Australian & New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd

Australian & New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd - [1978] HCA 21 - HCA 1978 case summary — Zoe

[14]

In my opinion the trial judge placed too much emphasis on a need for conscious planning, deceptiveness, collusion and underhand exercise of the power before he felt himself able to find that the sale lacked bona fides. It is true that bona fides in this connexion is not concerned with the motive for exercising the power of sale but, once the decision to sell has been made, it is concerned with a genuine primary desire to obtain for the mortgaged property the best price obtainable consistently with the right of a mortgagee to realize his security. At the same time the mortgagee is concerned with his own interests and not with the interests of the mortgagor or subsequent incumbrancers, and therefore a wide latitude has been allowed to him in his manner of exercising his power of sale. However, 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. When those circumstances exist it may not be sufficient that steps are taken in the conduct of the sale which would suffice to support the validity of the sale when there was no conflict of interest. The steps taken or not taken in the conduct of the sale cannot be considered separately from the conflict of interest. Although conscious planning, deceptiveness or collusion to prefer the close associate would be conclusive of a lack of bona fides, it does not follow that a failure to conclude that any of these elements were present leads to a conclusion that the sale was bona fide unless it would be otherwise invalid even if no conflict of interest were present. The inevitable conflict of interest which arises on a sale to a close associate may be not only consciously but also unconsciously resolved in favour of the associate. The closer the association, the greater the conflict and the greater the possibility of unconscious preference. For this reason, if certain associations are found to exist, e.g. where the purchaser is trustee for the mortgagee, the sale cannot be allowed to stand in any circumstances.

[30]

In early 1974 Talga Pastoral Co. decided to sell both Bangadilly and Nandi and put them up for auction on 15th March 1974 as a single property, comprising in all some 6,000 acres. They were not sold at the auction but were passed in after only one bid of $100 per acre was made, that bid having apparently been made by the vendor. That auction was held at Moss Vale and had been preceded by substantial press advertising and distribution of brochures at a cost of $2,150.25. A Mr. and Mrs. Hall had attended the auction and were interested in purchasing Bangadilly but they did not bid. They were interested in purchasing a property to replace one in Victoria which they or a company which they controlled had sold or were about to sell and from which stock and equipment would have to be removed. After the auction Mr. and Mrs. Hall entered into negotiations with Talga Pastoral Co. for the purchase of Bangadilly and agreed in about the first week of April to pay the price which Talga Pastoral Co. asked, namely $500,000. This oral arrangement was not immediately reduced to writing and the detailed terms of that agreement (if there were any other than the price) do not appear. By the time a written contract was prepared and exchanged (11th June 1974) an arrangement had been made to reduce the price to $470,000, and the terms then agreed upon required a deposit of $50,000 to be paid on 28th June, but to be deposited in a joint account at the time of the exchange of executed contracts. The terms required a further amount of $150,000 to be payable on 28th June, with the balance on completion on or before 15th August 1974. At the same time as the execution of the contract a licence agreement was executed which gave the purchaser the right to move stock and equipment onto the property immediately. The purchaser under this contract was a company called Hall Investments Pty. Ltd. ("Hall Investments"), of which Mr. and Mrs. Hall were the only directors and the only shareholders. In relation to the negotiation of and entry into that contract a solicitor named Thomson acted both for Hall Investments and for Mr. and Mrs. Hall and had advised them on the contract.

[146]

In the authorities there are to be found conflicting views on the question whether the obligation cast upon the mortgagee is simply that he should act "in good faith" (which means, in my opinion, in the language used in most of the authorities, that he should act without fraud and without wilfully or recklessly sacrificing the interests of the mortgagor) or is an obligation which is broken also if there is negligence in carrying out the sale. Support for the former view may be found in the statements in Kennedy v. De Trafford [5] by Lindley L.J. and in the same case on appeal, [6] by Lord Herschell, in the adoption of those statements by this Court in Barns v. Queensland National Bank Ltd. [7] and in Pendlebury v. Colonial Mutual Life Assurance Society Ltd. [8] and in the definite opinion expressed by Isaacs J. in the latter case, that the mortgagee is not answerable for "mere negligence or carelessness". On the other hand, it appears that the view that negligence is enough to make the mortgagee liable to account to the mortgagor for loss arising from a sale is supported, not only by the recent cases of Holohan v. Friends Provident and Century Life Office [9] and Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. [10] , but also by the decision of the Privy Council in McHugh v. Union Bank of Canada [11] . But I do not think it necessary to resolve this question in this appeal. Mason J. said [12] : It will be seen that the conclusion which I reach is that A.S.L. was in breach of its duty to the mortgagors in that it exercised 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. Accordingly, I need not consider the vexed question whether the mortgagee's duty is merely to act bona fide or whether, in addition, he is bound to take reasonable precautions to obtain a proper price. The conflicting authorities have recently been reviewed by the Court of Appeal in Cuckmere Brick Co. v. Mutual Finance Ltd. [13] : see also Holohan v. Friends Provident and Century Life Office [14] . It was held in these cases that the mortgagee is bound to act bona fide and take reasonable precautions to obtain a proper price, or, as Salmon L.J. would prefer to express it, "the true market value". In any resolution of the question in this Court account must be taken of what was said in Barns v. Queensland National Bank Ltd. [15] and Pendlebury v. Colonial Mutual Life Assurance Society Ltd. [16] . However, as I have said, on the view which I take of the facts this problem does not arise for decision; nor is it necessary for me to determine the related question whether a mere failure to take reasonable precautions to obtain a proper price is a sufficient ground for setting aside a mortgagee's contract of sale or for restraining its performance (see Property & Bloodstock Ltd. v. Emerton [17] ). Menzies J., who dissented in the application of the principle to the facts, expressed the general rule as follows [18] : The rule to be applied here is not in doubt; it was stated authoritatively by Lord Herschell in the last century. In Kennedy v. De Trafford [19] which has been followed by this Court in Barns v. Queensland National Bank Ltd. [20] and Pendlebury v. Colonial Mutual Life Assurance Society Ltd. [21] , the Lord Chancellor said [22] : " if a mortgagee in exercising his power of sale exercises it in good faith, without any intention of dealing unfairly by his mortgagor, it would be very difficult indeed, if not impossible, to establish that he had been guilty of any breach of duty towards the mortgagor. Lindley L.J. in the Court below, says that "it is not right or proper or legal for him either fraudulently or wilfully or recklessly to sacrifice the property of the mortgagor." Well, I think that is all covered really by his exercising the power committed to him in good faith. It is very difficult to define exhaustively all that would be included in the words "good faith", but I think it would be unreasonable to require the mortgagee to do more than exercise his power of sale in that fashion. Of course, if he wilfully and recklessly deals with the property in such a manner that the interests of the mortgagor are sacrificed, I should say that he had not been exercising his power of sale in good faith."

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Judgment (166 paragraphs)

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