Freemantles Pastoral Pty Ltd v Hyett [1999] VSC 129

Freemantles Pastoral Pty Ltd v Hyett [1999] VSC 129 - VSC 1999 case summary — Zoe

[11]

The issues were further considered. At the time it was not clear that it would be possible to demonstrate that either Monte Paschi or the National Australia bank did have notice of the chattel mortgage. There was a reasonable suspicion that they did have notice but there was thought to be no hard evidence available. Mr. Wallace, the solicitor acting for Monte Paschi asserted throughout the relevant period that his client had priority. The situation was complicated by the fact that Monte Paschi held the first mortgage over the land on which the mill stood and anyone wishing to buy the plant and equipment for use in the produce mill would need to buy that land. The alternative was to acquire land elsewhere and re-locate the plant and equipment. The situation was further complicated by the fact that it was clear that Promack was insolvent and likely to be wound up at any time. Thus there was no guarantee that if the plaintiffs sought an extension of time to register the chattel mortgage that it would be able to do so before Promack went into liquidation. This would then complicate matters and make much more difficult any attempt to obtain an extension of time for registering the chattel mortgage. If, however, Promack was wound up speedily, there was the possibility, "remote ... at best" in the view of Smith and Emmerton that the NAB charge could be avoided by the liquidator. The Freemantles, with the benefit of advice from Smith and Emmerton, came to the conclusion that the best option for minimising the plaintiff's loss was to take back the business and try to save it. They believed that this needed to be done quickly and the best way to achieve that end was to have a liquidator appointed. They would then be dealing with a liquidator and the situation would not be under the sole control of either Monte Paschi or the National Australia Bank. The plaintiff was at all times the largest unsecured creditor of Promack and there was the second mortgage over the land which gave some bargaining strength.

[60]

As to the claim for damages in contract, the plaintiff argued that it is entitled to be placed as near as may be in the position it would have been in had the contract been performed (Commonwealth v. Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 80). The plaintiff sought damages on the basis that the failure to register the chattel mortgage effectively deprived it of the opportunity to sell the plant and equipment (the chattels) on a going concern basis to a person who would buy the plant and equipment and the land. Alternatively, it alleged that it lost the opportunity itself to acquire the plant and equipment for use on the land which it would have had the opportunity to acquire or on the land owned by Mr and Mrs Freemantle adjoining the site. In the further alternative, it was put that it lost the opportunity to sell the chattels at auction. It conceded that the assessment of the value of the lost expectation, opportunity or chance depends to some extent on the value to be ascribed to the chattels on the assumption that they would have been seized by the plaintiff under its first chattel mortgage in or about June or July 1992. The plaintiff submitted that the "auction realisation" value sets the minimum figure for the assessment of the value of the lost opportunity, the reasoning being that that value represents what a willing but not anxious purchaser would have paid for the plant and equipment in the expectation that it would have to remove the plant and equipment and establish a mill elsewhere. The plaintiff argued, however, that the lost opportunity included the lost opportunity to sell the chattels to a person who had purchased the freehold or was prepared to do so. It argued that the assessment also involved an assessment of the market power that the plaintiff might have enjoyed if Monte Paschi had had no more than a first real estate mortgage ahead of Mr and Mrs Freemantle and a second charge over the chattels behind the plaintiff. It was said that it must be borne in mind that the plaintiff's security would have been exerciseable by it in respect of a debt of up to $400,000. (See generally Malec v. J. C. Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638, Sellars v. Adelaide Petroleum N L [1994] HCA 4; (1994) 179 CLR 332 at 350 and Amann (above) at 92, 102-4, 118-9). The plaintiff did not argue that the lost opportunity should be assessed by reference to only one of the above options. The plaintiff submitted that taking these matters into account the figure of $250,000 plus costs and interest emerges again as the appropriate figure.

[82]

Finally, relying on the figures just referred to, the defendants also advanced an argument that the value of plant and equipment should be arrived at by deducting the value of the land from the amount paid by Graeme Freemantle when he purchased the plant and equipment. It was said that the evidence of the value of the chattels was too imprecise and that this was the most reliable approach. The defendants relied on the evidence of Mr Galante. Mr Galante is a qualified valuer who valued the land on which the mill is situated for Monte Paschi in June 1992. The land comprised 2.4 hectares and included buildings and improvements. His instructions included information as to the amounts paid by Promack. His view was that the Promack price was insupportable. In particular a value of $420,000 for the land and buildings was insupportable. He described the property as unusual in that it was a small block of land surrounded by a substantial pastoral holding. He said that situated on the land was a high concentration of sheds and buildings which were used for the purposes of the milling business. He said that access to the property was from the nearest public road by way of a lane way. The lane way was sealed but narrow and had no verges, footpath or drainage. He assumed on the basis of an earlier report by the valuer Collings that the land was connected to public water mains. He also assumed that it had water rights from the Campaspe River which were used in the milling operation. He said that the property was remote and was not located on or near any main roads or highways. He said that he found it very difficult to value the property given its small size and its location in the middle of a large rural holding and the high concentration of buildings. There were no comparative sales available. His approach, therefore, was to value the land as such, which he did at $10,000. In his view the principal value of the property lay in the improvements. He said that assuming a willing buyer and seller and a reasonable period to negotiate and that the values of properties remained static during such a period, he valued the improvements in the region of $190,000. He therefore consider the land and improvements had a market value of $200,000. He valued the property on a forced sale basis at $150,000.

[92]

In the course of final submissions a further approach was suggested by the plaintiff. It was put that the price paid by Graeme Freemantle of $180,000 for the plant and equipment and land represented the price of the opportunity lost to the plaintiff because of its inability to use its security to acquire the plant and equipment on a going concern basis. The defendants submitted that, taking that approach, allowance has to be made for the fact that, in paying $180,000, Graeme Freemantle also acquired the land, something which the plaintiff would have had to acquire if it was to use the plant and equipment on the site. The plaintiff sought to meet this criticism by relying on several cases which counsel submitted supported the proposition that when an injured party spends money in rectifying the damage done and in doing so makes a profit, it is not obliged to bring that profit into account. Reference was made to Jewelowski v. Propp [1944] KB 510, Gardner v. Marsh and Parsons [1996] EWCA Civ 940; [1997] 1 WLR 489 at 503, Hussey v Eales [1990] 2 QB 227 at 241 and British Westinghouse Electric and Manufacturing Co Ltd v. Underground Electric Railways Co of London Ltd [1912] AC 673 at 689. The issue here, however, is not the profit that might have flowed to the plaintiff had it availed itself of the opportunity it would have had to gain control of the plant and equipment on a going concern basis but the cost of that exercise. The $180,000 figure may represent what realistically a person would have been required to spend to acquire the plant and equipment and the land and thus acquire both as a going concern. If the plaintiff had had the security of a registered first chattel mortgage over the plant and equipment it would not have been obliged to provide funds for their acquisition. It would, however, have had to provide funds to purchase the land because Monte Paschi would have obliged it to do so. Thus, it would have been obliged, to expend money to buy the land to enable it to take advantage in a practical sense of its rights over the plant and equipment. It would have had to expend that money before it could do so. Thus it seems to me that the cost of the land is an amount that again would have to be considered before determining what in fact was the value to the plaintiff of the opportunity which it lost to have exclusive control of the plant and equipment for use at the mill.

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Judgment (113 paragraphs)

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Legislation Cited (1)

Cases Cited (9)