price.
Particulars of fraud, breach of duty and unconscionability were supplied on 20 February 2019 and 1 March 2019. As with the further amended Statement of Claim, they made no reference to any collusion with Wesco.
The involvement of Wesco was first raised in the particulars supplied on 6 March 2019. It is convenient to set them out in full: "1. By reason of commercial arrangements documented either in whole or in part in the Loan Note Subscription Agreement (LNSA), the Parklea Markets Heads of Agreement (HOA) and the Call Option Deed (COD) dated 22 March 2016, Dyldam through its nominees (including the first defendant, Quatro 88 Pty Ltd, Collrea Pty Ltd) and the PAG Group through its nominees (including Lord Business Holdings VI Limited and Lord Business Holdings VIII Limited) and companies associated with Mr Tony Merhi (namely Visy Group Holdings Pty Ltd, Visy Projects Pty Ltd, Wesco Ventures Pty Ltd, Wesco Capital Pty Ltd and Praise Group Pty Ltd) are involved in a joint venture to develop and purchase the Land through their interests in the first defendant or its shareholders. 2. Those interests are not apparent to third parties who do not have access to the LNSA, POA [sic] and COD. 3. The plaintiff first obtained access to the COD and the POA [sic] when documents were produced following contests about the Notices to Produce on the evening of Thursday 28 February 2019. 4. The sale by the second defendant to the first defendant was not an arm's length transaction. 5. Mr Tony Merhi had through another company controlled by him, Wesco Capital Pty Ltd (Wesco) been the highest first round bidder in the expression of interest process for the sale of the Land conducted by the Receivers of the plaintiff. 6. At or about the time of the closing of the second round of expressions of interest, Wesco reduced its offer from $92,000,000 to $79,000,000 thereby placing the first defendant in the position that it was the highest bidder in the second round expression of interest process. 7. At or about that time, arrangements of the nature that came to be reflected in the LNSA, HOA and COD were discussed or negotiated by representatives of the PAG, Dyldam and companies associated with Mr Merhi."

[3]

Was the sale in bad faith or a fraud on the mortgagee's power of sale?

The obligation of a mortgagee in the exercise of its power of sale has been expressed in various overlapping ways. Thus, in Farrar v Farrars Ltd Lindley LJ at 411 described that the mortgagee's obligation was to act bona fide and take reasonable precautions to obtain a proper price. That statement was approved by Griffith CJ (delivering the judgment of the Court) in Barns v Queensland National Bank Ltd (1906) 3 CLR 925 at 942; [1906] HCA 26, who added (at 943) that the power of sale must be exercised honestly for the purposes of the power.
In Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; [1912] HCA 9, Griffith CJ (at 680) stated that the obligation was that the mortgagee not recklessly or wilfully sacrifice the interest of the mortgagor, and that if the mortgagee does so he is to be regarded as not having acted in good faith. Barton J (at 694) stated that if the mortgagee confines his attention to his own interests, and sacrifices the mortgagor's property by doing so, he acts in bad faith, emphasising that the mortgagee only considers his own interest "if he cares no jot whether a fair price be obtained, so only that the price pays his debt". Isaacs J (at 700) stated that the mortgagee's power must be exercised bona fide and having regard to the purpose for which it is conferred.
In Forsyth v Blundell (1973) 129 CLR 477; [1973] HCA 20, Walsh J at 493 described the obligation to act in good faith as an obligation to "act without fraud and without wilfully or recklessly sacrificing the interests of the mortgagor". He stated (at 496) that "[w]hat has sometimes been described as a fraud on the power and sometimes as a wilful or reckless disregard of the interests of the mortgagor does not necessarily involve … the commission of actual fraud". In Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195; [1978] HCA 21, Jacobs J stated (at 201) that the obligation of the mortgagee once the decision to sell has been made is concerned with a genuine primary desire to obtain the best price obtainable consistently with the right of the mortgagee to realise his security. He also considered that when there is a possible conflict between that desire and a desire that an associate should obtain the best possible bargain, the facts must show that the desire to obtain the best price was given absolute preference over any desire that an associate should obtain a good bargain. Aickin J, after extensively reviewing the authorities, stated the critical question was whether there was a "truly independent bargain".

[4]

Overview

It is convenient at this stage to explain, by way of an overview, the case run by Almona, both at trial and on the appeal, and note the resolution, both at trial and on appeal.
Whilst in control of Almona, Mr Constantine entered into a loan transaction with SAP which provided short term finance to Almona. There was an opportunity to obtain an extension of the credit facility, but subject to conditions. Almona did not satisfy the conditions and, being unable to repay the loan, fell into default. SAP appointed the receiver and manager PPB, which proceeded to conduct a sale of the property
At various times during the following year, Mr Constantine (although no longer in control of Almona) attempted to obtain funding to pay the outstanding balance owing by Almona to SAP. The first and primary claim made at trial was that SAP was in breach of its duty as a mortgagee exercising a power of sale to the extent that it failed to facilitate attempts by Almona to repay the loan. Almona maintained that position after SAP issued a notice under s 57(2)(b) of the Real Property Act 1900 (NSW), and the property had been placed on the market, and after the agent had obtained final bids from a number of prospective purchasers. Indeed, Almona continued to maintain its entitlement to recover the property by repaying the debt to SAP after a contract of sale had been entered into with the highest bidder. The claim that SAP was in breach of its duty to Almona as mortgagor by failing to provide payout figures when requested, and halt the settlement of the contract to allow a financier dealing directly with Mr Constantine to conduct due diligence, dominated the pleadings at all stages and much of the argument presented at trial. At least from the time the contract of sale became unconditional (and possibly before that point) Almona's claim was bound to fail, unless it could demonstrate that SAP was otherwise carrying the sale process in breach of its duty to Almona. That aspect of the case was properly rejected by the trial judge.
Secondly, once Mr Constantine became aware of the "occupation condition" in the sale contract, Almona pursued a claim of fraud, unconscionability and misleading or deceptive conduct against both the mortgagee (SAP) and the purchaser (Parklea Corporation) for failing to disclose that the sale contract contained a higher price and a lower price, the higher price being payable if Mr Constantine vacated the house and curtilage he occupied on part of the land. He was not told of that fact until after the contract had been settled and thus Almona failed to obtain the benefit of the higher price. Almona succeeded on that claim at trial and a cross-appeal by Parklea Corporation challenging that part of the judgment must be rejected.

[5]

Issues raised on appeal

Before exploring the factual complexities, it is convenient to note a number of issues arising from the appellant's claims in this Court. First, some grounds of appeal spoke of a breach of duty on the part of the mortgagee in the exercise of its power of sale; others referred to a "fraudulent exercise" of the power of sale, as if the concepts were interchangeable. [2] A number of circumstances were said to give rise either to a breach of duty or to constitute fraud.
Secondly, the orders sought on the appeal included (i) the setting aside of the contract for sale and the registered mortgages which financed the purchase by Parklea Corporation, (ii) the revesting of the land in the appellant and (iii) the taking of accounts as between the appellant and Parklea Corporation and SAP. Conduct which might warrant one form of relief might not warrant another. Fraud will cover a range of different forms of conduct of which some, but not others, may be sufficient for particular purposes, such as setting aside the indefeasible title obtained by registration. [3]
Thirdly, there were two themes underlying the appellant's claims. The first was that PAG effectively manipulated the sale process by its subsidiary and agent, SAP, and by providing funding to the purchaser, Parklea Corporation, which was set up through an arrangement between PAG and Dyldam Developments Pty Ltd. Dyldam was a developer of land in Australia with which PAG (based in Hong Kong) had an established relationship. SAP was therefore exercising the power of sale in part to protect its own interests and in part to ensure that those controlling it obtained a majority interest in the land for the purpose of profit through development. Secondly, although it was not submitted that the land was sold at an undervalue, it was submitted that (i) a better price might have been obtained and (ii) steps were taken to prevent Almona from refinancing and thereby exercising its right of "redemption". [4] The claims appeared to suggest at least an analogous situation to a mortgagee purchasing the land itself, a course not permitted by the exercise of a power of sale.
Fourthly, although not expressed in these terms, there were suggestions of fraud on a third party within the fourth category of fraud identified in Earl of Chesterfield v Janssen. [5] In that case Lord Hardwicke LC referred to a transaction which was transparent and consensual between the parties, but which involved a clandestine and private agreement between them to the detriment of a third party. Thus, an entity associated with Mr Tony Merhi, Wesco Capital Pty Ltd, lodged an initial expression of interest at $92 million, well above the conditional offer of $85.35 million made by Dyldam. Wesco's final bid was $79 million. Two other companies controlled by Mr Merhi emerged with a 20% ownership interest in the purchaser, Parklea Corporation. The highest final bid was the original amount offered by Dyldam. The allegation was, in effect, that Mr Fayad and Mr Merhi had colluded to the detriment of Almona.

[6]

Legal principles

The interest of SAP as mortgagee arose under s 56 of the Real Property Act 1900 (NSW). The mortgage constituted a security interest pursuant to s 57(1). Upon default by the mortgagor (Almona), SAP exercised its power to appoint a receiver to the mortgagor and take possession of the land. It also exercised a power of sale. [8] Subject to the requirements of the Real Property Act, the mortgagee had power to sell the mortgaged land. In doing so, it acted in its own interests in order to recover moneys owing under the mortgage, but had obligations with respect to the interest of the mortgagor in any surplus. However, statements of the duty owed to the mortgagor under the general law include the propositions that it "must conduct the sale properly, and must sell at a fair value, and … could not sell to [itself]." [9] At a similar level of generality, it is said that the mortgagee must act "in good faith". In Forsyth v Blundell, [10] Mason J stated that there was a breach of duty by a mortgagee in exercising its power of sale "without taking reasonable steps to obtain a proper price and in so doing acted otherwise than bona fide, that is, recklessly, not caring whether the price obtained was in the circumstances a proper price or not."
That obligation has been expanded by s 111A of the Conveyancing Act to a duty to take reasonable care to ensure that the land is sold for not less than its market value. [11] Breach of that obligation does not permit the title of the purchaser to be impugned, but may found an action in damages by the mortgagor who has suffered loss: s 111A(4). (It will be necessary to return to the question of relief for breach of duty.)
Underlying the various expressions of the duty is a principle involving protection of the financial interest of the mortgagor. Where the land is worth more than the debt owing under the mortgage it is, in the absence of other creditors, the interests of the mortgagor which requires that the best value be obtained by the sale.
The critical issue in this case, as in Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd, [12] "was whether it was a truly independent bargain." [13] In so identifying the issue in Bangadilly Pastoral, Aickin J relied upon the following passage in the judgment of Lindley LJ in Farrar v Farrars Ltd: [14] "It is perfectly well settled that a mortgagee with a power of sale cannot sell to himself either alone or with others, nor to a trustee for himself …; nor to any one employed by him to conduct the sale …. A sale by a person to himself is no sale at all, and a power of sale does not authorise the donee of the power to take the property subject to it at a price fixed by himself, even although such price be the full value of the property. Such a transaction is not an exercise of the power, and the interposition of a trustee, although it gets over the difficulty so far as form is concerned, does not affect the substance of the transaction."

[7]

Circumstances constituting collusive dealing

There were in substance two limbs to the appellant's case with respect to the sale of the property by SAP to Parklea Corporation. The first concerned the relationship between the mortgagee exercising its power of sale (namely, SAP) and the purchaser (Parklea Corporation); the second concerned the circumstances by which the highest bidder on the first expression of interest became the beneficial owner of a 20% interest in Parklea Corporation. With respect to the first limb, the case differs from both Bangadilly and Latec in that there was no common shareholding or directorship in vendor and purchaser. Rather, there was a complex web of corporate interests, which demonstrated that PAG controlled and financed both SAP and Parklea Corporation.
With respect to the second limb, there are only three known facts, namely that (i) Wesco made the highest bid in the first expressions of interest, (ii) Wesco's final bid was below that of Dyldam, and (iii) Wesco ended up with a 20% shareholding in the purchaser. The appellant contended that, absent any explanation from the respondents, the Court should have inferred that Wesco reduced its bid from the highest to one below Dyldam's as a result of an arrangement by which it obtained a beneficial interest in the joint venture between Dyldam and PAG. The absence of any documentation available to the appellant was a consequence of the belated exposure of the fact of Wesco's interest in the joint venture, after the trial was due to have commenced.

[8]

(a) events in 2015

There was no dispute that SAP, via a web of related companies, was a member of the Pacific Alliance Group, both through directorships and ownership via subsidiary companies. Its authorised signatory was Mr Jon Lewis, who was a principal of PAG. In 2013, pursuant to a "loan notes subscription agreement", SAP provided Almona with funds in an amount of $53.2 million, which refinanced bank finance previously procured by the Almona from Westpac, in respect of which Almona had defaulted, resulting in the appointment of receivers by Westpac. The SAP loan was provided for a period of 12 months. The loan could be extended if certain conditions were met, but they were not met and the loan thereupon became repayable on 31 May 2014. Almost 12 months later, on 17 April 2015, SAP appointed PPB Advisory as receiver and manager of Almona. The amount outstanding at that time was in excess of $66 million.
The receiver obtained a number of valuations of the land, which ranged from $115 million down to $45 million, the lower valuations being based on a continuation of present use. It concluded that a fair value was between $80 million and $91 million.
On 20 August 2015 SAP served a notice under s 57(2)(b) of the Real Property Act, as a preliminary to the exercise of its power of sale. In August 2015 the receiver appointed Colliers International as its selling agents. An initial report identified Dyldam as one of 10 local buyers who might be interested in the property.
On 8 October 2015 Wesco Ventures Pty Ltd was registered with Tony Merhi as the sole shareholder and director. A month later, on 12 November 2015 a further company, Visy Group Holdings Pty Ltd was registered, with Wesco Ventures and Mr Merhi as the shareholders. On the same day, Visy Projects Pty Ltd was registered with the same shareholders as Visy Group Holdings.
On 30 October 2015 Dyldam Developments lodged an expression of interest, signed by its director, Sam Fayad, offering $85,350,000. Wesco Capital lodged an expression of interest in the sum of $92 million. Eleven other expressions of interest were lodged, ranging from $40 million to $84,250,000. Colliers advised the receiver that of the 14 expressions of interest six were between $80 million and $92 million and the bottom eight between $60 million and $70 million. Colliers suggested that they should notify the top six parties on 16 November 2015 that a second round of expressions of interest would run for two weeks closing on 30 November 2015. (The proposal was not immediately adopted and the closing date was later extended to 18 December 2015.)

[9]

(b) Negotiations in 2016

Although the heading to emails from Madison Marcus refer to the transaction with SAP as vendor, being a mortgagee exercising power of sale, it continued to correspond with Gilbert + Tobin on behalf of the receivers. Parklea Corporation was incorporated on 4 January 2016.
On 8 January 2016 Madison Marcus requested that the top up of the deposit to 5% of the contract sum be conditional upon investment committee approval and be no later than 14 January 2016 or confirmation that the vendor has obtained investment committee approval; a similar request was made with respect to settlement, namely that it be "the later of 28 January 2016 or 14 days after the confirmation the vendor has obtained the investment committee approval". The contract as executed provided for investment committee approval to be communicated by 14 March 2016. Pending investment committee approval, the contract remained conditional. From 14 March 2016, if no investment committee approval had been communicated, either party could rescind.
After further minor changes to the agreement, contracts were exchanged on 13 January 2016. The following day Parklea Corporation lodged a caveat. Almona was provided with a copy of the caveat on 18 January 2016.
Throughout the period whilst the receiver was in possession, Mr Constantine had been attempting to obtain finance to repay SAP. Those efforts continued after 18 January, when Almona was formally notified of the caveat. Mr Dixon-Smith was kept informed of the requests on behalf of Mr Constantine for payout figures, the requests being made to Gilbert + Tobin initially.
As noted above, Mr Dixon-Smith (acting for PAG) prepared a profit distribution table based on an anticipated purchase by Dyldam and PAG, and attended a meeting with Dyldam in Hong Kong on 11 December 2015. On 23 December 2015 Mr Dixon-Smith prepared a draft Parklea "funding term sheets" and reviewed a "purchaser purchase structure". Then, on 17 February 2016 Mr Dixon-Smith prepared a "Parklea Markets funding heads of agreement", the drafting of which continued through to 22 February 2016 when a document was emailed to Mr McMurdo and Mr Woodhull at PAG. On 10 March 2016 Mr Dixon-Smith went to Hong Kong where he attended meetings concerning the funding arrangements for the acquisition of the property and the reviewing of the heads of agreement which he had been drafting. Before turning to the heads of agreement document, it is convenient to note an exchange of emails between Gilbert + Tobin and Madison Marcus on 8 March 2016, in the course of which Mr Weinberger advised Ms Carter at Madison Marcus that the purchaser had agreed to vary the sunset date from 14 March 2016 to 29 April 2016. A deed was prepared for that purpose by Gilbert + Tobin. In its amended form, cl 63 of the contract read: "63 Sale is subject to the approval of the vendor's investment committee (a) The vendor discloses that the vendor requires approval of the Investment Committee to sell the property under this contract. (b) The parties agree that completion of this contract is conditional on the vendor notifying the purchaser that the Investment Committee has approved the sale of the property under this contract by no later than 29 April 2016. (c) If the vendor has not notified the purchaser that the Investment Committee has approved the sale of the property under this contract by 29 April 2016, then either party may rescind this contract by notice in writing to the other, such notice given any time before the vendor notifies the purchaser that the Investment Committee has approved the sale of the sale of the property under this contract."

[10]

The structure provided in the draft heads of agreement of 10 March 2016 had an ownership structure involving separate Holding Trusts 1 and 2 which held, respectively, 20% and 80% of the units in an intermediate holding trust. The property was owned immediately by an ownership trust. PAG was to supply mezzanine debt to the two holding trusts and senior debt to the ownership trust. The ultimate holding trust was to grant PAG an option to acquire its units in Holding Trust 2, which held an 80% interest in the property. Clause 2.1 stated: "2.1 Background The Landowner [undefined] has entered into the Land Acquisition Agreement [defined as the contract for sale between SAP and 'the Landowner'] following negotiations between members of the Dyldam Group and members of the PAG Group and based on discussions regarding the funding of the Project by members of the PAG Group." "Project" was defined to mean the acquisition, development and sale of the land.
Pursuant to cl 5, Trust 2 was given majority decision-making powers over the intermediate holding trust and the landowner, but PAG and the security trustee were given negative control over the affairs of Trust 2. Further, there was a call option: "5.2 Call Option In consideration of and reflecting the very high loan to value ratio of the facilities provided by PAG, the Ultimate Holding Trust will grant the Call Option to PAG." That call option was defined as an option over "all issued units in Trust 2 and all shares in the trustee of Trust 2 granted by Ultimate Holding Trust in favour of PAG and its nominee."
Other terms of the draft heads of agreement may be put to one side for present purposes. A final form of the heads of agreement was executed on 22 March 2016: it will be convenient to consider further details of the agreement at that stage. For present purposes the following features of the terms set out above may be noted.
First, although the solicitors for Dyldam were acting independently of PAG in questioning aspects of the contractual documentation, two factors suggest that the degree of independence was limited. Thus, it is clear that PAG and Dyldam had acted together on at least one earlier project as reflected in Mr Dixon-Smith's reference to using as a precedent, "Wolli Creek". There was also reference to discussions in Hong Kong between PAG and Dyldam in mid-March 2016 with respect to another venture. Importantly, there was no evidence that Dyldam had any alternative source of finance in the order of $90 million.

[11]

(d) final transaction documentation

A succinct statement of the scheme, as it existed on (or shortly before) 18 March 2016, is found in a document prepared by Perpetual as proposed security trustee, on instructions of Madison Marcus: "• Parklea Corporation Pty Ltd (the 'Customer') is a special purpose company owned by two trusts that are part of the Dyldam Group; • The Customer has exchanged contracts to acquire the Parklea Markets; • The sale is a mortgagee in possession and the sale price will be between $81-$85 million subject to certain requirements; • PAG (an independent alternative investment management group) will provide an $85m to $90m loan to the Customer (the 'Loan') to fund the acquisition; • PAG will use a British Virgin Islands special purpose vehicle as the lender entity for the Loan; • Perpetual has been requested to provide security trustee services; • Security to be provided to the security trustee will include: O First ranking registered GSA over all the assets and undertakings of the Customer and two other entities related to the Customer; O A mortgage over the Parklea Markets; O A mortgage over units owned by related parties of the Customer at George Street, Parramatta; and O A mortgage over units owned by related parties of the Customer at Merrylands. • Settlement is expected to take place on Monday 21 March 2016; • Stuart Dixon-Smith (Partner, King & Wood Mallesons) will act for PAG, Madison Marcus law firm will act for the Customer and Alex Mufford will act for Perpetual; • The Customer is negotiating with HSBC to refinance the Loan in three months time and Perpetual will continue to act as the security trustee for HSBC as the incoming financier; and • The refinance with HSBC will be used to construct a mixed use development, which will include the construction of apartments and retail shops."
In fact, the settlement took place on Tuesday, 22 March 2016, and the deed of variation providing that the price would be $81.1 million; otherwise the description of the proposed transaction set out above was followed, subject to the following additional elements.
The first document, critical to the appellant's case, was the call option with respect to the unit shares. As noted above, the shareholding in Parklea Corporation was divided between Parklea Holdings 1 (80 shares) and Parklea Holdings 2 (20 shares). Each was trustee for an eponymous unit trust. Thus, 80% of the value of Parklea Corporation was held by the Parklea Holdings 1 unit trust.

[12]

Appellant's first claim of impropriety - mortgagor's right to repay loan

The appellant's first claim of impropriety was reflected in the proceedings instituted on 18 March 2016, being an attempt to prevent the settlement of the contract of sale to Parklea Corporation. The claim was based on the proposition that, at any time up to the transfer of title pursuant to a mortgagee sale, the mortgagor was entitled, on tender of the outstanding loan amount, to obtain a discharge of the mortgage.
The appellant relied on the failure of those representing SAP (including Mr Dixon-Smith acting for PAG) and the receiver, to inform Mr Constantine of what was happening, thus preventing him from organising funding to pay out the mortgage and recovering control of Almona. The argument had two limbs: first, the refusal to supply payout figures on request and, secondly, the non-disclosure of the terms of the sale contract entered into on 13 January 2016, together with the steps taken to accelerate settlement under that contract.
Following Almona replacing Westpac with SAP as its financier, on 31 May 2013, it was clear in early 2014 that Mr Constantine either needed to persuade SAP to extend the twelve-month period of the loan or needed to refinance with another lender. His attempts to extend the period of the loan failed: on 5 June 2014 SAP rejected the request for an extension and noted that the amount outstanding (as at 31 May) was $58,911,301. On 9 July 2014 Bartier Perry advised SAP's solicitor, Clayton Utz, that Almona would be in a position to secure refinancing within three months. On 28 November 2014 the outstanding figure was confirmed as $60,649,040. Whilst a period of forbearance was provided, by 2 February 2015 the amount outstanding was $65,566,970. SAP appointed receivers on 17 April 2015.
On 30 July 2015 Bartier Perry assured Mr McMurdo (PAG) that refinancing was expected within four weeks. On 3 August 2015 KWM advised Bartier Perry that the amount owning as at 31 July 2015 was $70,989,568. A notice pursuant to s 57(2)(b) dated 7 August 2015 identified the outstanding amount as $71,262,096. Bartier Perry notified a target date for refinancing as 31 August 2015. KWM and Gilbert+Tobin prepared documents required for settlement of the loan repayment, including discharges of mortgage. Settlement was not achieved on 30 August and a new date was fixed for 4 September 2015. Settlement did not occur on that date but Bartier Perry sent an email on 11 September advising that the refinancing would occur on 18 September. The financier, International Corporate Funders, advised Bartier Perry that settlement could not occur on that date as relevant documents had not been provided. (On 16 September a proposed purchaser, Abacus Property Group, withdrew.) On 17 September 2015 KWM advised that the payout figure was $75,615,868 as at 18 September. Settlement did not occur and was rescheduled for 23 September 2015. Settlement did not occur by 30 September 2015.

[13]

(a) accelerated settlement

Although there appears to have been no file note indicating confirmation of the proposal to notify the purchaser that the investment committee had approved the contract in January 2016, on 17 March 2016 at 9:15am Mr Dixon-Smith emailed Mr Weinberger at Gilbert + Tobin to give him notice confirming that fact and setting the completion date of which the purchaser should be notified. On the same day, Ms Hempel (Gilbert + Tobin) advised Madison Marcus that the vendor had obtained the approval of its investment committee and that the date for completion was Friday, 1 April 2016. The contract thereby became unconditional.
There were clearly undocumented conversations between Mr Hall of Madison Marcus, Ms Hempel at Gilbert + Tobin and Mr Dixon-Smith at KWM. Further, it is likely that all parties obtained instructions from their clients in the course of Thursday, 17 March 2016. There is, however, no documentary record of the telephone calls or the instructions. However, at 5:05pm Mr Hall sent Ms Hempel an email referring to recent telephone calls, and the letter advising that the investment committee had given approval. He further noted the contemplation of the parties that the completion would take place on Monday, 21 March 2016 (providing only one full working day and the weekend to ensure that both finance and the documentation for the transactions were in place). This was, potentially, three days faster than the accelerated settlement and registration of the transfer proposed by Mr Dixon-Smith. Further, Mr Hall proposed that "[t]o reflect the discussions between the parties" a deed of variation should be entered into with a new front page of the contract showing the purchase price as $81.1 million. That was an abandonment of the proposal to allow Mr Constantine an opportunity to vacate the home on the land and thereby obtain the higher price under the original offer by Dyldam.
At the same time, that is, in the course of Thursday 17 March, Mr Jarrett (on behalf of Dyldam) made arrangements with Mr Greg White of Perpetual to undertake a role as trustee of the mortgages to be entered into by Parklea Corporation for the funding of the purchase.
The events of the following three days may be briefly summarised. On Saturday 18 March 2016 KWM produced a further version of the Parklea Markets - Heads of Agreement. Also on 18 March 2016 Mr Constantine, dissatisfied with the responses which his solicitor had obtained from KWM, commenced proceedings seeking to injunct the settlement of the contract. However, those proceedings were abandoned the following Monday, 21 March 2016.

[14]

(b) conclusions

Treating the complaint that Mr Constantine had been denied an opportunity to pay out the mortgage in isolation from the appellant's other complaints, it would not be possible to find in the circumstances set out above a breach of the mortgagee's duty to the mortgagor. There had been a considerable period of forbearance before the receiver was appointed, and a further period during which Mr Constantine had opportunities to refinance and was unable to do so. If there were indeed a third party willing to put up the necessary funds it had every opportunity to do so in the course of the expression of interest process undertaken by Colliers. Although Mr Constantine said he was negotiating with Mackycorp in November 2015, it is clear that Mackycorp did not engage with Colliers at any stage. Once contracts had been exchanged on 13 January 2016, whether conditional or otherwise, the mortgagee was entitled to pursue that arrangement and, indeed, may have been liable in damages if it had reneged. In fact the investment committee of its funder had approved the contract of sale in January and it is proper to infer that delay occurred in advising the purchaser of the satisfaction of that condition only because time was required to make the necessary arrangements to fund the purchase, a matter which was also ultimately under the control of PAG.
While it is true that Mr Dixon-Smith was anxious to render the sale contract unconditional, by notifying the purchaser of investment committee approval, the effect was, in his view, to make the contract "unconditional and unquestionably shuts down any right that Almona has to refinance the facility."
There was little consideration given in the course of the appeal to the possibility that Almona might have a right to refinance the mortgage after the sale contract had been entered into, but before settlement. The submissions, particularly before the trial judge, were formulated in terms of Almona's right to "redeem", a right which would presumably be protected in equity. However, that language was inapt: Almona was the registered proprietor of the land under the Real Property Act, but as explained in Bangadilly Pastoral, its rights as owner were subject to the power of sale vested in the mortgagee. The question was, therefore, whether Almona had any power to prevent the mortgagee, which had exercised the power of sale by exchanging contracts, from carrying out its obligations under the contract. There was also a live issue as to the extent to which Mr Constantine, as a director of Almona, could properly institute proceedings to prevent the sale, whilst the receiver was managing the company.

[15]

Appellant's second claim of impropriety - sale transaction not independent

The appellant's second claim was that the funding of the purchase by PAG, the owner of the mortgagee, prevented the sale being an independent transaction undertaken by the mortgagee. Accordingly, the sale could not be upheld as a good faith exercise of the power of sale, unless the mortgagee demonstrated that the best available price had been obtained by a fair process. It is convenient at this stage to identify the findings of the trial judge with respect to these matters. The conclusions were as follows: "[585] As has been considered above in connection with the burden of proof, there is no absolute prohibition on a mortgagee selling the security property to a company in which the mortgagee has an interest, provided, in respect of the price obtained, the transaction is a proper and independent one. The circumstances may have the effect that the interest obtained by the mortgagee switches the burden of proof and imposes it upon the mortgagee or the entity through which the mortgagee obtains its interest. [586] It has not been necessary for SAP or Parklea in this case to prove that the contract price for the Land was struck by a proper and independent process or that the price represented the market value. All of the evidence concerning the participation by the receivers and Colliers, and the implementation of the expression of interest campaign, supports a finding that the process was proper and independent. As I have recorded, the case was conducted on the basis, as initially conceded by Almona, that the contract price was a proper one. Although Almona's belated introduction of a fraud claim against SAP and Parklea based upon the joint venture negotiations in late 2015 may imply that the sale was at an undervalue, Almona did not lead evidence to establish such a claim. [587] Once it is established that the price in the Contract is a proper one, and that the interest acquired by PAG through Lord VI and Lord VIII has not led to any diminution in the amount received by Almona following the sale of the Land, no obligation of good faith was imposed upon SAP to provide any information to Almona concerning that interest." It will be necessary to return to this reasoning. The analysis will appear in addressing the appellant's "wider fraud" case at [225]ff below. In short, the evidence did not establish that it was PAG's intention to acquire a contingent interest in the property when the contract of sale was signed. Even had there been such an intention in the days before the contract was signed, it did not cast a sufficient doubt on the independence of the sale process, as the trial judge found, to place a burden on the mortgagee to justify its conduct of the sale.

[16]

Appellant's third claim of impropriety: accommodation condition

[17]

(a) finding on opportunity to vacate premises

The circumstances underpinning the third basis upon which the appellant sought to challenge the exercise of the power of sale involved the failure to inform Mr Constantine of the opportunity to increase the sale price by $4.25 million by vacating the premises, in accordance with the occupation condition.
The trial judge upheld this complaint, requiring the payment to Almona of the additional amount of $4.25 million, together with interest. Although challenged by way of a cross-appeal by Parklea Corporation, that aspect of the judgment should be upheld. The complaint by Almona is that the finding of impropriety should have resulted in the setting aside of the contract of sale, rather than an adjustment to the sale price. The issues will be addressed in considering the consequences of the finding that there was no independent transaction. The cross-appeal by Parklea Corporation should be addressed here.

[18]

(b) Cross-appeal - Parklea Corporation

Parklea Corporation challenged its liability to Almona in the amount of $4.25 million plus interest. That entitlement arose from its involvement in the reduction of the agreed price of the land to $81.1 million, thereby depriving Almona of the opportunity to obtain the additional $4.25 million. The substance of the cross-appeal was that the judge ought not to have inferred, in the absence of evidence, that Parklea Corporation was aware that Almona had not been informed of the occupation condition.
As there was no challenge to the finding of fraud on the part of SAP in this respect, it is convenient to set out the reasoning of the trial judge before identifying the process by which Parklea was found to be complici: "[673] In my view, the evidence establishes that SAP's conduct in this regard was relevantly dishonest. [674] First, the statement made by Mr Dixon-Smith on behalf of SAP in his 21 March 2016 letter to Mr Creais of Bartier Perry that 'our client exchanged a contract for sale of the property known as Parklea Markets on 13 January 2016 for a sale price of $81.1 million plus GST and adjustments' was plainly and objectively false. 'The sense in which a representation would be understood by a reasonable person in the position of the representee is prima facie the sense relevant to the question whether the representation is false': Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; [1995] HCA 68 (Krakowski) at 576-577 per Brennan, Deane, Gaudron and McHugh JJ. The representation so clearly stated that the contract price was $81.1 million on 13 January 2016 that it cannot be construed as a representation concerning only the price that it was intended that Parklea would be required to pay on completion. Although 'the sense in which the representor intended the representation to be understood is relevant to the question whether the representation was made fraudulently' (Krakowski at 577), Mr Dixon-Smith did not give any evidence that he intended the representation to have a different meaning than the sense in which it would be understood by a reasonable person. It is obvious that Mr Dixon-Smith was personally aware of the Occupation Condition in the Contract. As the representation was made by Mr Dixon-Smith knowing it to be false, or being recklessly indifferent as to its truth, the representation was fraudulent according to the statement of the elements of the tort of deceit in Derry v Peek (1889) 14 App Cas 337 at 374. [675] However, the statement made by Ms Hempel of Gilbert + Tobin in her email to Bartier Perry on 21 March 2016 was not fraudulent in the same manner, as it was a true statement of what was then intended by the parties to the Contract for Parklea to pay on completion. By omission, the email obscured critical information that Almona was entitled to know, but nonetheless the representation was not on its proper construction false. $81.1 million was at that time the amount that Parklea intended to pay on completion, subject to adjustments and GST. [676] Secondly, I consider that it was dishonest of SAP not to inform Almona of the terms of the Occupation Condition in sufficient time to permit Mr Constantine to vacate the Residence before completion, so that Almona could gain the benefit of the additional $4.25 million in purchase price. [677] This second basis for SAP's dishonesty must be judged in the context that SAP, as a mortgagee exercising a power of sale, had a duty to Almona as mortgagor to act in good faith to obtain the highest purchase price that was available from a sale process that was consistent with the somewhat limited content of the duty imposed upon the mortgagee. SAP had properly exercised its power of sale and achieved a price that was governed by the Occupation Condition. The source of that condition was the final expression of interest made by Dyldam."

[19]

The cross-appeal by Parklea Corporation should be dismissed.

[20]

Appellant's fourth claim of impropriety: involvement of Wesco

[21]

(a) factual background

The fourth claim concerned the involvement of Mr Merhi. It is necessary to outline the factual background. As noted above, the sale of the land was organised by the receiver, which appointed Colliers International as the agent for the sale of the land. Colliers undertook a comprehensive exercise of canvassing interested parties and obtaining expressions of interest. The result was the obtaining of 14 expressions of interest, described by Colliers as "highly creditable". [33] The highest expression of interest was that of Wesco Capital Pty Ltd, a company owned and directed by Mr Tony Merhi, for an amount of $92 million. The bids were lodged on 30 October 2015. The first report by Colliers International to the receivers was dated 11 November 2015. Two days later, Colliers suggested that the six highest expressions of interest should be invited to participate in a second round, with time to allow for two weeks due diligence, with offers to be provided by 30 November 2015. [34]
On 12 November 2015 Mr Merhi incorporated two companies, Visy Group Holdings Pty Ltd and Visy Projects Pty Ltd. The shares in both were held by Wesco Ventures Pty Ltd on trust for Mr Merhi.
Colliers did not obtain final instructions until 27 November 2015. Evidence as to the activities over that fortnight is limited. The entries in the KWM fee invoice included the following entries for Mr Dixon-Smith: "10-Nov-2015 Meeting with Pacific Alliance … 11-Nov-2015 Meeting with Pacific Alliance re sale process … 13-Nov-2015 Review of funding arrangements required for buyers seeking funding on acquisition of assets, advice to PAG … 27-Nov-2015 meeting at Pacific Alliance with Woody, James, Miles, Phil [Carter] and Colliers". The last entry referred to a meeting between Mr Dixon-Smith, Mr Woodhull and Mr McMurdo (PAG), Messrs Miles and Carter (the receiver, PPB Advisory) and the sales agent, Colliers.
On 24 November 2015 the receiver wrote to Messrs Fayad and Jarrett at Dyldam Developments, inviting a resubmitted offer, with clarification as to "headline purchase price, due diligence period and settlement terms." An amount of $25,000 was offered towards due diligence costs if the offer was unsuccessful. It is not known if similar letters were sent to Wesco and other bidders, but that may be inferred. However, on 27 November at 5:34pm, Mr Carter emailed Colliers, referring to recent conversations and consultation with SAP, giving instructions to proceed with a second round of expressions of interest on the basis that the four top bidders would be advised that there would be a second round to be completed at midday on Friday 18 December 2015. A revised contract was to be circulated, although not expected until the week commencing 7 December. The receivers were to contribute "a maximum of $20k" to each party for due diligence costs. On the same day, a letter was sent to Dyldam (and presumably the other three nominated parties, being Wesco, Toplace and Billbergia).

[22]

(b) available inferences

The reduction in the Wesco bid by the large amount of $13 million cleared the way for the Dyldam bid to be the highest offer. That in itself might not have required explanation, but for two further circumstances. The first was that steps were taken prior to the final offers which suggested confidence that Dyldam would be the successful offeree without varying its original bid. Although the evidence did not reveal the contents of the discussions in Hong Kong on 11 December 2015, some five days before final bids were due, the fact that there was a meeting between PAG and Dyldam representatives in Hong Kong, together with the heads of agreement which later emerged, demonstrates a basis for inferring that those parties believed Dyldam would succeed. Further, for the sales agent to travel to Hong Kong, after meeting with Dyldam in Sydney, a day before the final bids were due provides support for that inference.
No doubt there may have been other explanations for the lowering of the Wesco bid, but taken in combination with its interest in the final purchase arrangement, the inference that the bid was lowered so as to allow Dyldam's offer to succeed was available. For example, an alternative explanation may have been that Mr Merhi did not have the finance available to complete at $92 million, but that was an explanation which could have been demonstrated by evidence, had the respondents sought to do so. Mr Merhi, through his ownership interest in Parklea Corporation, was squarely in their camp. No such evidence was called.
It was not shown that $81 million was not fair value for the land, the valuations obtained by the receiver having varied from $48 million to $115 million. If there were an offer of $92 million available, then the price accepted was not the best price reasonably available to the mortgagee.
There were further factors which supported the inference that the sale process did not result in a truly independent bargain, in the sense considered by Aickin J in Bangadilly Pastoral. Thus, although the corporate identities of the purchaser and the mortgagee were separate, and the primary ownership interest in the purchaser was a third party, Dyldam, nevertheless both mortgagee and purchaser were subject to financial control by the one entity, PAG. PAG therefore had the power to control the sale process. It exercised that control, first, by including in the contract for sale a requirement that the sale be approved by its investment committee, and thus ultimately controlled the terms on which the sale would take place. Further, it is clear that as funder it was closely involved with the structuring of the successful bid. Mr Dixon-Smith noted in his email to Mr Qutami of Madison Marcus of 23 December 2015: "As you know, we act for Pacific Alliance in connection with the proposed funding of Dyldam's acquisition of Parklea Markets, as discussed in our recent meetings on this issue. For ease of reference I have prepared the below diagram which depicts the proposed 'Diamond Entity Structure' (based on a total funding of $90m, with $51m from the senior debt facility) discussed at those meetings."

[23]

The trial judge did not reach that conclusion with respect to the involvement of Wesco. The reasoning by which he rejected that conclusion was the subject of a number of grounds of appeal. However, the thrust of the appellant's case lay, not in what the trial judge affirmatively found, but in the finding which was not made. Thus, the complaints about the reasoning of the trial judge were complaints of omission rather than commission. Nevertheless, it is appropriate to explain those aspects of the grounds of appeal which should be accepted.

[24]

(i) appellant's "wider fraud" case - grounds 1 and 2

Almona contended that the primary error made by the trial judge lay in failing to consider the conduct of the respondents "holistically, as an overall pattern of conduct". [35] The appellant asserted in ground 2 that, "from at least 10 December 2015, the evidence." [36] That plan was said to be reflected in Mr Dixon-Smith's "action plan", formulated in March 2016 when it appeared possible that Mr Constantine might raise the necessary funds to pay out the mortgage. This was the thrust of ground 3.
With respect, these criticisms cannot be accepted. First, there was no evidence to support the view that PAG intended to purchase the land, directly or indirectly, prior to 10 December 2015. There was passing reference to PAG and Dyldam being involved in other joint ventures, but no evidence that they had an established relationship prior to 30 October 2015. Although, in developing the transaction documents in March 2016, Mr Dixon-Smith referred to a precedent involving a development at Wolli Creek, there was no evidence as to when that development was undertaken, nor as to the structure of the venture. Further, there was no evidence that the steps taken by the receiver and its sales agent, Colliers International, were part of some preconceived plan. Rather, what may be inferred from the evidence is that when Dyldam emerged as a serious contender in October 2015, either Dyldam sought out PAG as a financier, or PAG developed a plan which resulted in the heads of agreement.
Secondly, the evidence did not demonstrate that the opportunity for Almona to receive the higher price offered by Dyldam would be subverted arose until a matter of days before settlement, when the second deed of variation was prepared. It will be recalled that when, on 15 March 2016, Mr Dixon-Smith developed his "action plan" to hasten settlement, he envisaged that the vendor would be given until 17 April 2016 to obtain vacant possession, "giving a month for Con to vacate after settlement." The subversion of the occupation condition may well be viewed as a fraud on Almona, but it was separate from the arrangements made in the week prior to the final offers lodged on 16 December 2015.
Thirdly, although his personal motivation was to ensure that PAG's business arrangements were effected, if those arrangements were not in themselves unlawful and if the process proposed were not unlawful, there was nothing sinister in the action plan, nor did it demonstrate any form of fraud or breach of SAP's obligations as mortgagee exercising its power of sale.

[25]

(ii) Inference of fraud in withdrawal of Wesco bid

The remaining question is whether the appellant's case with respect to the Wesco bid should be accepted. As the primary judge declined to draw an inference of fraud in that regard it is necessary to examine the underlying reasoning for that conclusion.
In recounting the second round expressions of interest, the judge noted that Wesco's price offer had been reduced by $13 million. He also noted that Toplace, which had originally proposed a price of $84.25 million did not submit an expression of interest in the second round. The analysis concluded as follows: "[106] Almona sought to make a claim that Wesco's $79,000,000 offer was a result of the alleged collusion between SAP, Dyldam and Mr Merhi on behalf of Wesco. It may be observed that, if there had been the collusion alleged, Wesco would have been much better served by not submitting any second round expression of interest, in the same way that Toplace did not do so. Making an offer $13,000,000 less than the original offer only served to invite suspicion. [107] In an email dated 17 December 2015, Brett Schofield of PPB Advisory sent a summary of the second round expressions of interest to Gilbert + Tobin, with the instruction that the receivers would be proceeding with the offer from Dyldam. The email included an instruction that the 'contract will be signed as MIP', which the evidence establishes meant mortgagee in possession. There is a statement that 'PAG requires exchange early next week'."
It was no doubt true that the reduction of $13 million "only served to invite suspicion"; however the difference between the Wesco offer and the failure of Toplace to make an offer was that Wesco ended up with a 20% interest in the successful purchaser, which was the critical element in Almona's case.
The trial judge was concerned at the inadequacy of the pleading in relation to the Wesco transaction. He noted that the "second statement of further particulars", served on 6 March 2019, had failed to allege a causal connection (collusion) between the reduction of the offer and the negotiations between SAP, PAG and Dyldam. [37] The particulars were as follows: "1. By reason of commercial arrangements documented either in whole or in part in the Loan Note Subscription Agreement (LNSA), the Parklea Markets Heads of Agreement (HOA) and the Call Option Deed (COD) dated 22 March 2016, Dyldam through its nominees (including [Parklea Corporation], Quatro 88 Pty Ltd, Collrea Pty Ltd) and the PAG Group through its nominees (including Lord Business Holdings VI Limited and Lord Business Holdings VIII Limited) and companies associated with Mr Tony Merhi (namely Visy Group Holdings Pty Ltd, Visy Projects Pty Ltd, Wesco Ventures Pty Ltd, Wesco Capital Pty Ltd and Praise Group Pty Ltd) are involved in a joint venture to develop and purchase the Land through their interests in [Parklea Corporation] or its shareholders. 2. Those interests are not apparent to third parties who do not have access to the LNSA, POA and COD. 3. The plaintiff first obtained access to the COD and the POA when documents were produced following contests about the Notices to Produce on the evening of Thursday 28 February 2019. 4. The sale by [SAP] to [Parklea Corporation] was not an arm's length transaction. 5. Mr Tony Merhi had through another company controlled by him, Wesco Capital Pty Ltd (Wesco) been the highest first round bidder in the expression of interest process for the sale of the Land conducted by the Receivers of [Almona]. 6. At or about the time of the closing of the second round of expressions of interest, Wesco reduced its offer from $92,000,000 to $79,000,000 thereby placing [Parklea Corporation] in the position that it was the highest bidder in the second round expression of interest process. 7. At or about that time, arrangements of the nature that came to be reflected in the LNSA, HOA and COD were discussed or negotiated by representatives of the PAG, Dyldam and companies associated with Mr Merhi."

[26]

(d) submissions on appeal

In order to succeed on the appeal with respect to this aspect of its claim, Almona needed to demonstrate error in the finding that it should not be entitled to allege fraud of a kind not clearly pleaded. Its response was that it had "encountered significant resistance from the defendants" in obtaining the documentation upon which this aspect of the claim was based. It stated that numerous notices to produce had been issued, but had been challenged either on the basis of their formulation or by claims for privilege. Its pleadings, it asserted, were reformulated promptly when relevant material was produced, and, in particular, no objection was taken by the defendants to the three statements of particulars filed and served on 19 February, 1 March and 6 March 2019. [49] An example of the late production of an essential document was the release of Mr Dixon-Smith's email of 17 March 2016 setting out the "action plan", following the rejection of a privilege claim only on 17 May 2019, that is, between the two tranches of the trial which occurred in March and August 2019.
This example did not, however, address the problem raised by the late pleading of the fraud claim. There was nothing in the email from Mr Dixon-Smith of 15 March 2019 which supported that claim. Indeed, the reference to it reveals the true thrust of the case as run at trial (and to which the action plan was highly material), namely that SAP and Parklea Corporation, under instruction from PAG, had disregarded the interests of the mortgagor by undermining or thwarting attempts by Mr Constantine to make arrangements to pay back the loan to SAP and thus clear Almona of that debt and retain the property. On the other hand, the critical elements of the case against Dyldam and Mr Merhi lay in the ownership structure of Parklea Corporation. That was documented in annexure A to the Parklea Markets - Heads of Agreement, a document headed "Structure of the Landowner's corporate group". However, as late as 20 March 2016, the draft of that document did not identify the unitholders of the two unit trusts. Nor, indeed, did the annexure to the executed heads of agreement signed on 22 March 2016.
The second place in which the document was to be found was as schedule 5 to the loan note subscription agreement, which had, since a draft of 8 March 2016, identified the unitholders of the two unit trusts as including 80% of each held by the trustee of Mr Fayad's family trust No 2 and, as to 20% of each, by Visy Group Holdings and Visy Projects as trustee for two Visy trusts. In particular, the document appeared in that form in the final version of the loan note subscription agreement. There was no indication before this Court that there had been undue delay in obtaining copies of the final executed transaction documents which appeared in the plaintiff's tender volume (other than the call option). Similarly, there was no suggestion that there had been difficulty in obtaining access to the expressions of interest, both at the first round and in the final offers, which were contained in the tender bundle provided by Parklea Corporation. Accordingly, to the extent the pleadings were inadequate, the submission that the difficulty arose from the late production of relevant material by either Parklea Corporation or SAP appears to be without foundation.

[27]

Other matters

It follows that it is unnecessary to consider whether, if there were a finding that the mortgagee failed to exercise its power of sale having proper regard to the interests of the mortgagor, the sale should be set aside or whether the appropriate relief would be an order for payment of compensation. However, if such a matter required consideration two difficulties would immediately face the appellant. The primary relief sought was the setting aside of the transaction. To obtain such relief it would be necessary to consider whether it would be appropriate to set aside the transaction, some seven years after the breach of the loan agreement and five years after the sale of the property was completed. Although Mr Constantine originally sought to prevent the settlement of the sale contract, that application was withdrawn. It is true that, at that time, he had no knowledge of the bases upon which his challenge was ultimately able to be pursued in the name of Almona (after retirement of the receiver), but the fact remains that it would, in practical terms, be difficult to reinstate the loan agreement, running at penalty interest rates, over the last five years.
Further, there are the legal issues relating to the mortgages securing the current funding of Parklea Corporation. They are held by PT Ltd, as trustee of the securities. There was no suggestion, as the trial judge noted, that PT was infected by any misconduct of SAP or Parklea Corporation. Nevertheless, the indefeasibility of its interests depended upon it being a bona fide holder of the mortgages, having provided valuable consideration. Whether it had provided valuable consideration, or merely fees for services in administering the securities was hotly contested. Those issues do not need to be resolved, but PT was properly joined as a party entitled to resist the claims of Almona to unwind the current ownership arrangements. What steps if any to pursue the development of the land and thus what costs may have been incurred, are not revealed on the evidence.
On the other hand, if the appropriate relief were a payment calculated by reference to the failure to permit an unimpeded testing of the market, on the basis of the available evidence, it is not possible to know what final bid Wesco would have made, assuming it would have exceeded the higher of the two bids made by Dyldam, namely $85.35 million.

[28]

Challenges by Almona and SAP to costs order

The principal judgment was delivered by the trial judge on 20 December 2019. It was necessary for the parties to consider what orders should be made in the light of that judgment. However, the matter did not come back before the Court until 9 April 2020, when a significant number of further issues were addressed, leading to a further judgment on 12 May 2020. [52] In the course of that judgment the trial judge noted that the parties had "proposed fundamentally different costs orders". [53] The final order was that, as between Almona and SAP, each party should bear its own costs. [54]
As was noted in the course of the appeal, there was a degree of awkwardness in Almona resisting the application for leave to appeal by SAP, given that it had raised as a ground of its appeal, the ruling on costs which it said was manifestly unfair to it.
In the event, neither party addressed in relation to the question of costs, each relying on its written submissions. The different approaches adopted by the parties, however, had been addressed in great detail by the trial judge. Almona's position was that, having been successful on a claim of fraud and unconscionable conduct and on a claim of misleading or deceptive conduct against SAP, and obtained a substantial judgment in its favour, although it had not obtained the other relief it had sought, the offending party should not be exempt from paying costs. Almona accepted the finding of the trial judge that the case did not lend itself to apportionment between issues, but submitted that the consequence of non-apportionment should have been that costs followed the event, and it had been the successful party.
SAP contended otherwise as to apportionment. It noted findings by the trial judge that the focus of Almona's claim had been to recover title to the land, as to which it failed. [55] The judge had, correctly, rejected the proposition that findings in Almona's favour with respect to the occupation condition should have resulted in any form of relief beyond the claim for damages. Further, although the amount awarded (with interest) exceeded $5 million, that was a small proportion of the total value of the land and did not involve any commercial disruption of the kind which would have ensued had an order been made by which Almona recovered title to the land.
The trial judge noted that Almona's costs amounted to almost one-half of the judgment it obtained; the total costs of all parties exceeded Almona's judgment. Having noted the ramifications of the various orders sought, the judge noted that the Court was "required to determine the costs orders that should be made in these proceedings, when those costs in aggregate involve amounts comparable to the amount of the judgment in the proceedings, but to do so on a relatively rudimentary basis." [56] The judge then set out, in terms which are not challenged, the relevant legal principles to be applied. [57] Although he proceeded to analyse the pleadings and particulars, and made some observations as to the conduct of the proceedings, he introduced that analysis with the following observation: "[163] In reality, the issue of what is fair and just between the parties in a particular case concerning the costs orders that should be made is a collateral issue to the process involved in the determination by the Court of the issues that arise in the proceedings. Depending upon the nature of the issues, and the manner in which the case is prepared by the parties and heard and determined by the Court, the facts that are relevant to the determination of the costs orders that are fair and just may be more or less obvious to the judge who has heard the case. In many cases, particularly those with factual complexity and a multiplicity of issues, the judge may actually have little knowledge of the manner in which the parties have incurred costs, and how the costs are related to particular issues."

[29]

Orders

For these reasons, the Court should make the following orders: 1. Dismiss the further amended notice of appeal of Almona Pty Ltd. 2. Order that the appellant pay the costs of each respondent to the appeal. 3. Dismiss the cross-appeal by Parklea Corporation Pty Ltd. 4. Order that Parklea Corporation pay the costs of Almona Pty Ltd of the cross-appeal. 5. Dismiss the summons filed by Secured Asset Portfolio III Ltd (in liq) seeking leave to cross-appeal from the costs order made by the trial judge. 6. Order that Secured Asset Portfolio III pay Almona's costs of the summons seeking leave to cross-appeal.
WHITE JA: The facts giving rise to this appeal are described in the reasons for judgment of Basten JA, as supplemented in the reasons of Bathurst CJ. Subject to one unimportant qualification (at [289] below) I agree with Basten JA's conclusions as to the inferences that can be drawn from the documents tendered at trial that were obtained by compulsory process, in the light of the respondent's choosing not to adduce evidence.
I conclude that SAP did not exercise its power of sale for the purpose of obtaining repayment of the secured debt but for the purpose of enabling its associate, LBH VIII (another subsidiary of PAG), to acquire an 80% economic interest in Parklea through its option to acquire the shares and rights which Holding Trust 1 held in Parklea. The sale to Parklea was not by way of independent bargain. For each of these reasons Almona would have been entitled to set aside the sale had the facts been known before the sale was completed and Parklea became registered as the new registered proprietor. The fact that it was accepted that the sale price of $85.35 million was a fair market price does not mean that SAP exercised its power of sale in good faith.
I also conclude that Parklea was registered by fraud and its title is defeasible.
Almona did not allege that the mortgage to PT Limited ("PT") was registered by fraud. Instead Almona submitted that it was entitled to a re-transfer of the land from Parklea Corporation free of PT's mortgage by reason of s 118(1)(d)(ii) of the Real Property Act 1900 (NSW). I reject that submission. Consequently, irrespective of other objections there may be to Almona's taking a re-transfer of the land (which have not been determined), given the amount now secured by PT's mortgage, Almona's remedy appears to be confined to a claim for equitable compensation (or arguably damages) on the taking of accounts.

[30]

Facts

The essential facts can be distilled as follows by reference to Basten JA's analysis.
The mortgagee, SAP, was a special purpose vehicle that was a member of the Pacific Alliance Group (PAG). Particulars provided by Almona of the Pacific Alliance Group by way of a chart reveals a bewildering web of companies incorporated in Hong Kong, Australia, the British Virgin Island and the Cayman Islands. Sitting near the top of the chart is a Hong Kong Company, Pacific Alliance Group Limited. After Almona defaulted under its mortgage to SAP, SAP appointed a receiver and manager. The receiver appointed Colliers International to act as selling agent.
Valuations of the Parklea Markets ranged from $45 million to $115 million with lower valuations assuming a continuation of existing uses rather than a redevelopment. Colliers embarked on a program of first seeking expressions of interest from identified companies that might be interested in acquiring the mortgaged property. Twelve expressions of interest were lodged, ranging from $40 million to $92 million. Wesco Capital lodged an expression of interest in the sum of $92 million and Dyldam lodged an expression of interest in the sum of $85,350,000. Colliers suggested that the top six parties be invited to lodge a second expression of interest.
On the second round of expressions of interest, Dyldam lodged the highest bid, again of $85.35 million, subject to vacant possession, or $81.1 million if Mr Constantine remained in occupation.
There is no criticism of the marketing of the property for sale.
Parklea was incorporated as a special purpose vehicle to acquire the mortgaged property. The price obtained by SAP was a fair price reflecting the market value of the property, unless it should be inferred that Wesco had lowered its bid in exchange for a share in the ownership of the property.
I return to that question below at [333] - [336].
Leaving aside for the present possible bid-rigging by collusive arrangements between Dyldam and Wesco, there would be no reason to impugn the sale to Parklea on the basis of the price of $85.35 million.
The contract of sale between SAP and Parklea was entered into on 13 January 2016. It was subject to a condition (cl 63) that completion was conditional on SAP notifying Parklea that the "Investment Committee" had approved the sale of the property by 14 March 2016. The "Investment Committee" was defined as: "Investment Committee means the investment committee established by the Pacific Alliance Group of companies ("PAG Group") responsible for approvals for significant transactions undertaken by PAG Group members and investment funds managed by PAG Group members."

[31]

Duty of good faith

The appeal raises a question of principle. Is the only duty of a mortgagee in exercising its power of sale to act reasonably to obtain not less than the market value of the property (in substance the statutory duty imposed on receivers and other controllers having a power of sale (Corporations Act 2001 (Cth) s 420A)), or must the mortgagee's power of sale be exercised for the purpose of obtaining payment of the secured debt and not for a collateral purpose? Must it be exercised without collusion with the purchaser, but by way of independent bargain?
Whatever the position might be in England (see [314] below), High Court authority in this country establishes that the mortgagee's duty to exercise the power of sale in good faith does not merely require that the price be fair, but that the power be exercised for the purpose for which it was conferred, that is, to recover payment of the secured debt, and to do so through an independent bargain with the purchaser.
The purpose for which a mortgage is given is that the mortgage be security for repayment of the mortgage debt. This is fundamental. It is the basis of the mortgagor's equity of redemption. As a corollary, the purpose for which the mortgagee is given a power of sale is that the mortgagee obtain repayment of that debt. This was explained succinctly by Stuart VC in Robertson v Norris (1858) 1 Giff 421; 65 ER 983, but his Lordship introduced questions of motive that led to later criticism. In Robertson v Norris, Stuart VC said: "…the power being given to enable him to recover the mortgage money, this Court requires that he shall exercise the power of sale in a provident way, with a due regard to the rights and interests of the mortgagor in the surplus money to be produced by the sale. The legitimate purpose being to secure repayment of his mortgage money, if he uses the power for another purpose - from any ill motive to affect other purposes of his own, or to serve the purposes of other individuals - the Court considers that to be a fraud in the exercise of the power, because it is using the power for purposes foreign to that for which it was intended."
It was Stuart VC's reference to "ill motive" that was later criticised. In Nash v Eads, reported only in (1880) 25 Sol J 95, the mortgagor impugned the mortgagee's exercise of his power of sale because, so it was alleged, the power of sale was not exercised because the mortgagee wanted his money, but because his solicitor desired to obtain payment of some costs he could not obtain in any other way. Sir George Jessel MR was reported to have said that: "…the mortgagee was not a trustee of the power of sale for the mortgagor, and if he was entitled to exercise the power, the court could not look into his motives for so doing. If he had a right to sell on the 1st of June, and he then said, The mortgagor is a member of an old county family and I don't wish to turn him out of his property, and will not sell it at present, and then on the 1st of July he said, I have had a quarrel with the mortgagor and he has insulted me; I will show him no more mercy but will sell him up at once - if all this was proved, the court could not restrain the mortgagee from exercising his power of sale, except on the terms of payment of the mortgage debt. The court could not look at the mortgagee's motives for exercising his power. Lord Eldon had never said anything of the kind which, Stuart V.C., supposed him to have said. The Vice-Chancellor was entirely mistaken, and must have been citing the judgments to which he referred from his recollection, without looking at the reports. Of course there were some limits to the powers of the mortgagee. He, like a pledgee, must conduct the sale properly, and must sell at a fair value, and he could not sell to himself. But he was not bound to abstain from selling because he was not in urgent want of his money, or because he had a spite against the mortgagor."

[32]

Wesco's involvement: onus of proof

I agree with Basten JA that there is an available inference that Wesco's bid was lowered so as to allow Dyldam's offer to succeed ([219]). That inference arises from the fact that other companies of Visy acquired call options to obtain an economic interest in Parklea.
The Chief Justice and Basten JA have quoted the Second Statement of Further Particulars ([51], [235]). Their Honours observe and the primary judge found that those particulars do not allege bid-rigging or fraud involving collusion between SAP, Dyldam and Mr Merhi's companies. But they do allege matters that raise the suspicion of bid-rigging.
It is understandable that bid-rigging was not alleged. Rule 65 of the Legal Profession Uniform Conduct (Barristers) Rules 2015 provides that a barrister must not allege any matter of fact amounting to criminality, fraud or other serious misconduct against any person unless the barrister believes on reasonable grounds that available material by which the allegation could be supported provides a proper basis for it. It is at least doubtful that Almona's legal representatives would have been entitled to allege fraud where there could have been other explanations for the lowering of the Wesco bid (as Basten JA explains at [219]).
Almona did not need to allege fraud in order to throw upon SAP and Parklea the onus of proving the validity of the transaction (Farrar v Farrars Ltd at 409-410; Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349 at 1358). As is clear from Farrar v Farrars Ltd, in the passage quoted at [310] above, the burden of proving the validity of a mortgagee's sale may be thrown not only upon the mortgagee but on the purchaser. That will be so where collusion between the mortgagee and the purchaser is established as it is in this case.

[33]

Parklea Corporation did not acquire an indefeasible title

It does not follow that because the power of sale was not exercised in good faith that Parklea did not acquire an indefeasible title. It did unless it was registered by fraud (Real Property Act 1900 (NSW), s 42).
It should be inferred that Dyldam (and through Dyldam, Parklea) was aware of the facts that showed that SAP was not exercising its power of sale for the purpose for which that power was given but to enable another PAG subsidiary to acquire an 80% economic interest in Parklea. It should also be inferred that Dyldam, and through Dyldam, Parklea, knew that the accelerated steps for settlement arising from the adoption of Mr Dixon-Smith's Action Plan were for the purpose of preventing Almona's redeeming the mortgage.
I refer again to Mr Dixon-Smith's Action Plan of 15 March 2016 after he had been provided with a copy of a letter from AMB Capital and had advised that "those involved on the proposed refinancing do actually have the firepower to fund this if Con can make it stack up" (see J [99]).
Mr Dixon-Smith's email of 15 March 2016 is substantially quoted by Basten JA at [178] - [180]. In addition to the matters quoted by Basten JA, Mr Dixon-Smith stated that: "It is highly desirable that we not only settle SAP, but also get the purchaser registered."
In the passage from the email quoted by Basten JA at [179], it should be noted that Mr Dixon-Smith stated that if the funding were vendor funding from the mortgagee it would have the advantage of making it appear that the funding provided was short-term funding to assist the buyer which could be considered as beneficial to Almona in generating interest income on the sale.
On 11 March 2016, Gilbert & Tobin (acting for the receivers) had proposed an extension to the date for receiving PAG's Investment Committee's approval to 29 April 2016. That date was varied by a deed executed for SAP on 22 March 2016. The counterpart executed by Parklea Corporation is undated (J [190]). On 11 March 2016 Gilbert & Tobin attached a deed providing for the extension of the sunset date to be executed under the vendor's power of attorney stating that it had been signed by Mr Fayad (for the purchaser). Mr Dixon-Smith replied on 11 March 2016 saying that he could hand a counterpart to Maddison Marcus (for Parklea). On 11 March the parties were proposing to extend the sunset date to 29 April. But when PAG learned that Almona might be able to redeem the mortgage, it moved with what Almona accurately described as "breakneck speed". Almona submitted that PAG was determined to ensure that Almona did not impede its transaction with Parklea because it saw great profit potential in the venture. Mr Dixon-Smith's spreadsheet of 11 December 2015 referred to by Basten JA at [124] calculated net profits for PAG from some unidentified proposed ventures ranging from $40 million to $445.375 million.

[34]

PT's Mortgage

Before considering questions of remedy, it is necessary to consider the position of the second respondent, PT. PT is a professional security trustee. On 22 March 2016 it took mortgages from Parklea of the land. Those mortgages were duly registered. The mortgages secured Parklea's agreement to pay the "Secured Money" in accordance with the terms of the "Finance Documents".
"Secured Money" was widely defined as including any monies payable or owing to "the Beneficiary". "Beneficiary" meant the Mortgagee (PT) either for its own account or for the account of a Financier and each Financier. "Financier" had the same meaning as it had in a Loan Note Subscription Agreement dated on or about the date of the mortgage between Parklea, PT and LBH VI (as financier) and others. "Finance Documents" also had the meaning given to that term in the Loan Note Subscription Agreement.
In the Loan Note Subscription Agreement there was an elaborate definition of "Finance Documents" that included loan notes to be issued under that agreement. LBH VI was named as "Financier". Although the agreement was structured in a way that would have accommodated the provision of financial accommodation by multiple financiers, LBH VI was the only named financier. It agreed to provide $84.4 million of financial accommodation to Parklea by subscribing for loan notes to be issued by Parklea. The Loan Note Subscription Agreement was entered into on 22 March 2016.
Clause 21.2 provided that LBH VI: "…irrevocably authorises…the…Security Trustee to: (a) enter into the Transaction Documents; and (b) take action on the Financier's behalf in accordance with this agreement; and (c) exercise [its] respective rights expressly set out in the Transaction Documents…"
Clause 21.4 provided that LBH VI could direct PT to act or not to act in connection with a Transaction Document as it determined.
It is at least seriously arguable that PT holds the benefit of the mortgages, not merely as trustee for LBH VI, but as agent for LBH VI.
Almona did not allege that PT's mortgage was defeasible on the ground that LBH VI had knowledge of and participated in the fraud of SAP and Parklea. LBH VI was not joined as a party to the proceedings.
Instead, Almona contended that PT's interest was defeasible by reason of s 118(1)(d)(ii) of the Real Property Act as explained by the High Court in Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425; [2015] HCA 2 at [59]-[60] per French CJ, Hayne and Gageler JJ.

[35]

Remedy

Almona sought declarations that SAP breached its duties as mortgagee in the exercise of its power of sale, that Parklea was an accessory to those breaches, that the registration of Parklea as registered proprietor was procured by fraud and that Parklea was an accessory to that fraud. Those declarations should be made.
Almona also sought an order that the contract for sale and the transfer of the land by SAP to Parklea should be set aside. It sought the taking of accounts in which there would be an inquiry into the amount payable by it pursuant to the mortgage (this is on the assumption that on the setting aside of the contract of sale, the mortgage debt would be reinstated), and that on the taking of accounts there be an allowance for damages or equitable compensation payable by either SAP or Parklea to it. Presumably on the taking of accounts, if the contract of sale were set aside, account would also need to be taken of the rents and profits received by Parklea Corporation since 2016 and allowance would need to be made for improvements made by Parklea and for expenditure towards the obtaining of whatever development approvals have been sought or obtained, that may have improved the value of the land.
The primary judge did not rule on Parklea's submission that an order setting aside the transfer is barred by Almona's laches. Almona did not commence proceedings until 17 October 2018. His Honour observed that neither party had satisfactorily addressed the issue of laches.
Apart from the unresolved issue of laches it appears unlikely that the sale would be set aside where third parties' rights will have intervened, and where the mortgage debt to LBH VI which remains secured over the land is in the order of $158 million or more. That debt would not be discharged except, presumably, to the extent Almona was required to discharge its liability to SAP in order to obtain a re-transfer of the property.
That does not mean that Almona is necessarily without remedy. It claimed damages or equitable compensation in the taking of an account.
In Commonwealth Bank of Australia v Hadfield (2001) 53 NSWLR 614; [2001] NSWCA 440, this court held that an account is the appropriate form of relief where a mortgagee is alleged to have sold the mortgaged property at an undervalue or otherwise in breach of its duty (at [41]). Whether the claim be properly characterised as one for equitable compensation or damages need not be determined now (Commonwealth Bank of Australia v Hadfield at [36]-[40], [45]-[46], [63]-[64]). On the inquiry on the taking of accounts it will be open to Almona to investigate the circumstances in which Wesco reduced its offer and to investigate whether $85.35 million was a true market price. It may be open to Almona to argue that even if $85.35 million were a fair market price, that did not represent the real value of the land (Potts v Miller (1940) 64 CLR 282 at 299-300) or the value of the land to it. Whether it would be entitled to compensation for any such additional value over the market price, where SAP was entitled to sell as mortgagee, could depend on whether Almona could have redeemed the mortgage if SAP had not been determined to sell to an associate. These are issues that could only be determined on an inquiry.

[36]

Endnotes

Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868.
See, eg, further amended notice of appeal, filed 17 November 2020, ground 1.
J D Heydon, M J Leeming and P J Turner, Meagher, Gummow and Lehane's Equity - Doctrines and Remedies (5th ed, LexisNexis, 2015) at [12-040] - [12-055].
This term was loosely used to describe the paying out of the mortgage which, under the Real Property Act, s 74, did not transfer title to the mortgagee.
(1751) 2 Ves Sen 125 at 156; 28 ER 82 at 100.
Further amended notice of appeal, ground 6(e)(vii).
Within the meaning of Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 at 273 per Kitto J and Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd [1978] HCA 21; 139 CLR 195 at [51] per Aickin J (with whom Stephen and Jacobs JJ agreed).
Conveyancing Act 1919 (NSW), s 109; mortgage, cl 6.1(a).
Nash v Eads (1880) 25 Sol Jo 95 (Jessel MR), quoted in Belton v Bass, Ratcliffe and Gretton Ltd [1922] 2 Ch 449 at 466 (Russell J).
(1973) 129 CLR 477 at 506; [1973] HCA 20.
See also Corporations Act 2001 (Cth), s 420A.
(1978) 139 CLR 195; [1978] HCA 21.
Bangadilly at 227 (Aickin J).
(1888) 40 Ch D 395 at 409; Bangadilly at 225.
Farrar at 403.
Bangadilly at 227.
Bangadilly at 227-228.
Bangadilly at 228.
(1965) 113 CLR 265; [1965] HCA 17.
Latec at 271-272.
Latec at 273.
See Judgment at [25].
Tcpt, 08/03/19, pp 249(47)-250(28), 252(1)-260(40), 262(30)-267(22).
Tcpt, p 267(10)-(15).
Affidavit, 11 January 2019, par 4.
Forsyth at 498.
Forsyth at 499.
In relation to the general law, see Croft and Hay, The Mortgagee's Power of Sale (4th ed, LexisNexis, 2019) at [11.2].
See time entry narrations on KWM invoice 10052727.
Judgment at [683].
Judgment at [191]-[272].

Parties

Applicant/Plaintiff:

Almona Pty Ltd

Respondent/Defendant:

Parklea Corporation Pty Ltd

Legislation Cited (6)

(White JA). Real Property Act 1900(NSW)s 59, applied

(Corporations Act 2001(Cth)s 420A)), or

(Real Property Act 1900(NSW)

Conveyancing Act 1919(NSW)

Corporations Act 2001(Cth)s 420A

Real Property Act 1900(NSW)

Cases Cited (33)

ts Pty Ltd v Custom Credit Corporations Ltd (1994) 8 BPR 15,581 Kennedy v De Trafford [1897] AC 180 Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; [1995] HCA 68 Latec Investments Ltd v Hotel Terrigal Pty Ltd (In liq) (1965) 113 CLR 265; [1965] HCA 17 Nash v Eads (1880) 25 Sol Jo 95 National & Provincial Building Society v Ahmed (1995) 2 EGLR 127 Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; [1912] HCA 9 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; [1982] HCA 29 Potts v Miller (1940) 64 CLR 282; [1940] HCA 43 Property & Bloodstock Ltd v Emerton (1968) Ch 94 Provident Capital Ltd v Printy [2008] NSWCA 131; (2008) 13 BPR 25 Robertson v Norris (1858) 1 Giff 421; 65 ER 983 Sahab Holdings Pty Ltd v Registrar General (No 2) [2012] NSWCA 42; (2012) 16 BPR 30 Sewell v Agricultural Bank of Western Australia (1930) 44 CLR 104; [1930] HCA 29 Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349 Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101 Waring (Lord) v London and Manchester Assurance Co Ltd (1935) Ch 310 Warner v Jacob (1881) 20 Ch D 220 Texts Cited: Croft and Hay, The Mortgagee's Power of Sale (4th ed, LexisNexis, 2019) J D Heydon, M J Leeming and P J Turner, Meagher, Gummow and Lehane's Equity - Doctrines and Remedies (5th ed, LexisNexis, 2015) Waters, The Constructive Trust, University of London (1964) Category: Principal judgment Parties: Almona Pty Ltd (Appellant/First Cross-Respondent) Parklea Corporation Pty Ltd (First Respondent/Cross-Appellant) P T Ltd (Second Respondent/Second Cross-Respondent) Secured Asset Portfolio III Ltd (In liq) (Third Respondent) Representation: Counsel: D Williams SC / N Riordan (Appellant/First Cross-Respondent) K Andronos SC / S Keizer (First Respondent/Cross-Appellant) M Izzo SC/ J Burnett (Second Respondent/Second Cross-Respondent) N Hutley SC / E Hyde / G Keesing (Third Respondent)

Solicitors: Bartier Perry (Appellant/First Cross-Respondent) Norton Rose Fulbright Australia (First Respondent/Cross-Appellant) Corrs Chambers Westgarth (Second Respondent/Second Cross-Respondent) King & Wood Mallesons (Third Respondent) File Number(s): 2020/197106 Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity Division Citation: [2019] NSWSC 1868 Date of Decision: 20 December 2019 Before: Robb J File Number(s): 2018/317496

HEADNOTE [This headnote is not to be read as part of the judgment] The appellant, Almona Pty Ltd (Almona), was until 22 March 2016 the registered proprietor of a large site in western Sydney, including Parklea Markets. In 2013 Almona had entered into a refinancing agreement with the third respondent, Secured Asset Portfolio III Ltd (SAP), a part of the Pacific Alliance Group (PAG). Almona defaulted under the agreement. On 17 April 2015 SAP appointed receivers and managers (PPB Advisory) to Almona; PPB appointed a sales agent, Colliers International, which conducted a sale process by receiving bids from interested parties. The second round of bidding closed on 16 December 2015. The highest bidder was identified as the Dyldam Group, that bid being accepted by SAP. On 4 January 2016 Dyldam's principal, Mr Sam Fayad, established a special purpose vehicle, Parklea Corporation Pty Ltd (Parklea) to be the purchaser. A contract of sale was entered into by SAP and Parklea on 13 January 2016. The sale price with vacant possession was $85.35m; if the principal of Almona, Mr Constantine, whose home was on the land, remained in possession the price would be $81.1m. A deed of variation was entered into on 22 March 2016 to record the purchase price as $81.1m. On 11 December 2015 representatives of PAG and Dyldam had met in Hong Kong. When the sale settled on 22 March 2016, the bulk of the finance for the purchaser came from another PAG company. The ownership of Parklea was held through unit trusts which reflected the financing arrangements, with the PAG entity having an option to acquire 80% of the interests in Parklea. On 18 March 2016, Almona commenced proceedings seeking to prevent the settlement of the sale. It abandoned that relief, but continued the proceedings after settlement seeking to set aside the transactions on grounds of fraud, breach of duty, unconscionable conduct and misleading or deceptive representations on the part of SAP and Parklea. The Court at first instance awarded Almona $4.25m on the basis that it had not been revealed to Mr Constantine that a higher price would have been obtained had he vacated the land prior to settlement. However, Almona's principal claims failed, including allegations that (i) PAG had manipulated the sale process by controlling both the mortgagee (SAP) and the financing of the purchase; (ii) PAG, as the principal of the mortgagee, obtained through another subsidiary an option to acquire a controlling interest in the purchaser, and (iii) there had been collusive bidding, in that the highest bidder in the first round, Wesco Capital Pty Ltd (Wesco), reduced its bid substantially in the second round so as to no longer be the highest bidder, yet ended up with a 20% share of Parklea. If proved, these matters established that the sale was not a truly independent bargain. Almona appealed from the dismissal of its principal claims; Parklea filed a cross-appeal challenging the order for payment of $4.25m. The issues before this Court were: (1) whether SAP, in exercise of its power of sale as mortgagee, breached its duty to Almona; (2) whether there was no independent sale because PAG both controlled the mortgagee, funded the purchaser and obtained an option to control the purchaser; (3) whether there was collusive bidding involving Dyldam and Wesco; (4) if fraud were established, whether the registered holder of the mortgages was affected by fraud; (5) whether Mr Constantine had notice of the occupation condition, and whether any lack of knowledge should have resulted in an adjustment to the sale price; and (6) in the event a breach of duty was established, what relief should be granted. Held, by majority (White JA dissenting), dismissing the appeal: As to (1) - breach of mortgagee's duty Per Bathurst CJ and Basten JA: (1) A mortgagee's power of sale must be exercised honestly for the purpose of the power; however, a mortgagee is not a trustee of the mortgage, and its duty was to act in good faith and take reasonable precautions to obtain a proper price and thus ensure that the interests of the mortgagor were not sacrificed: [56]‑[64] (Bathurst CJ); [105] (Basten JA); importantly, there must be an independent bargain between mortgagee and purchaser: [108]-[115] (Basten JA); [298], [318]-[325] (White JA). Real Property Act 1900 (NSW) s 59, applied; Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd [1978] HCA 21; 139 CLR 195; Barns v Queensland National Bank Ltd (1906) 3 CLR 925; Forsyth v Blundell (1973) 129 CLR 477; [1973] HCA 20, followed; Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporations Ltd (1994) 8 BPR 15581; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; Pendlebury v The Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676, discussed. (2) A contract of sale is binding upon the mortgagor, and it did not retain rights superior to those of the purchaser up until settlement; at that time, Almona had: been in default for a considerable time and had failed to discharge the mortgage; no criticisms were levelled at the sale process, which produced bids in excess of the valuations: [66] (Bathurst CJ); [194]-[195] (Basten JA). Although the settlement had been accelerated to prevent Almona from discharging its mortgage and SAP had stalled in providing payout figures to Almona to allow it time to settle the sale to Parklea, Almona had no continuing right to pay out the mortgage.[67], [78] (Bathurst CJ); [196] (Basten JA). As to (2) - mortgagee control of purchaser (3) The evidence did not establish that PAG's primary purpose when the contract of sale was signed was not to recover its money but rather to acquire a contingent interest in the property, so as to place a burden on the mortgagee to justify its conduct of the sale: [1] (Bathurst CJ); [198], [225]-[227] (Basten JA). per White JA (dissenting) (4) SAP did not exercise its power of sale in good faith, as they did not exercise the power of sale for the purpose for which it was conferred, being to obtain repayment for the secured debt by way of independent bargain. However, the mere fact that a mortgagee finances a purchaser is not sufficient to demonstrate that the sale was made in fraud of the power: [326]-[332]. (5) Obtaining a fair price does not necessarily mean that a power of sale was exercised in good faith. However, Parklea's actions were marked by haste, secrecy, deception, and the intention to prevent the mortgagor from redeeming the property. They registered the property by fraud, and so did not acquire an indefeasible title: [351]. Real Property Act 1900 (NSW), s 42, applied; Legal Profession Uniform Conduct (Barristers) Rules 2015 r 65, referred to; Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195; Barns v Queensland National Bank Limited (1906) 3 CLR 925; Farrar v Farrars Ltd (1888) 40 Ch D 395, considered; Forsyth v Blundell (1973) 129 CLR 477; Nash v Eads (1880) 25 Sol J 95; Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; Robertson v Norris (1858) 1 Giff 421; 65 ER 983; Warner v Jacob (1881) 20 Ch D 220; Assets Co Ltd v Mere Roihi [1905] AC 176; Belton v Bass, Ratcliff and Gretton Ltd [1922] 2 Ch 449; Butler v Fairclough (1917) 23 CLR 78; [1917] HCA 9; Davey v Durrant (1857) 1 De G & J 535; (1858) 44 ER 1086; Kennedy v De Trafford [1897] AC 180; Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; Sewell v Agricultural Bank of Western Australia (1930) 44 CLR 104; Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101, referred to. As to (3) - collusive bidding (6) The inference that Wesco lowered its second bid to allow Dyldam to make the highest offer in exchange for an interest in the purchaser was available, but this claim was not pleaded and could therefore not be said to have constituted a basis for alleging a breach of the mortgagee's duty: [49]-[55]; (Bathurst CJ) [252], [260]-[262] (Basten JA). Banque Commerciale en Liquidation v Akhil Holding Ltd (1990) 169 CLR 279 at 285; Farrer v Farrars Ltd (1889) Ch D 395; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd [1978] HCA 21; 139 CLR 195, applied. As to (4) - registered holder of mortgages (7) The indefeasibility of PT's interests depended upon it being a bona fide holder of the mortgages, having provided valuable consideration. It was contested whether they had provided valuable consideration or merely fees for services, but the issue did not need to be resolved: [1] (Bathurst CJ); [264]-[267] (Basten JA). (8) Almona did not allege that the mortgage to PT was registered by fraud. Almona's remedy is confined to a claim for equitable compensation on the taking of accounts, but not in respect of PT, given the amount secured in respect of PT's mortgage: [278] (White JA). As to (5) - cross-appeal (9) The failure of SAP to inform Almona of the occupation condition involved a breach of its duty as mortgagee; it was correct to infer that Parklea had knowledge that Mr Constantine had not been advised of the condition: [1] (Bathurst CJ); [199]-[207] (Basten JA). (10) It was unnecessary to consider whether the sale should be set aside, as the Court made no finding that the mortgagee failed to exercise its power of sale having proper regard to the interests of the mortgagor: [264]. As to (6) - available relief per White JA (Bathurst CJ and Basten JA not needing to address relief): (11) An account is the appropriate form of relief where a mortgagee is alleged to have sold a property at an undervalue or in breach of its duty. It would be open to Almona to investigate whether $85.35m was a true market price, or alternatively, whether it represented the real value of the land: [375]-[381]. Commonwealth Bank of Australia v Hadfield (2001) 53 NSWLR 614; [2001] NSWCA 440, applied; Potts v Miller (1940) 64 CLR 282, considered

[1990] HCA 279

[2015] HCA 2

(1978) 139 CLR 195

(1990) 169 CLR 279

(1906) 3 CLR 925

(1917) 23 CLR 78

(2015) 254 CLR 425

(2001) 53 NSWLR 614

(1973) 129 CLR 477

(1995) 183 CLR 563

(1965) 113 CLR 265

(1912) 13 CLR 676

(1982) 149 CLR 537

(1940) 64 CLR 282

(1930) 44 CLR 104

(1981) 152 CLR 491

(1942) 66 CLR 77

Cited By (5)

Admiral International Pty Ltd v Insurance Australia Ltd

Almona Pty Ltd v Parklea Corporation Pty Ltd

Ellie Abraham Barikhan v Vincenzo Francesco Cagnoni

King v Brown

It is convenient to set out ground 8 in full. That is because at trial there had been some difficulty in identifying the precise elements of the claims made by Almona. The judge explained the issue in the following passages: "[535] In the context of analysing Almona's pleaded claim, I have considered above the allegations made by Almona in the FASOC and the three additional statements of particulars. The three statements of additional particulars do not relate specifically to the allegations in the FASOC, but are largely separate documents that both overlap and extend the allegations in the FASOC. The defendants consented to Almona relying upon the further particulars, although in SAP's case subject to the qualification set out above. [536] The effect has been that, in respect of the additional allegations that have been permitted, it is a challenging exercise to distil with precision all of the separate breaches of duty that are alleged by Almona. The difficulty is enhanced by the fact that Almona did not deal specifically with all of the breaches in its closing submissions in a manner that precisely reflected the manner in which the allegations had been made." Ground 8 read as follows: "8 As to the allegation of breach of duty relating to PAG/SAP and Dyldam/Parklea entering into the Joint Venture and PAG/SAP agreeing to provide (through a related entity) financial accommodation to Parklea to fund its acquisition of the Land (J[584]), the primary judge erred in: (a) reasoning that the obligation of SAP to disclose to Almena its interest in the transaction arose only in circumstances where the transaction is other than a 'proper or independent one' (J[585]-[587] and J[500]); (b) finding that no breach of duty had been committed on the basis that the transaction was a proper and independent one (J[586]), even if the primary judge was correct in his reasoning referred to in paragraph (a) immediately above; (c) finding that no breach of duty had been committed on the basis that no diminution in the amount received by Almona following the sale of the mortgage land under the Contract had resulted (J[587]); and (d) failing to conclude that in the circumstances which obtained, the onus rested on SAP to justify the transaction, including its failure to disclose to Almona that it had agreed to provide (through a related entity) financial accommodation to Parklea to fund its acquisition of the mortgaged land under the Contract and to enter into the Joint Venture, and that SAP, having led no testimonial evidence, failed to discharge that onus."

The appellant set considerable store by the decision of the High Court in the earlier case of Latec Investments Ltd v Hotel Terrigal Pty Ltd (In liq). [19] The appellant in Latec was the mortgagee in possession. It was owed an amount of some £86,000. The circumstances in which the sale was effected were described by Kitto J in the following terms: [20] "The mortgagee took no steps to effect a sale until late in September 1958, and not until after its directors had learned that a stranger might be interested to purchase the property. It made no endeavour to sell to the stranger or to find any other purchaser by private contract. Instead, its board determined at some stage to sell the property to the second appellant, which was one of several subsidiaries of the mortgagee. They had identically composed boards of directors, and the mortgagee held all the shares in the second appellant. Before any sale was made, a firm of estate agents was instructed to put the property up for auction …. [t]he auctioneers made efforts to attract potential buyers and some thirty-five people attended the auction. The highest bid received was £58,000. Although the mortgagee's directors knew that an experienced valuer had valued the property six months before at [£56,500], a reserve of £85,000 had been fixed and the property was accordingly passed in. The auctioneers then advised the mortgagee to accept the offer of £58,000 if a better should not be forthcoming. The mortgagee, however, made no attempt to negotiate with any of the bidders or to obtain any higher offer. Its directors determined … that to have the Hotel Terrigal owned by one of their group of companies would be better for them than selling it to a stranger. … Without any further attempt having been made to find an outside purchaser, the mortgagee entered into a contract with its subsidiary, the second appellant, to sell the mortgaged property to the latter at the price of £60,000. There was, of course, no bargaining between them. The common board of directors simply fixed the figure and had a contract prepared and executed by both companies."

After some further explanation as to the amount payable on settlement (to which further reference will be made below), the action plan continued: "I propose the vendor finance be provided to the purchaser at the rate that is anticipated to have been payable under the proposed Senior Debt arrangements we discussed on Friday, namely BBSW plus the Senior Debt margin plus PAG's Credit Wrap Bank Guarantee fee. This interest is accountable to Almona as recoveries from the mortgagee sale, but interest at the default rate under the existing facility continues to run against the outstanding amount because no cash has been received by the vendor, so PAG gets the dual benefit of the higher rate, it books a sale and stops Almona from being able to repay the mortgage. I propose that the vendor finance be repayable on 29 April or such later date as PAG agrees, enough time to put in place the HASBC credit wrapped facility and the mezzanine pieces we discussed on Friday. The key reason why I have structured the funding as a 'vendor finance' arrangement in this manner is stamp duty and optics. I think it is important that the security back to PAG gets registered and for reasons discussed, as well as the lack of time for you to progress a new fund in PAG to cash fund the arrangements, means this really has to be genuine vendor funding from the mortgagee (although that is a very novel concept). However, there are two key advantages in this structure. Firstly, there is no suggestion in this that PAG is in any way permanently funding the acquisition, it appears like short term funding to assist the buyer and is beneficial to Almona in that it generates interest income on the sale. Secondly, one very important advantage [is] that genuine vendor funding is liable to nominal mortgage stamp duty. Any other structure where another PAG fund funds the purchaser will attract $308,000 in stamp duty. If PAG can arrange cash funding from a new fund to cash out the old fund before 29 April, we can do this once that cash is available by a sub-participation or substitution in a way that would not be visible to Almona."

Turning to the decision to accelerate settlement of the contract, the trial judge's reasoning as to the knowledge and intentions of both SAP and Parklea Corporation were as follows: "[679] Also relevant to the context in which the question of dishonesty must be determined, is the decision of PAG, and thus SAP, to accelerate the completion of the Contract. That, by itself, was not a breach of mortgagee's duty by SAP. Mr Dixon-Smith initially apparently appreciated that proper conduct might require that the Contract be varied, so that it could be completed on the basis that Mr Constantine would have a month after completion in which to give vacant possession of the Residence, in which case Parklea would be required to pay the additional purchase price of $4.25 million. Mr Dixon-Smith gave advice to PAG to that effect in his 15 March 2016 action plan. As mentioned above, the evidence does not disclose whether Mr Dixon-Smith, or anyone else on behalf of SAP, suggested this variation of the contract to Parklea. Nor does the evidence explain what happened in the meetings or telephone conversations between the parties to the Contract that led to them deciding to vary the Contract by omitting the Occupation Condition and creating the appearance that the price had always been $81.1 million. In the absence of any explanation to the contrary, it is proper for the Court to infer that, by some unknown process, SAP and Parklea addressed the consequences of the Occupation Condition, the fact that Almona and Mr Constantine had not apparently acted in a manner that would gain the higher price, the apparent ignorance of Almona of the terms of the Occupation Condition, and the potential jeopardy to the highly accelerated completion of the contract if Almona was informed of the Occupation Condition at the last moment. Although the precise terms of the agreement between SAP and Parklea are not disclosed by the evidence, I am satisfied that they must have mutually decided that it was in their collective interests to formally reduce the price to $81.1 million, and to deprive Almona of the opportunity to gain the additional $4.25 million. [680] On balance, I am satisfied that the conduct of SAP and Parklea in entering into the Second Deed of Variation, containing as it did terms that deleted the Occupation Condition, and thereby creating the appearance that the purchase price had always been $81.1 million, was conduct that assists the Court in drawing the conclusion that this aspect of SAP's conduct was dishonest. The replacement of the front page of the contract with a new page that suggested the price had always been $81.1 million, and the insertion of a page in the new special conditions that suggested that special condition 61 was 'Not Used', were clearly capable of concealing the fact of the reduction in the purchase price. Neither SAP nor Parklea gave any evidence that could constitute an innocent explanation for this conduct. It may be imagined, for example, that the variation to specify a single purchase price might simplify the process of establishing the correct amount of stamp duty, but it is not clear that the variation would provide any real advantage in this regard, as it should have been a simple matter to explain to what was then called the Office of State Revenue that the condition for the payment of the higher price had not been satisfied. As the parties to the Contract had the opportunity to give an innocent explanation, but did not do so, the Court should not find an innocent explanation based on speculation."

Having concluded that the "failure of SAP to inform Almona of the occupation condition in a timely manner was dishonest", [30] the judge returned to the question of whether Parklea was a party to SAP's dishonesty. He rejected the proposition that it was party to the statement by Mr Dixon-Smith, and continued: "[692] Parklea's position was different to that occupied by SAP. Parklea, as a purchaser under a Contract made by a mortgagee in exercise of its power of sale, did not owe any duty of good faith personally to Almona. However, Parklea must be taken to have known that the vendor, SAP, owed such a duty to Almona. Parklea was at all times represented by competent lawyers. Parklea knew that, by the terms of Dyldam's second expression of interest, and the fact that the Contract included the Occupation Condition, Almona's property was worth $85.35 million to Almona, subject only to Mr Constantine giving vacant possession of the Residence before completion. In that way, Parklea knew that, under the terms of the Contract, Almona had a proprietary right that was worth an additional $4.25 million to it, subject only to the satisfaction of the condition. Parklea had a self-interest in reducing the purchase price to $81.1 million, as that would save it $4.25 million, subject only to the inconvenience of taking the steps necessary to eject Mr Constantine. It may be that Parklea had genuinely valued the cost of having to eject Mr Constantine at $4.25 million. However, in my view, an honest approach to the application of the Occupation Condition would require that Almona be given the choice of whether to realise the additional $4.25 million in the price. Payment of the price of $81.1 million would be of advantage to Parklea provided its cost of ejecting Mr Constantine was less than $4.25 million. When the decision was made by SAP to accelerate the completion of the Contract, it must have been obvious, as soon as SAP raised the issue of the Occupation Condition, that it was probable that Mr Constantine would not vacate the Residence before completion. [693] As neither SAP nor Parklea gave evidence concerning the genesis of the Second Deed of Variation, in so far as it related to the Occupation Condition, or how the agreement was reached on that issue, the Court is not able to make precise findings on this subject. SAP may have suggested Mr Dixon-Smith's solution of varying the Contract to give Almona a month for Mr Constantine to vacate the Residence. If that happened, Parklea must have declined to agree with that variation. Alternatively, SAP may simply not have raised the fact that the acceleration of the date for completion would not in practical terms give Mr Constantine time to vacate the Residence. It is proper to infer, if this were the case, that the parties to the Contract must have addressed the practical difficulties involved in effecting an accelerated completion, if Almona were advised of the terms of the Occupation Condition. In the absence of evidence from Parklea, I would not infer that it had grounds for understanding, and did understand, that Almona had been told of the Occupation Condition, and had decided not to avail itself of the benefit of the higher price. The evidence does not establish when the discussions by which the agreement was made that led to the deletion of the Occupation Condition occurred. Mr Hall's email to Ms Hempel sent at 5:05 PM on 17 March 2016, which is set out above, simply referred to 'the discussions between the parties', which led Parklea to require the Second Deed of Variation. All in all, the inference is justified that Parklea was aware that Almona did not know of the terms of the Occupation Condition when it agreed to vary the Contract. Parklea must have been as aware as SAP of the capacity of the replacement of the first page of the Contract, and the deletion of the Occupation Condition in a way that would disguise the fact that it had ever existed, to mislead Almona. [694] In these circumstances, I find that Parklea's agreement to enter into the Second Deed of Variation containing the terms that it did as to the price payable under the Contract was dishonest. It involved conduct that knowingly deprived Almona of $4.25 million of the value of the Land, which was set by Parklea's own conduct in agreeing to that price. Parklea stood to gain $4.25 million, even though that gain must be offset by the inconvenience of obtaining vacant possession from Mr Constantine."

In addition to this reasoning, it is convenient to refer to the discussions which occurred with Madison Marcus, the solicitors for Parklea Corporation, on or about 17 March 2016 and referred to by the judge: "[223] At 11:31 AM on 17 March 2016, Madison Marcus sent a copy of the Gilbert + Tobin letter to Dyldam advising that Gilbert + Tobin had advised that the Investment Committee had approved the sale and that completion was due to take place on 1 April 2015 (which must have been a typographical error), together with the comment: 'We are working towards completion next Monday 21 March 2016'. [224] Mr Hall, of Madison Marcus, sent an email at 5:05 PM on 17 March 2016 to Ms Hempel of Gilbert + Tobin. The email referred to 'our recent telephone conversation', and confirmed being advised that the investment review committee had approved the sale and that it was contemplated that completion would take place on Monday 21 March 2016. The email then continued: To reflect the discussions between the parties we require a Deed of Variation of Contract to be entered into which reflects the following: a. Front page of Contract: reinstate 'input taxed because the sale is of eligible residential premises (sections 40-65, 40-75(2) and 195-1)' and insert after this 'refer to special condition 50'; b. Front page of the Contract: purchase price is to be amended to $81,100,000.00 and the balance of the purchase price is to be amended to $76,832,500.00; c. Clause 35.3 - Delete and insert a provision whereby the Vendor agrees to maintain insurances for the benefit of the Purchaser for a reasonable time following settlement; d. Clause 50.2(a) - the table: insertion in the column of component 'Residential premises', insertion to the column of description of component 'being the area with residential premises and reasonable curtilage referred to in special condition 51' and insertion to the column of proportion of purchase price (as advised by the Vendor's solicitor); e. Insertion of an additional special condition which deals with residential premises being input taxed; f. Clause 50.8(a): Deletion of the words 'as soon as possible after the date' and substitute with 'after the date of completion'. Insert the words 'as approved by the Vendor' after the words 'ruling'; g. Clause 50.8(b), (c) and (d): Delete; h. Clause 55.1" [sic] delete the words 'house and garden' and replace with 'residence and reasonable curtilage' wherever appearing. Delete the words 'as at the date of this contract' and substitute with 'as at the date of completion'; i. Clause 61 - Delete; and j. Clause 64.2(b) - Delete." It should be noted that the first email from Mr Hall of 17 March at 11:31am was copied to Mr Fayad and to Mr Qutami, who was also working at Madison Marcus on the transaction. Mr Fayad was the sole director of Parklea Corporation and therefore the person responsible for giving instructions.

Hawkesbury Valley Developments Pty Ltd v Custom Credit Ltd (1994) 8 BPR 15,581 raised no issue about the mortgagee's sale being made in fraud of the power. There was no question of Custom Credit selling to an associate. The question was whether the sale was adequately advertised and whether the mortgagee's selling agent properly dealt with a potential purchaser who expressed interest in buying. McLelland CJ in Eq's discussion of the equitable obligations of a mortgagee exercising its power of sale was wholly directed to the manner in which the power is to be exercised. His Honour said: "The powers of sale exercised by Custom Credit were stator powers conferred by s 58 of the Real Property Act. That section empowers a mortgagee to 'sell the land mortgaged … or any part thereof … either altogether or in lots by public auction or by private contract, or both such modes of sale, subject to such conditions as he thinks fit…'. In exercising the power thus conferred the mortgagee is, however, subject to obligations arising from the application of equitable principles equivalent in nature and extent to the obligations similarly arising in respect of legal or equitable mortgages under the general law: as is implicit in the decision in Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; 18 ALR 124; BC120006. Those obligations apply to the exclusion of any duty of care arising from the principles of the law of negligence: Coroneo v Australian Provincial Assurance Association (1935) 35 SR (NSW) 391, Colin D Young Pty Ltd v Commercial and General Acceptance Ltd (1982) NSW Conv R 55-097, Downsview Nominees Ltd v First City Corp Ltd (1993) AC 295; [1993] 3 All ER 626. The content and scope of the relevant equitable obligations were considered by the High Court in Pendlebury. That case is authority for the proposition that in exercising its power of sale, a mortgagee must act in good faith, which involves an obligation to deal fairly with the interests of the mortgagor, which in turn involves an obligation to refrain from acting in wilful or reckless disregard of those interests. Subsequent discussion of the question in the High Court (particularly in Forsyth v Blundell (1973) 129 CLR 477; 1 ALR 68; BC7300015, Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co (1978) 139 CLR 195; 19 ALR 519; BC7800044 and Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491; 38 ALR 225; BC8100133) has not displaced the authority of the decision in Pendlebury, to the mortgagor where there was 'a serious departure from accepted standards in seeking to obtain the best price then available' (at CLR 228; ALR 544). This is an area of the law where particular phrases used in judgments should not be construed and applied as if embodied in an Act of Parliament: compare Australian Apple and Pear Marketing Board v Tanking (1942) 66 CLR 77 at 110; [1942] ALR 265 at __(sic). What matters is the underlying equitable principle, which in the modern idiom usually finds expression in terms of unconscionability. The mortgagee is not answerable for what Isaacs J in Pendlebury describes (at 700) as 'mere negligence or carelessness in carrying out the sale'. Any departure from reasonable standards must be so serious as to be properly characterised as unconscionable, in order to render the mortgagee accountable. If a failure by a mortgagee to take reasonable steps to obtain a proper price is sufficiently serious to be characterised as unconscionable as that expression is understood in equity, then in the taking of accounts between the mortgagee and the mortgagor, the mortgagee will be accountable on the basis of wilful default for the price which would have been obtained if the mortgagee had not been guilty of unconscionable conduct."

In rejecting Almona's submission that SAP did not exercise its power of sale in good faith the primary judge held that: 1. the significance of whether the sale was an independent bargain was reduced by Almona's acceptance that the contract price was a proper one (subject to its submissions concerning the joint venture negotiations) (PJ [500]), that is, the price represented the market value of the land (PJ [530]); 2. the fact that the sale process was conducted independently by the receivers and Colliers was a crucial factor in the determination of whether the outcome of the sale process was the result of a proper exercise of SAP's power of sale (PJ [533]); 3. the insertion of the condition requiring the approval of PAG's Investment Committee raised no adverse inference against SAP as it was reasonable for PAG to have time to satisfy itself that it had satisfactory time to finance the purchase (PJ [549]-[550]); 4. SAP and Parklea Corporation's decision to accelerate completion of the contract was made to crystallise the consequences of the course taken by SAP to enter into the contract and to avoid becoming embroiled by litigation threatened by Almona (PJ [578]); 5. Mr Dixon-Smith's Action Plan contained candid advice to PAG as to how to advance SAP's private interests but the pursuit of those interests did not constitute a failure to act in good faith (PJ [579]); and 6. crucially: "[585] As has been considered above in connection with the burden of proof, there is no absolute prohibition on a mortgagee selling the security property to a company in which the mortgagee has an interest, provided, in respect of the price obtained, the transaction is a proper and independent one. The circumstances may have the effect that the interest obtained by the mortgagee switches the burden of proof and imposes it upon the mortgagee or the entity through which the mortgagee obtains its interest. [586] It has not been necessary for SAP or Parklea in this case to prove that the contract price for the Land was struck by a proper and independent process or that the price represented the market value. All of the evidence concerning the participation by the receivers and Colliers, and the implementation of the expression of interest campaign, supports a finding that the process was proper and independent. As I have recorded, the case was conducted on the basis, as initially conceded by Almona, that the contract price was a proper one. Although Almona's belated introduction of a fraud claim against SAP and Parklea based upon the joint venture negotiations in late 2015 may imply that the sale was at an undervalue, Almona did not lead evidence to establish such a claim."

Almona submitted: 3.23 When understood in the light of the foregoing facts, SAP's actions in destroying Almona's registered interest in the Land were motivated, not by any real concern to recover the sums outstanding under the SAP Mortgage, but instead by a commercial opportunity for the PAG Group to acquire a controlling interest in the registered proprietor of the Land (and therefore the Land itself) and to position itself such that it might derive extraordinary profits from the Project, which it intended to undertake and oversee as part of its joint venture with the Dyldam Group. That opportunity was the subject of negotiations prior to the close of the expressions of interest campaign. It was also the subject of the discussions recorded in clauses 2.I and 2.2 of the HOA, which continued up to the date of the transfer of title. In that sense, as in Tse Kwong Lam, the effect of the sale was to '[transfer] from [Almona] to [a company effectively controlled by PAG] ... the chance of making a profit which [SAP] could not acquire for [itself].' 3.24 Conscious of the scrutiny to which it was being subjected by Almona during the period of its exercise of its power of sale (a matter demonstrated by the Action Plan), SAP sought to cover its tracks and gloss over matters which on their face would appear unorthodox. The PAG Group did not take any units in the underlying trusts or shares in either Parklea or its subsidiaries, yet achieved the equivalent level of control through the rights and obligations established in the transaction documents that it would have had if it were a majority shareholder or unitholder. To avoid potential scrutiny and to avoid disclosing the prior existence of the Occupation Condition, SAP and Parklea entered into the second deed of variation, on the date of transfer, to omit this clause from the Sale Contract and to replace its front pages (PJ [680]). Finally, when it was apparent that Almona had found a potential financier with the 'firepower' to complete the refinancing transaction, SAP, with the cooperation of Parklea, drastically accelerated the transfer of title (PJ [204], [238]). The Action Plan reveals that SAP did so for the express purpose of destroying Almona's interest and rights to refinance and to secure for itself the Land through the Joint Venture (PJ [238]). 3.25 When viewed in this light, the primary judge ought to have found that SAP engaged in a fraudulent exercise of its power of sale and resultant transfer of title, which fraud was brought home to Parklea through its participation in its essential integers. The primary judge ought to have approached the fact finding process by drawing inferences from the cumulative strength of the individual facts, rather than by asking whether dishonesty was separately present in each fact (cf PJ [636]). The actions of SAP in pursuing with Dyldam the joint venture, through the vehicle of Parklea, together with its conduct in concealing its involvement in that enterprise and impeding Almona's efforts to refinance, ought properly be characterised as dishonest and fraudulent, whether that be described as 'a conscious misuse of power' (PJ [618]), 'a designed cheating', 'an underhand scheme' or a 'collusive and colourable sale'. Those inferences ought be drawn on the existing evidence. They can be even more comfortably drawn in light of the decision of SAP and Parklea not to call any witnesses to dispel them. The primary judge erred in rejecting the essential core of the underlying narrative to Almona's fraud claim (PJ [640])."

In Cassegrain v Gerard Cassegrain & Co Pty Ltd, French CJ, Hayne, Bell and Gageler JJ said: "[59] …Neither s 118 generally nor s 118(1)(d)(ii) in particular should be read as directed only to fraud in the process of registration. Exactly what would fall within fraud 'in the process' of registration may be open to debate. But it is not a debate that need be had, because s 118 should be construed in a way which is consonant with the operation of s 42(1). In particular, s 118 must not be read in a way which would preclude action to recover the land in a case where the fraud exception to s 42(1) applies. Hence, the reference in s 118(1)(d)(i) to proceedings brought by a person deprived of land by fraud against a person who has been registered as proprietor of the land through fraud must be read as embracing every kind of fraud which falls within the relevant exception to s 42(1). If actual fraud is brought home to the registered proprietor, s 118(1)(d)(i) is engaged and the general bar to proceedings for the possession or recovery of land against that registered proprietor is lifted. [60] Conversely, but equally importantly, if the fraud exception to s 42(1) does not apply to the person who is registered as proprietor, the general bar to proceedings for the possession or recovery of land against the registered proprietor will apply and the exception provided by s 118(1)(d)(i) will not be engaged. That is, the exception for which s 118(1)(d)(i) provides does not diminish the protection given by s 42(1). It does not enlarge the rights which a person deprived of land by fraud has against the registered proprietor. [61] By contrast, the exception provided by s 118(1)(d)(ii) does enlarge the rights which a person deprived of land by fraud has against a registered proprietor. Unless the registered proprietor is a transferee bona fide for valuable consideration, a person deprived of land by fraud may bring proceedings for the possession or recovery of the land against a person deriving from or through a person registered as proprietor of the land through fraud. But as with s 118(1)(d)(i), the expression 'registered as proprietor of the land through fraud' must be read in a manner consonant with s 42(1)."