Forsyth v Blundell; Associated Securities Ltd v Blundell

Forsyth v Blundell; Associated Securities Ltd v Blundell - [1973] HCA 20 - HCA 1973 case summary — Zoe

[21]

There was evidence that on 5th March in a further telephone conversation with Owen, Blundell said that Sykes had not arrived and asked that Owen should ring Sykes in Melbourne "to confirm with him that XL will be paying out our mortgages". Owen did ring Sykes about that time. Sykes gave evidence that he told Owen that if there was any question that the property was not going to auction his company would immediately satisfy the mortgagees' interests in full. He said he stressed that "if necessary we would pay out the mortgages". He said that he hoped to be in Canberra in the next week or two and, if so, would call to see Owen. The learned judge said in a passage in his reasons, which will be set out later, that Sykes was adamant that no firm appointment was made for 9th March (as Owen claimed), and, said his Honour, "it seems to me that what he says is correct" [1] . I think that this must be taken not merely as a finding that no day and specific hour were fixed for the meeting, but as an acceptance of the evidence of Sykes that he had not made any appointment for any day or given any definite undertaking to go to Canberra to see Owen. This does not accord with some of the evidence of Blundell himself, who spoke of an intended visit of Sykes on 5th March. But I do not think that I am justified in rejecting his Honour's view concerning the evidence of Sykes on this matter. It is a finding to which I attach much importance. If, about 4th or 5th March, Owen was told by Sykes that XL would pay out the mortgages if there was any question of the property not going to auction, then this statement, coupled with evidence that it was arranged that a Canberra bank would be able to certify as to the financial standing of XL, is important in considering the conduct of A.S.L. in relation to the sale of the property to Shell. Owen may have had good reasons for not putting much trust in any assurance given to him by Blundell, and Owen's evidence that Blundell said he had "made a deal" with Sykes and that they would be in Owen's office early in the week to settle the matter up would not by itself give much support to the case made against A.S.L., having regard to the fact that they did not come to settle the matter up at that time or at all. However it appears to me that the telephone conversation which Owen had with Sykes himself is of greater significance than his talks with Blundell or his impressions as to the reliability of the reports which he had read in the newspapers about the interest of XL in the site.

[23]

I do not think it is doubted that Owen understood as a result of his conversation with Sykes on this occasion that the latter was genuinely interested in the property and the conversation must have confirmed with Owen the broad substance of what he had been told by Blundell and what he had read in the newspapers. I think too, that it is beyond question that Owen knew that Blundell wanted an auction and that Sykes was acting on the basis that an auction would probably take place. Owen says that Sykes suggested that XL might be able to make some deal direct with A.S.L. This was not, however, to be behind Blundell's back because, according to Owen, an arrangement was made that Sykes see him with Blundell on 9th March. Owen again says that there was a firm appointment for this date. It is common ground that there was no time appointed and that Owen frequently spent much of the day out of the office. Blundell had not been consulted about an appointment before the telephone call took place, and no definite plan was proposed in the conversation. Sykes is adamant that no firm appointment was made for 9th and it seems to me that what he says is correct. Sykes says that he undertook to send a credit reference through his bank so as to provide Owen with more assurance as to XL's financial position and he in fact arranged for this to be done immediately the conversation was over. I should mention that I can understand Owen being somewhat cautious about any proposition from Blundell but the evidence does not show any reason for scepticism concerning what Sykes had to say and he does seem, in fact, to have been taken seriously. Sykes and Owen did not meet on 9th March, or thereafter. [1] . I do not think it would be helpful to analyse the evidence in an effort to ascertain all that was involved in the statement by his Honour that the conversation confirmed with Owen "the broad substance of what he had been told by Blundell and what he had read in the newspapers". But one thing that Blundell had told him was that XL would pay off the mortgages and that was confirmed by Sykes. Later in his reasons his Honour said this [2] : When Sykes spoke to Owen on 4th or 5th March he "stressed that if necessary we would pay out the mortgages and therefore take over the position of A.S.L. entirely, so therefore they couldn't have any risk of loss". That is a direct citation from the evidence of Sykes and it is clear that his Honour accepted what Sykes said on this point. 1. (1971) 19 F.L.R., at pp. 24-25. 2. (1971) 19 F.L.R., at p. 26.

[26]

Owen's evidence-in-chief on this matter was limited to a statement that on 12th March 1970 he had a telephone conversation with Wilkie. In cross-examination he said that the Sydney office was advised that XL had shown an interest in the property. He believed that he mentioned the newspaper articles, not to Wilkie, but to another A.S.L. officer and told him something of what they contained. He told Wilkie on 5th March that XL was showing an interest. He knew from that conversation that Shell was considering making an offer. This date is significant. It was on that day or on the previous day that Owen had had his only conversation with Sykes, to which I have already referred in some detail. A further important piece of evidence was given by Owen. This was that he did not tell the Sydney office that he had someone who would be prepared to discharge the mortgages. It must be taken therefore that the statement, included in a note made by Owen of a conversation on 12th March with Wilkie, that Owen "told him of the XL deal with Blundell which does not appear as though it will now come off" does not mean that he told Wilkie that Sykes had said that XL would discharge the mortgages. In his explanation of his failure to inform Wilkie of this, Owen said he knew that this was some arrangement Sykes had with Blundell, but Sykes had failed to keep a first and then a second appointment with him and "I didn't know whether he would or he would not." Now even if the learned judge had found that there was a firm arrangement for Sykes to see Owen, as Owen asserted but Sykes denied, the comment could still have been made that it might be expected that Owen, after learning on 5th March that Shell was considering making an offer, would have communicated again with Sykes, if not immediately then at any rate after Sykes had failed to come to Canberra on 9th March, in order to let Sykes know of the need for prompt action on his part. Instead of that, what Owen did was to suggest to the Sydney office the price of about $120,000 as that which should be put to Shell and to allow negotiations with Shell to proceed, without any knowledge of their existence being conveyed either to Sykes or to Blundell.

[27]

The probabilities are, I believe, that if A.S.L. had referred Shell's offer to Blundell or Sykes, the financial result to Blundell would have been much more satisfactory than was the sale to Shell at $120,000. Then his Honour after referring to several consequences that might have followed upon the communication of Shell's offer to Blundell or Sykes went on to say [1] : It is not necessary for present purposes to attempt to evaluate these different possibilities; it is sufficient to see that Blundell would in all probability have been better off. More precisely, perhaps, it is sufficient to be able to conclude, as I do, that a reasonable mortgagee, in the position of A.S.L. could and should have seen that Blundell might be better off. It has been argued that these conclusions were not warranted by the evidence and that in any event they indicate an erroneous view of the extent of the obligations of a mortgagee exercising a power of sale. But, in my opinion, there is no good reason to differ from the learned judge's view of the facts as expressed in the passages I have quoted. Although Wilkie said in evidence that Goddard had told him that Shell might not bid at the auction or even attend it, it is, in my opinion, not credible that it would have been thought likely, or even possible, that Shell would have given up all interest in the property, if its offer of $120,000 had not been immediately accepted. But even if it be considered that A.S.L. as mortgagee was entitled to suppose that Shell might not take part in the auction and that it was possible that there would be no bid of $120,000 or more, it is clear, in my opinion, that in the circumstances that existed those considerations did not justify the proposal by A.S.L. of a sale at that price to Shell and its subsequent acceptance of Shell's offer, without any attempt to find out whether or not XL would pay more or alternatively would provide the money to pay off the mortgage debt. In my opinion, it could not be regarded in the circumstances as anything more than a very remote possibility that if A.S.L. had taken that course and it had failed to produce any satisfactory result, then A.S.L. would have lost the opportunity to sell to Shell at the price of $120,000. If the mortgagee had been able to procure the payment of the mortgage debt, it was not concerned with what might occur subsequently as to the sale or leasing of the property. Having been told that if necessary XL would pay the debt A.S.L. was not justified, in my opinion, in using its power of sale to obtain payment, without exploring an alternative method of obtaining payment which would protect fully its own interests and which was likely to produce a much better result for the mortgagor. 1. (1971) 19 F.L.R., at p. 28. 2. (1971) 19 F.L.R., at p. 28.

[31]

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 [2] by Lindley L.J. and in the same case on appeal [3] , by Lord Herschell, in the adoption of those statements by this Court in Barns v Queensland National Bank Ltd [4] and in Pendlebury v Colonial Mutual Life Assurance Society Ltd [5] and in the definite opinion expressed by Isaacs J. in the latter case [6] , 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 [7] and Cuckmere Brick Co Ltd v Mutual Finance Ltd [8] , but also by the decision of the Privy Council in McHugh v Union Bank of Canada [9] . But I do not think it necessary to resolve this question in this appeal. The breach of duty which has been found to have been committed by A.S.L. did not consist merely of a careless failure to carry out the sale in a manner which reasonable care required. Although His Honour thought that a partial explanation of what occurred was to be found in the lack of sufficient communication between Wilkie and Owen, it appears that in proceeding with the sale to Shell without referring to Blundell or Sykes, A.S.L. acted in a way which would produce enough money to satisfy its own interests, and it was those interests alone that were really considered. While A.S.L. as mortgagee was entitled to have regard primarily to its own interests, it was not entitled, if those interests were not at risk, to act in a manner which sacrificed the interests of the mortgagor. What the mortgagee did in this case was done deliberately and not through carelessness.

[35]

In the Supreme Court Fox J. was not satisfied that at the time of the contract Shell had notice of the breach of duty or of facts from which an inference of conclusion of breach of duty should have been drawn. It has been urged for the plaintiffs that this Court should interfere with that finding. But I do not think that we should do so. In my opinion, the reasons stated by his Honour for his conclusion have not been shown to have been based upon a misunderstanding of the evidence or otherwise affected by error which would warrant us in refusing to accept it. I do not propose to examine all the evidence relating to this question. The breach of duty that was found to have occurred depended mainly upon the facts and circumstances consisting of or disclosed by the discussions between Blundell and Owen and between Sykes and Owen which took place before the making of the contract. The officers of Shell were not parties to those discussions and were not given any full account of them. There is, however, one matter of evidence to which particular reference should be made. A set of documents from the records of Shell was tendered in evidence. It has been argued that these were admissible in evidence against A.S.L., as well as against Shell. It appears that they were not put forward at the trial as evidence against A.S.L. and I do not think any basis was established for the use of them against that defendant. As I am of opinion that the finding made against A.S.L. in the Supreme Court should stand upon the other evidence, without aid from these documents, the question of their admissibility against A.S.L. loses importance. But they need to be considered upon the question whether or not Shell had notice, at the time of the contract, of a breach of duty. They established that Shell's officers were told that A.S.L. had been approached by Sykes "who talked of offering $150,000 but no firm offer made" and they were told that no offer of less than $120,000 would stop the property from going to auction. They decided that they should not risk the site going to auction. It is clear that they wished to prevent XL from acquiring the property. But neither their knowledge of XL's interest in obtaining the property nor their desire to forestall XL placed Shell under any obligation to offer more than the price at which A.S.L. had indicated it would sell, unless that price were known to be well below the value of the property. This was not shown. The knowledge that Sykes "talked of offering $150,000" could not be regarded as making it known to Shell's officers that a sale at $120,000 would be a sale at an undervalue.

[38]

It has been argued that a passage in the judgment of Kay J. in Warner v Jacob [1] , which has often been quoted in subsequent cases, is an exhaustive and correct statement of the circumstances in which a sale will be set aside or an injunction granted and it is said, therefore, that if a mortgagor has any remedy in respect of a sale not shown to have been affected by "corruption or collusion with the purchaser" or to have been at a price so low as in itself to be evidence of fraud, his only remedy can be in damages. In my opinion, this submission should not be accepted. There may be an improper exercise of a power of sale (that is one which constitutes a breach of the duty owed to the mortgagor) where although there is not any actual fraud (in the ordinary sense of that term) or any collusion between the mortgagee and the purchaser, there is improper conduct which goes beyond mere negligence in carrying out the sale. There may be impropriety of various kinds. What has sometimes been described as a fraud on the power and sometimes as a wilful or reckless disregard of the interests of the mortgagor and sometimes as a sacrificing of the interests of the mortgagor does not necessarily involve, in my opinion, the commission of actual fraud. It has been said that the word "recklessly" as used by Lord Herschell in Kennedy v de Trafford [2] and in other judgments, was used in a sense analogous to that in which it was used in Derry v Peek [3] : see Pendlebury v Colonial Mutual Life Assurance Society Ltd [4] . Whether or not that view is accepted, I think it is in accordance with authority and that it should be affirmed that there may be conduct which amounts to a reckless sacrificing of the interests of a mortgagor, although it is not shown that there is an actual intention to defraud him or that there is corruption or collusion with the purchaser. It is concerning conduct of that kind that inquiry must be made in this case whether or not it warranted the granting of an injunction.

[48]

If a contract of sale had been made which was not affected by any impropriety, it would not have been open to the mortgagor to claim that until the contract had been completed his right to redeem the mortgage continued notwithstanding the contract and was superior to the right of the purchaser. Although he retained his title to the land this was subject to the power of sale as defined in the Ordinance and as incorporated into the mortgage instruments. In my opinion, a contract of sale properly made in the course of the exercise of that power is binding upon the mortgagor, not because the mortgagee contracts as agent for the mortgagor, but because by entering into a mortgage to which the Ordinance applies the mortgagor makes his own rights subject to its provisions, including those which confer and regulate the power of sale, and, therefore, subject to any action which is properly taken in good faith by the mortgagee. On this question, I regard as applicable and as correct the decision in Waring (Lord) v London and Manchester Assurance Co Ltd [1] , approved in Property & Bloodstock Ltd v Emerton [2] , that a contract by the mortgagee to sell the property is binding, before completion, upon the mortgagor unless it be proved that the mortgagee exercised his power of sale in bad faith. But here it is contended that as a matter of general principle and independently of the meaning and effect of the provisions of s. 94 (2), 94 (3) and 94 (5) of the Ordinance, such a contract is binding before completion upon the mortgagor, even if the mortgagee acted in bad faith, unless he acted in collusion with the purchaser, or, alternatively, unless the purchaser had knowledge at the date of the contract of the facts which affected the propriety of the sale. In my opinion, this proposition should not be accepted. If the matter is to be determined in accordance with the general principles by which disputes as to priority between competing claims are resolved, there is no principle which operates to postpone the right of the mortgagor to that of the purchaser. In my opinion, the authorities to which we were referred do not support the foregoing submission. As Fox J. said, many of the cases dealing with the matter were cases in which there had been a conveyance or transfer. In Lukass Investments Pty Ltd v Makaroff [1] , Jacobs J. said, that he accepted the submission that in that case the relevant time at which a purchaser could be affected by notice of impropriety was the time of the making of the contract. His Honour did not give reasons for that opinion and upon the view that he took of the facts the question did not affect the decision of the case. In Davis v Taylor [2] , it was not necessary to decide the question now under consideration. The decision in Brigers v Orr [3] , to which I shall refer again, turned entirely upon the terms of a protection clause in the bill of sale there considered. The observations of Crossman J. in Waring's Case [4] , are opposed to the submission made on behalf of Shell: see also Holohan v Friends Provident and Century Life Office [5] .

[52]

Where a transfer is made in professed exercise of the power of sale conferred by this Ordinance, the title of the transferee shall not be impeachable on the ground that no case has arisen to authorize the sale or that due notice was not given or that the power was otherwise improperly or irregularly exercised, but any person damnified by an unauthorized or improper or irregular exercise of the power shall have his remedy in damages against the person exercising the power. In my opinion, his Honour was correct in rejecting that submission, which was not pressed at the hearing of these appeals. The provision applies where a transfer is made and is not applicable in this case. But counsel for Shell relied on s. 94 (2) which is in these terms: All sales, contracts, matters and things made, done or executed in pursuance of the last preceding sub-section shall be as valid and effectual as if the mortgagor or encumbrancer had made, done or executed them, and the receipt or receipts in writing of the mortgagee or encumbrancee shall be a sufficient discharge to the purchaser of the land, estate or interest, or of any portion thereof, for so much of his purchase money as is thereby expressed to be received. In the Supreme Court Fox J. said that counsel for Shell mentioned that provision but without making any submission thereon. His Honour then expressed the view that the first part of the provision, which derives from the earliest Real Property Acts, was introduced to ensure that a mortgagee could give title and could contract to do so, although he himself had not title. His Honour said that the purpose was not to give more protection to a purchaser than he had under the general law. I agree with respect with that view. The second part of s. 94 (2) does give protection to a purchaser in relation to his payment of the purchase money and its subsequent application by the mortgagee. But the first part of the provision should be regarded as supplementary to the powers conferred upon the mortgagee by s. 94 (1) to sell the estate and interest of the mortgagor and to make and execute all such instruments and documents as are necessary for effecting the sale thereof.

[61]

It has been submitted that there was no jurisdiction to make that order. It was said that the payment into Court did not constitute payment of the money due under the mortgages nor did it amount to a tender of those moneys and that until payment or a proper tender had been made the interest must continue to run and the Court has no jurisdiction to interfere with the contractual right to interest. But, in my opinion, the question to be decided is not to be determined by considering whether what occurred was the equivalent of payment of the debt or was a proper legal tender of the amount due which the mortgagee had a duty to accept. The payment into Court was not an act done under and in accordance with the contract between the parties in order to satisfy a contractual right of the mortgagee. The mortgagee had no doubt a contractual right to payment of the debt, including interest, secured by the mortgages. But it had no contractual right, when the plaintiffs were claiming that they were still entitled to redeem and A.S.L. was disputing that claim, to have the amount of the debt paid into Court. The deposit of the securities was made in accordance with a condition imposed on the mortgagor by the Court, for the benefit of the mortgagee and as a means of doing justice between the parties. In my opinion, the Court when making such an order had power to make it upon such terms and conditions as it thought proper in the circumstances to ensure that the objective of doing justice between the parties was achieved. I am of opinion, therefore, that when the order was made in April 1970, it would have been open to the Court to define the consequences as to the running of interest, which compliance with that order was to have. If it appeared reasonable to vary in this respect what would otherwise have been the contractual rights of the parties the Court could properly do so. This would not constitute an improper interference with the rights of the mortgagee, at whose instance an onerous term was being imposed upon the mortgagors as a condition of obtaining an interlocutory injunction and of maintaining an action for redemption of the mortgages: see Bank of New South Wales v O'Connor [1] , as to the power of a Court of Equity to do complete justice between the parties.

At a glance

Court

Decision date

Before

Source

Judgment (83 paragraphs)

Cited By (11)