Commercial & General Acceptance Ltd v Nixon - [1981] HCA 70 - HCA 1981 case summary — Zoe

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Commercial & General Acceptance Ltd v Nixon

[1981] HCA 70

High Court of Australia|1981-07-01|Before: Brennan JJ, Connolly J, Aickin J

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Source facts

Court

High Court of Australia

Decision date

1981-07-01

Before

Brennan JJ, Connolly J, Aickin J

Source

Original judgment source is linked above.

Judgment (129 paragraphs)

[1]

High Court of Australia Gibbs C.J. Mason, Aickin, Wilson and Brennan JJ. Commercial & General Acceptance Ltd v Nixon [1981] HCA 70

[2]

This is an appeal from a decision of the Full Court of the Supreme Court of Queensland affirming a judgment given by Connolly J. in favour of the respondents. The facts are not in contest. The appellant, Commercial and General Acceptance Ltd., as mortgagee in possession of the respondents' land, exercised its power of sale. For this purpose it employed a firm of real estate agents to conduct the sale by auction. The appellant instructed the agents that the sale should be advertised in The Courier-Mail. However, the one advertisement published in that newspaper was unsatisfactory in a number of respects. There is no challenge to the finding that, because the auction was insufficiently advertised, there was a failure to take reasonable care to ensure that the property was sold at its market value, and that in consequence the property was sold at an undervalue. The appellant was not itself directly responsible for the insufficient advertising; it left the matter to the agents whom it had chosen. There is no suggestion that the agents were other than competent, but they were at fault in the arrangements they made to advertise the sale in this case. The question is whether in these circumstances it was right to hold the appellant liable for the loss suffered by the respondents as a result of the sale of the property at less than its market value. No challenge was made before us to the assessment of the damages.

[5]

Although a mortgagee is not a trustee of the power of sale for the mortgagor, it is nevertheless clear that in conducting a sale of the mortgaged property he is not entitled to sacrifice the interest of the mortgagor in the surplus of the proceeds of the sale. It is equally clear that the mortgagee must exercise the power in good faith. However, the question whether, apart from statute, a mortgagee exercising a power of sale is under an obligation to take reasonable care to obtain a proper price, as well as an obligation to act in good faith, is one on which the authorities are conflicting, and indeed in my opinion irreconcilable. The question was left open by the majority of this Court in Forsyth v. Blundell [18] , and by Aickin J. in Australia and New Zealand Banking Group Ltd. v. Bangadilly Pastoral Co. Pty. Ltd. [1] , and it is unnecessary to decide it in the present case, because the law for Queensland is settled by s. 85(1). The duty of a mortgagee exercising a power of sale in Queensland is clear; it is to take reasonable care to ensure that the property is sold at market value. It may be accepted that in the present case the appellant took reasonable care to choose competent agents, and then left the conduct of the sale in their hands. In my opinion this does not mean that the appellant thereby discharged its duty under s. 85(1). The duty of the mortgagee is not merely to take care to ensure that the sale is carried out by competent agents. It is to take reasonable care to ensure that the property is sold at the market value. The duty to take reasonable care is one that the mortgagee is bound to perform, and he cannot escape liability for a breach of that duty by delegation to another. In other words, generally speaking at least, a mortgagee does not discharge his duty to take reasonable care simply by choosing a competent agent and then entrusting the conduct of the sale entirely to him. A reasonable man, selling his own property by auction, and wishing to obtain the market value, would not allow the auctioneers a free hand to advertise in whatever manner they thought fit; he would make reasonable endeavours to ensure that the advertising proposed was adequate. It is not unduly burdensome to require a mortgagee to exercise similar care.

[8]

But whatever is done by him through an agent must be taken to be done by himself, and, as between him and the mortgagors, he must be responsible for any acts and defaults. So long, however, as he selects agents presumably competent he cannot be made liable for their errors in judgment or in matters of detail not seriously affecting the success of the sale or the price realized. On the other hand, I think that if the mortgagee is guilty, directly or indirectly, of a serious blunder inducing a failure to sell, or a large diminution of the price realized, the mortgagor can hold him responsible for that, and it is no answer for him to say that the blunder was no fault of his own, but was that of an agent in whom he properly placed implicit confidence. The mortgagee must in such a case be left to his remedy against his agent. The case was taken to the Court of Appeal [5] , but only in relation to the assessment of the loss occasioned by the negligence, and it was not argued that the mortgagees were not liable for the mistake of the auctioneer. However, the Court of Appeal accepted that they were liable. Cotton L.J. said [6] : The defence seems really to have been very much, if not entirely, directed to this, that the first mortgagees, selling under their power, employed a competent auctioneer, and were not answerable for any blunder which the auctioneer committed. There they were wrong, and that point was not I think argued before us What we think is this, - that the first mortgagees are answerable for any loss which was occasioned by the blunder made by their auctioneer at the sale. In Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. [7] , a mortgagee was again held liable for a loss on the sale of the property caused by the fault of the auctioneers. Before the Court of Appeal counsel for the mortgagee submitted that a mortgagee should not be liable for the negligent default of his agent, but the Court refused to allow the point to be raised because it had not been taken at first instance. However, Cross L.J. [8] said that in any case he did not accept the submission, and the other two members of the Court, although not expressing a concluded view upon the question, referred to Tomlin v. Luce with apparent approval - see at pp. 969, 980. There appear to be no cases in which it was held that a mortgagee who had a duty to take reasonable care to obtain a proper price discharged that duty simply by taking reasonable care to appoint a competent agent. It is unlikely that the Queensland legislature, in enacting s. 85(1), intended to depart from the prevailing view that a mortgagee, if bound to take reasonable care, would be responsible for the want of care of an agent in affecting the sale. It does not necessarily follow, however, that the legislature intended to accept the distinction drawn by Kekewich J. in Tomlin v. Luce between errors in matters of detail and serious blunders, since in principle the proper distinction is between errors that amount to negligence and those that do not. 1. (1869) 20 L.T. 353. 2. (1889) 41 Ch.D. 573. 3. (1889) 41 Ch.D., at pp. 575-576. 4. (1889) 43 Ch.D. 191. 5. (1889) 43 Ch.D., at p. 194. 6. [1971] 1 Ch. 949. 7. [1971] 1 Ch., at p. 973.

[67]

A power of sale is given to a mortgagee in order to enable him to realise his security, and he necessarily exercises it to that end. But he is not the owner of the estate, and therefore cannot sell as an absolute owner might, regardless of all other persons than himself. He owes a duty to the person entitled to the equity of redemption, or, as expressed by Lord Justice Lindley in a pregnant passage of the judgment of the Court of Appeal in the recent case of Farrar v. Farrars Ltd. [35] , he is under obligations to him. What restriction does this duty place on his actions? What is the limit of this obligation? Granted that all conditions calling the power of sale into operation have been fulfilled, a mortgagee is entitled to select his own time and mode of sale, and the Court will not interfere with his discretion except under circumstances which prove oppression or otherwise impeach the honesty of the transaction. He is entitled to employ agents. He may instruct a solicitor, and through him, if practising in the country, a London agent. He may, through that solicitor, or directly, instruct surveyors, auctioneers, and other whose services are reasonably required for the proper conduct of the sale. He may, through the solicitor, instruct counsel to settle the conditions of sale. But whatever is done by him through an agent must be taken to be done by himself, and, as between him and the mortgagors, he must be responsible for any acts and defaults. So long, however, as he selects agents presumably competent he cannot be made liable for their errors in judgment or in matters of detail not seriously affecting the success of the sale or the price realized. On the other hand, I think that if the mortgagee is guilty, directly or indirectly, of a serious blunder inducing a failure to sell, or a large diminution of the price realized, the mortgagor can hold him responsible for that, and it is no answer for him to say that the blunder was no fault of his own, but was that of an agent in whom he properly placed implicit confidence. The mortgagee must in such a case be left to his remedy against his agent. That case carries the matter a substantial distance but not all the way because it draws a distinction between different kinds of errors by agents, distinguishing between "errors in judgment or in matters of detail not seriously affecting the success of the sale" and on the other hand "a serious blunder inducing a failure to sell, or a large diminution of the price realized," although in the present case the conduct of the agents as found by the trial judge would fall within the category of a serious blunder inducing "a large diminution of the price realized". With respect I find that distinction difficult to justify in principle and likely to involve the drawing of fine distinctions on matters of degree rather than of substance. 1. (1889) 41 Ch.D. 573. 2. (1889) 41 Ch.D., at p. 575-576. 3. (1888) 40 Ch.D. 395, at p. 410.

[76]

It is impossible to pretend that the state of the authorities on this branch of the law is entirely satisfactory. There are some dicta which suggest that unless a mortgagee acts in bad faith he is safe. His only obligation to the mortgagor is not to cheat him. There are other dicta which suggest that in addition to the duty of acting in good faith, the mortgagee is under a duty to take reasonable care to obtain whatever is the true market value of the mortgaged property at the moment he chooses to sell it: compare, for example, Kennedy v. de Trafford [45] with Tomlin v. Luce [46] . His Lordship referred to Tomlin v. Luce and Cotton L.J.'s observations which I have quoted above and said [47] : Although the point was not argued in the Court of Appeal, the passage in Cotton L.J.'s judgment which I have read must be treated with the greatest respect. He was a master in this branch of the law, and he and the other members of the court as well as counsel treated the point as too plain for argument. Indeed it had long been so regarded by the courts: see Wolff v. Vanderzee [48] and National Bank of Australia v. United Hand-in-Hand and Band of Hope Co. [49] in which the Privy Council expressed the clear view that a mortgagee is chargeable with the full value of the mortgaged property sold if, from want of due care and diligence, it has been sold at an undervalue. It would seem, therefore, that many years before the modern development of the law of negligence, the courts of equity had laid down a doctrine in relation to mortgages which is entirely consonant with the general principles later evolved by the common law. His Lordship also referred toMcHugh v. Union Bank of Canada [50] which was a case of a mortgage security over horses where the relevant point was whether the mortgagee was liable in damages for the manner in which he dealt with the horse between the time when he took possession of them and the date of sale. In that case Lord Moulton in delivering the reasons of the Privy Council said [51] : It is well settled law that it is the duty of a mortgagee when realizing the mortgaged property by sale to behave in conducting such realization as a reasonable man would behave in the realization of his own property, so that the mortgagor may receive credit for the fair value of the property sold. That passage however does not directly advert to the position where the relevant conduct is that of the mortgagee's agent. Cross L.J. said [52] : In the confused state of the authorities we are, I think, entitled - indeed, I think that we ought - to treat the views in question, though deserving of the greatest respect, as not essential to the decision in Kennedy v. de Trafford, and to consider for ourselves whether we prefer them to the views expressed in Wolff v. Vanderzee and Tomlin v. Luce.

[109]

counsel pointed out that a trustee is not liable for the default of an agent whom it is reasonable for him to employ. But the position of a mortgagee is quite different from that of a trustee. A trustee has not, qua trustee, any interest in the trust property, and if an agent employed by him is negligent his right of action against the agent is an asset of the trust. A mortgagee, on the other hand, is not a trustee and if he sues the agent for negligence any damages which he can recover belong to him. Of course, in many cases the mortgagee may suffer no damage himself by reason of the agent's negligence because the purchase price, though less than it should have been, exceeds what is owing to the mortgagee. In such circumstances it may be that nowadays the law would allow the mortgagor to recover damages directly from the agent although not in contractual relations with him; but that was certainly not so a hundred years ago when Wolff v. Vanderzee [69] was decided. In those days the only way to achieve justice between the parties was to say that the mortgagee was liable to the mortgagor for any damage which the latter suffered by the agent's negligence and to leave the mortgagee to recover such damages, from the agent. I do not think that we can say that the mortgagee used to be liable to the mortgagor for the negligence of his agent but that that liability disappeared at some unspecified moment of time when the law had developed enough to allow the mortgagor to sue the agent himself. With respect, I find these comments persuasive. There is the further consideration advanced by Mr. Griffin, counsel for the Nixons, that for a motgagor to sue an agent in circumstances where there has been no prior relationship between them and where he cannot know the instructions that were given by the mortgagee could be an exercise fraught with difficulty. If it is true that the principle may operate harshly so far as the small investor is concerned, this is the consequence of the primary rule which places a duty on the mortgagee in the first place. The law has proceeded on the premise that mortgagors and others with an interest in the property stand in need of protection. In any event, it is to be expected that in a proper case the mortgagee's undoubted right of recourse against the agent would ensure a just result. 1. [1971] 1 Ch., at p. 973. 2. (1869) 20 L.T. 353.