EQUITY – GENERAL PRINCIPLES – FIDUCIARY OBLIGATIONS –
PARTICULAR CASES – where plaintiff mortgaged property
to first defendant
and was unable to meet repayments – where plaintiff and first defendant
Source
Original judgment source is linked above.
Catchwords
EQUITY – GENERAL PRINCIPLES – FIDUCIARY OBLIGATIONS –PARTICULAR CASES – where plaintiff mortgaged propertyto first defendantand was unable to meet repayments – where plaintiff and first defendantalso entered into agreement to developsaid property – where1st defendant desired to terminate said agreement and sold mortgageto 2nd defendant – where 2nd defendant exercisedmortgagee’s power of sale and sold mortgage rights to 3rddefendant – whether 1st defendant breached its fiduciary dutyto the plaintiff – whether fiduciary relationship existed betweenplaintiff and 2nd defendant – whether a relation of confidenceis conclusive of existence of a fiduciary relationshipEQUITY – GENERAL PRINCIPLES – FIDUCIARY OBLIGATIONS –PARTICULAR CASES – where plaintiff mortgaged propertyto first defendantand was unable to meet repayments – where plaintiff and first defendantalso entered into agreement to developsaid property – where
1st defendant desired to terminate said agreement and sold mortgage
to 2nd defendant – where 2nd defendant exercised
mortgagee’s power of sale and sold mortgage rights to 3rd
defendant – whether 2nd and 3rd defendants were in
receipt of trust money and whether the rule in Barnes v Addy satisfied
– whether plaintiff proved dishonest and fraudulent design
MORTGAGES – MORTGAGES AND CHARGES GENERALLY – REMEDIES OF THE
MORTGAGEE – SALE UNDER POWER – MODE OF EXERCISE
OF POWER –
REMEDIES OF MORTGAGOR – SETTING ASIDE THE SALE – where plaintiff
mortgaged property to first defendant
and was unable to meet repayments –
where plaintiff and first defendant also entered into agreement to develop said
property
– where 1st defendant desired to terminate said
agreement and sold mortgage to 2nd defendant – where
2nd defendant exercised mortgagee’s power of sale and sold
mortgage rights to 3rd defendant – where 2nd
defendant mortgagee called for tenders but had no intention to sell to
successful tenderer – whether mortgagee breached its
duty under s 85
Property Law Act – whether relevant that the mortgagee did in fact
sell for market value – whether tender offers must be ignored when
assessing the market value of the property – whether mortgagee breached
its equitable duty of good faith – whether equitable
duty of good faith
co-exists with duty under s 85 – whether defendants breached s 51AA of the
Trade Practices Act by engaging in unconscionable conduct
Land Title Act 1994 (Qld), s 184
Property Law Act 1974
(Qld), s 84, s 85, s 88
Trade Practices Act 1974 (Cth), s
51AA
ANZ Banking Group Ltd v
Bangadilly Pastoral Co Ltd [1978] HCA 21
(1978) 139 CLR 195, cited
Apple Fields Ltd
v Damesh Holdings Ltd [1901] NZLR 586 (CA)
[2004] 1 NZLR 721 (PC),
applied
Artistic Builders Pty Ltd v Elliot & Tuthill (Mortgages) Pty
Ltd (2002) 10 BPR 19, 565
[2002] NSWSC 16, cited
Australian
Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd [2003] HCA 18
(2003)
214 CLR 51, applied
Australian Competition and Consumer Commission
v Samton Holdings Pty Ltd [2002] 117 FCR 301, cited
Baden v
Société Générale pour Favoriser le
Dévelopment du
Barnes v Addy (1874) LR 9 Ch App 244,
applied
Barns v Queensland National Bank Ltd [1906] HCA 26
(1906) 3 CLR 925,
cited
Bropho v Western Australia [1990] HCA 24
(1990) 171 CLR 1, cited
Cameron
v Brisbane Fleet Sales Pty Ltd [2002] 1 Qd R 463, compared
Coco v A N
Clark (Engineers) Ltd [1969] RPC 41
(1968) 1A IPR 587, cited
Codelfa
Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337,
applied
Commerce et de l'Industrie en France SA [1992] 4 All ER 161,
applied
Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8
(1975) 132
CLR 373, cited
Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd
[2004] FCAFC 48, cited
Farah Constructions Pty Ltd v Say-Dee Pty Ltd
[2007] HCA 22
(2007) 81 ALJR 1107, applied
Farrar v Farrars Ltd
(1888) 40 Ch D 395, cited
Forsyth v Blundell [1973] HCA 20
(1973) 129 CLR 477,
cited
Fractionated Cane technology Ltd v Ruiz-Avila [1988] 1 Qd R 51,
cited
Freestone v Parramatta City Council (1974) 34 LGRA 35,
cited
Goold v Commonwealth [1993] FCA 157
(1993) 114 ALR 135
(1993) 79 LGERA 407,
cited
Gregory v Commissioner of Taxation (Cth) [1971] HCA 2
(1971) 123 CLR 547,
cited
Heavey Lex No 64 Pty Ltd v Chief Executive, Department of
Transport [2001] Qld Land Appeal Court A97-43, cited
Hospital Products
Limited v United States Surgical Corporation & Ors [1984] HCA 64
(1984) 156 CLR 41,
considered
Hurley v McDonald’s Australia Ltd (1999) FCA 1728,
cited
James Patrick & Co Pty Ltd v Minister of State for the Navy
[1944] ALR 254, cited
McDonald v Deputy Federal Commissioner of
Taxation [1915] HCA 54
(1915) 20 CLR 231, distinguished
McKean v Maloney [1988]
1 Qd R 628, cited
Mir Bros Unit Constructions Pty Ltd v Roads and Traffic
Authority of New South Wales [2004] NSW LEC 612, cited
For the reasons given earlier the last limb of the allegations against Logan Road may be disregarded.
[2]
The argument mounted in final addresses centred on the following passage from the reasons of the Court in Hurley v McDonald's Australia Ltd:[59]
[3]
"For conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable, must be demonstrated - Cameron v Qantas Airways Ltd[1995] FCA 1304; (1994) 55 FCR 147 at 179. Whatever 'unconscionable' means in s 51AB
[4]
, the term carries the meaning given by the Shorter Oxford English Dictionary, namely, actions showing no regard for conscience, or that are irreconcilable with what is right or reasonable - Qantas Airways Ltd v Cameron[1996] FCA 1483; (1996) 66 FCR 246 at 262. The various synonyms used in relation to the term 'unconscionable' import a pejorative moral judgment - Qantas Airways Ltd v Cameron[1996] FCA 1483; (1996) 66 FCR 246 at 283-4 and 298."
[5]
[156] The case argued departed substantially from the pleaded case in that it was submitted that the following "conduct is so far removed from what can be considered moral or reasonable that it can only be described as unconscionable in every sense of the word":
[6]
"a) Mr Smith formed an intention to acquire the property beneficially for himself very early;
[7]
Mr Smith conspired with a variety of persons in attempts to: i) purchase the property;
[8]
ii) Starve Benzlaw of funds with which it could defend its rights and position;
[9]
Mr Smith took steps to hide his intentions from Mr Bennelli;
Mr Smith held out to Mr Bennelli (or knowingly allowed him to believe) that he was acting to the benefit of both he and Bennelli;
Mr Smith took advantage of the position he held out in order to obtain information of a confidential nature;
Mr Smith used this information for a purpose far from the purpose for which it was provided."
[10]
[157] The passage quoted from the reasons in Hurley v McDonald's Australia Ltd is unhelpful for present purposes. As Gleeson CJ pointed out in Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Limited[60] "...unconscionability is a legal term, not a colloquial expression. In everyday speech, unconscionable may be merely an emphatic method of expressing disapproval of someone's behaviour, but its legal meaning is considerably more precise".
[11]
By concentrating on the colloquial meaning of "unconscionable", Benzlaw has neglected to focus on establishing that the unconscionability involved in the conduct complained of was such as to give rise to the right to equitable relief under the principles established by the general law.
[12]
Whether in order to come within s 51AA the unconscionable conduct must be such as to support the grant of relief on the principles underlying specific equitable doctrines,[61] or whether the section may extend beyond such doctrines to include developments in common law principles[62] was left open by Gummow and Hayne JJ in Berbatis.[63] It is plain from the reasons of the majority in Berbatis however that in order to rely on s 51AA a plaintiff must establish more than inequality of bargaining power and legal or economic disadvantage flowing from a weak contractual position such as the impending expiration of a lease or the inability to remedy breach under a mortgage.
[13]
If the conduct alleged against Medi-Aid was not in breach of contract or in breach of any fiduciary duty owed by it to Benzlaw there was nothing unconscionable about it. It was merely exercising its rights as the holder of the mortgage.
[14]
The unpleaded case against Logan Road is relevantly unparticularised and, consequently, cannot be identified with any degree of precision. It was not explained in addresses how the conduct described above came together to produce conduct in respect of which a court would grant equitable relief. Some persons may consider aspects of the conduct complained of harsh or even unscrupulous but it is not conduct which placed Benzlaw in a position of "special disadvantage".
[15]
The reference to the conspiracy to starve Benzlaw of funds is a reference to the appointment of a receiver. It is probable that an object of the appointment was to deprive Benzlaw of funds and thus make it more difficult for Benzlaw to resist actions Mr Smith may wish to take with respect to the property. It must be recalled though that Logan Road acquired Medi-Aid's interest in the mortgage. Benzlaw was in default and there was no reasonable expectation that default would be remedied. In those circumstances the appointment of a receiver to get in the income of the property and take over its management was an obvious commercial course for Mr Smith to follow.
[16]
Even if Mr Smith hid from Mr Bennelli his intention to acquire the mortgage, that would not seem to be productive of any consequences. It is not suggested that had Mr Smith been more open about his intentions that Mr Bennelli could have done anything to thwart them. There is no evidence that Mr Smith, in any relevant way, held out to Mr Bennelli that Mr Smith was acting for the benefit of both of them or that Mr Bennelli did or failed to do anything in response to any such holding out. In case it is relevant to this claim, I find that in the early discussions between Mr Smith and Mr Bennelli, Mr Smith did make it known to Mr Bennelli that he was interested in acquiring Medi-Aid's interests in the mortgage and that he was taking steps towards achieving that objective. The confidential information point has been dismissed earlier. For these reasons, the claim based on unconscionable conduct fails.
[164] The conduct relied on to support the allegations of breach of s 51AA is relied on in the alternative to constitute a breach of s 52 of the Trade Practices Act by each of the defendants.
[19]
[165] Conduct, in order to be "misleading or deceptive" for the purposes of s 52 must induce or be capable of inducing error.[64] If misleading or deceptive conduct is established, no damages are recoverable unless the plaintiff shows that the wrongful conduct was causative of loss. Section 82(1) of the Act operates where a person has suffered "loss or damage by conduct of another person".
[20]
Benzlaw has identified no conduct on the part of Medi-Aid which can be said to be misleading or deceptive. Nor can it be said that any loss or damage claimed to have been suffered by Benzlaw was by any conduct of Medi-Aid in breach of s 52.
[21]
I find that at the time Mr Smith met Mr McKenzie at the property on 7 September he had an open mind as to how he would go about profiting from an investment in the property even though he then contemplated that he might acquire Medi-Aid's interest in the mortgage. By the end of September he set about taking steps to that end but that is not necessarily inconsistent with his maintaining some interest in reaching agreement with Benzlaw. I am unable to find that Mr Smith had no intention of entering into a joint venture agreement with Mr Bennelli until on or about 20 October 2005. It is thus probable that for a short period in late October 2005 Mr Smith allowed Mr Bennelli to entertain the erroneous belief that Mr Smith continued to be interested in entering into a joint venture. It is not alleged however that Mr Bennelli did or refrained from doing anything in reliance on Mr Bennelli's erroneous belief. Again, if there was any Benzlaw misleading or deceptive conduct on Mr Smith's part it has not been shown that suffered any loss or damage by it.
[22]
[168] Logan Road's claims against Benzlaw in excess of $12 million in accordance with the calculations of a chartered accountant, Mr Knight, there was no challenge to Mr Knight's calculations and, on the face of things, Logan Road is entitled to judgment for a sum established by those calculations updated to today's date. There is also a claim by Logan Road against Medi-Aid for breach of a warranty contained in clause 7 of a deed of assignment dated 17 October 2005 entered into between Medi-Aid and Logan Road. Having regard to the above findings I apprehend that the claim against Medi-Aid will not be pursued. If there was a breach of warranty it is difficult to see that the breach was productive of any loss having regard to the value of the property and Benzlaw's lack of assets.
[23]
[169] Medi-Aid claims "an account of the ... joint venture agreement" and payment of any amount shown by such account to be due to [Medi-Aid].
[24]
[170] Nothing was said in final addresses about the counterclaim and I assume it was made as a precaution against a successful claim against Medi-Aid by Benzlaw. I can see no practical point in the counterclaim and unless persuaded otherwise by further submissions, I propose to make no order in respect of it.
[25]
[171] None of Benzlaw's claims against Medi-Aid succeeded.
[26]
[172] Benzlaw failed to establish that a joint venture agreement had been entered into between it and Logan Road or that a fiduciary relationship arose in the course of negotiations for a joint venture.
[27]
[173] Benzlaw also failed to establish any liability on Logan Road's part under the rule in Barnes v Addy. Nor was it successful in its Trade Practices Act claims.
[28]
[174] Logan Road in exercising its power of sale did not act bona fide for the purpose for which the power was conferred and it is appropriate that the sale to Brunswick Street be set aside.
[29]
[175] I will hear submissions as to the appropriate form of order and costs.
"As a matter of ordinary understanding, and as reflected in the criminal law in Australia, (Macleod v The Queen[2003] HCA 24; (2003) 214 CLR 230 at 242) a person may have acted dishonestly, judged by the standards of ordinary, decent people, without appreciating that the act in question was dishonest by those standards. Further, as early as 1801, Sir William Grant MR stigmatised those who 'shut their eyes' against the receipt of unwelcome information. (Hill v Simpson (1801) 7 Ves Jun 153 at 170 [1802] EngR 200; [32 ER 63 at 69]. See further May v Chapman and Gurney[1847] EngR 148; (1847) 16 M & W 355 at 361 [153 ER 1225 at 1228]; Jones v Gordon(1877) 2 App Cas 616 at 625, 628-629, 635; English and Scottish Mercantile Investment Co Ltd v Brunton[1892] 2 QB 700 at 707-708)."[35]
[42]Freestone v ParramattaCity Council(1974) 34 LGRA 35, 49; Yates Property Corp Pty Ltd v Darling Harbour Authority(1990) 70 LGRA 187; Goold v The Commonwealth[1993] FCA 157; (1993) 42 FCR 51, 57-60; Henderson v Amadio Pty Ltd(No 1)[1995] FCA 1300; (1995) 62 FCR 1 at 122; Hall & Hedge v DOT, unreported, Land Court (Q) 14 November 1997, pp 74-75; see also Brown "Land Acquisition" 4th ed para 4.12; Heavey Lex No 64 Pty Ltd v Chief Executive, Department of Transport [2001] Qld Land Appeal Court A97-43; Mir Bros Unit Constructions Pty Ltd v Roads and Traffic Authority of New South Wales[2004] NSW LEC 612; Stockl v Rigura Pty Ltd[2004] NSWCA 73 and MMAL Rentals Pty Ltd v Bruning[2004] NSWCA 451; (2004) 63 NSWLR 167.
[47]Forsyth v Blundell[1973] HCA 20; (1973) 129 CLR 477 at 493; ANZ Banking Group Ltd v Bangadilly Pastoral Co Ltd at 224 per Aickin J, with whose reasons the other members of the Court agreed; Apple Fields Ltd v Damesh Holdings Ltd [1901] NZLR 586 (CA); [2004] 1 NZLR 721 (PC) and McKean v Maloney[1988] 1 Qd R 628. Cf Cameron v Brisbane Fleet Sales Pty Ltd[2002] 1 Qd R 463 in which it was held that the duty of good faith was subsumed in the duty imposed by s 85 of the Property Law Act.