GE CAPITAL AUSTRALIA v DAVIS & ORS

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4683/01 GE CAPITAL AUSTRALIA v. TANA RUTH DAVIS & ORS JUDGMENT 1 HIS HONOUR: The litigation and the parties. The plaintiff sues four guarantors for what is claimed to be the unpaid balance of a principal debt of $1,000,000, lent on 6 October 1998 to two borrowers which are not parties to the present proceedings. In calculating the amount claimed the plaintiff has brought into account payments made by the borrowers before default, interest including compound interest, and the proceeds of the sale of industrial plant and equipment which was charged to secure the borrowing, after deducting from those proceeds expenses incurred in making the realisation. Some elements in the calculation of the amount claimed are disputed. In their cross-claim the guarantors claim that the plaintiff is disentitled from enforcing the guarantee because the plaintiff did not comply with a condition to which the guarantee is alleged to have been subject, requiring that valid and effective securities be taken. They also cross-claim remedies based on a contention that the value of the secured property was not properly realised when it was sold at auction, and also several statutory grounds of cross-claim, including reliance by the individual cross-claimants on the Contracts Review Act 1980. The claim, the defences and the cross-claim are very elaborate and are only briefly indicated in this opening paragraph. I refer throughout to provisions of the Corporations Act 2001, although most relevant events were governed when they occurred by identical provisions of the Corporations Law. For present purposes it is convenient refer only to the Act. 2 The borrowers were Mahiya Holdings Pty Ltd and Chircan Holdings Pty Ltd. They were the only partners in Grenadier Coating, a partnership formed by a written agreement between them on 5 August 1987; Chircan was a partner for 60 percent of capital, profits and losses and Mahiya for 40 percent. The partnership when formed was named Grenadier Fabrics, but changed its name at some time. The partnership carried on fabric-coating business at an industrial unit at 2-12 Beauchamp Road Matraville New South Wales and owned industrial plant and equipment assembled in three production lines. Grenadier Coating held the premises on lease from AMP Henderson Global Investors Ltd which held the freehold of the Beauchamp Road premises and industrial units as an investment. The three major items of plant were stenting machines which were each the major component of a production line which carried out fabric coating processes. These are referred to as the Brunkner, which was built in 1975 and acquired in 1987, the Famatex which was built in 1975 and acquired about 1989, and the ARC, which was built in 1980 and acquired about 1995. The plant and equipment weighed many tonnes and was fixed in position so far as necessary for use as industrial equipment, and if they were fixtures they were tenant's fixtures. Assembled into a production line with each stenting machine was an array of ancillary equipment which had been acquired and installed by Grenadier Coating over the years. There were recurring processes of improvement, upgrading and maintenance, so that the stenting machines as originally acquired were significantly adapted for use by Grenadier Coating in its production lines.

3 Mr Lessel George Davis and Mrs Tana Ruth Davis his wife are the second and first defendants, and they are the principal figures in Mahiya and Chircan, and also in Veltex Pty Ltd and Zieta 63 Pty Ltd, which are the third and fourth defendants. Zieta was formed in 1981 and Mr and Mrs Davis were its only directors at all times from formation until the time of the hearing. Mr Davis was its Secretary at all times, and Mr and Mrs Davis were the beneficial holders of one each of its two shares at all times. The corporate history of Veltex is slightly different; Mr and Mrs Davis became its directors in 1984, when Mrs Davis became its secretary, they still held those offices at the time of hearing, Mr Davis held 40 of its 100 issued shares and Zieta held 60 of those shares. 4 Chircan was formed in 1987, apparently as a shelf corporation, and Mr and Mrs Davis became its directors in June 1987. Mrs Davis became its only secretary at the same time. However Mrs Davis ceased to be a director and the secretary on 30 January 1997 before the plaintiff made its loan, Mr Davis became the secretary and continued to be the sole director and the secretary for the rest of Chircan's history. All shares in Chircan were beneficially owned by Veltex. Chircan went into voluntary administration on 6 March 2001 when Mr Giles Geoffrey Woodgate was appointed administrator; he remained administrator until 21 May 2001 when he was appointed liquidator in a creditors' voluntary winding-up. Mahiya also appears to have been formed as a shelf corporation and passed into the control of Mr and Mrs Davis in June 1987; Mr and Mrs Davis became directors in August 1987, and continued to be the only directors until 31 January 1997 when Mrs Davis ceased to be a director and Mr Davis became the only director. Mr Davis was the only secretary from August 1987 for the rest of Mahiya's history. As with Chircan, Mr Woodgate became administrator on 6 March 2001 and on 21 May 2001 became liquidator in a creditors' voluntary winding-up. Both shares in Mahiya were beneficially owned by Zieta. Disregarding for a moment the corporate veils, Mr Davis had 50 percent of the ultimate control of Mahiya, 70 percent of the ultimate control of Chircan and 62 percent of the ultimate control of the partnership while Mrs Davis had 50 percent of the ultimate control of Mahiya, 30 percent of the ultimate control of Chircan and 38 percent of the ultimate control of the partnership. 5 For both Mahiya and Zieta, Mr Parbury and Mr Barilla were appointed Receivers and Managers on 7 March 2001 by Scottish Pacific Business Finance Pty Ltd, a financier unrelated to GE Capital which held securities over property in which GE Capital had no security interest. Messrs Parbury and Barilla ceased to act as Receivers and Managers on 12 March 2001; they filed notice that they so ceased to act in relation to Mahiya, and although it appears that they did not file notice for Chircan, they actually ceased to act as Receivers and Managers of Chircan on that date. 6 The Partnership Deed dated 5 August 1987 was executed on behalf of Chircan by Mr Davis as director and Mrs Davis as secretary and on behalf of Mahiya by Mrs Davis as director and Mr Davis as secretary, in each case with the common seal. The Partnership Deed is in a short and common form. Among other things it provides in cl.9 to the effect that no partner shall without the consent of the other make any of the partnership property security for a loan. 7 Some negotiations between Grenadier Coating represented by Mr Davis and GE Capital resulted in GE Capital sending a letter of offer dated 18 September 1999 to Mr Davis as Chief Executive of Grenadier Coating and offering to provide the partnership with a loan facility of $1,000,000 for five years, secured by a first fixed registered charge over the plant and equipment used in the business, and guaranteed by Mr Davis, Mrs Davis, Veltex and Zieta. The letter of offer LGD5 in Exhibit 1 related to finance referred to as "an Operating Lease" and as "FACILITY: Loan Facility secured by a First Fixed Charge over the Equipment." It required guarantees by the four defendants. It contained the following: "VALUATION: a valuation of the Equipment is required, at client cost, by our nominated valuer, such valuation to be to the satisfaction of GE Capital and to be not less than $1 million Forced Liquidation (ie auction) Value. Estimated cost of the valuation is $3,00-$5,000." There had been an earlier Letter of Offer dated 10 September 1998 which differed in some respects. Communications leading to these offers had been in train by 25 August 1998 at the latest. Mr Davis signed the confirmation endorsed in the Letter of Offer on 18 September and sent a copy of the letter with confirmation to Mr Gibson of GE Capital, also on 18 September. 8 Contractual relationships for the loan, and for its security and for guarantees, were embodied in documents dated 6 October 1998. The principal document was the Loan Agreement to which the parties were GE Capital as lender and Chircan and Mahiya trading as Grenadier Coating as borrower; the four guarantors were referred to in the terms of the loan agreement and its schedules as parties but they did not in fact execute it. The Loan Agreement was executed by Chircan by Mr Davis signing as sole director and sole secretary, with the common seal, and by Mahiya in the same way. The Loan Agreement contained cl.8 SECURITY which made the obligation to advance the principal sum subject to a condition that the vendor should have received satisfactory documents, being a first deed of equitable charge in registrable form, the guarantee and indemnity and insurance policy. Reference to the defined expression "the secured property" and terms of the schedule and annexure to the loan agreement establishes that all the plant and equipment of Grenadier Coating was to be subject to that first deed of equitable charge. Of course, by entering into the loan agreement in these terms each partner of Grenadier Coating consented to the grant by the other and by both of the security. 9 By a document entitled Fixed Equitable Charge also dated 6 October 1998, and later duly registered, Mahiya gave a fixed equitable charge to GE Capital over the same plant and equipment. This fixed equitable charge was executed on behalf of Mahiya by Mr Davis as sole director and sole secretary, with the common seal. The definitions of the secured money form a chain and when it is followed they are not limited to and do not refer to the loan agreement; "secured money" is defined in terms which amply includes obligations under the loan agreement, and any other obligations which Mahiya might incur to GE Capital. The document when describing Mahiya as chargor says that Mahiya was "trading as Grenadier Coating". The document does not in terms mention Chircan, or say that Grenadier Coating was a partnership, or that there was another member of Grenadier Coating. The language used in the fixed equitable charge speaks as if Mahiya were the only person which had any ownership interest in the plant and equipment. It speaks in cl.3 in terms which would be appropriate if Mahiya were the sole beneficial owner of the plant and equipment. 10 Chircan also gave GE Capital a fixed equitable charge in a document dated 6 October 1998 which is similar in every respect except that it refers to Chircan as "trading as Grenadier Coating" and does not refer to Mahiya. That document was also executed by Mr Davis as sole director and sole secretary, using the common seal of Chircan. 11 Each charge contained in para 15 elaborate provisions relating to the powers of a receiver, including a power of sale, and that power was by other provisions available to GE Capital to exercise without interposing a receiver. It was in exercise of those powers that GE Capital entered into control of this plant and equipment on 7 May 2001 and sold the plant and equipment at auction on 22 May 2001. 12 At several parts of the defence and of the cross-claim it is said to be an important fact that no valid and effective security over plant and equipment of Grenadier Coating was taken by GE Capital. This is part of an elaborate catena of contentions with which I will deal later. At this point it is enough to say that it is contended that for some reason Mahiya and Chircan could not create effective charges over their interests in the property of the Grenadier Coating partnership by two separate documents, each of which purported to be given by the sole beneficial owner of the plant and equipment. It was contended that for some reason the interest of a partner in partnership property cannot be charged in that way. 13 A further document executed on 6 October 1998 was the Guarantee and Indemnity which created the obligations upon which GE Capital sues the defendants in these proceedings. "Guaranteed money" is widely defined to catch all obligations of Chircan and Mahiya to GE Capital. Each guarantor was bound jointly and severally by cl.3: "The guarantor unconditionally and irrevocably guarantees payment to GE Capital of the guaranteed money" with provisions for payability on demand. By cl.5 the guarantors agreed to indemnify GE Capital against loss. Clause 8 contains provisions which would have the effect of preventing the guarantors from competing with GE Capital for recovery of money payable under the guarantee.

14 The obligation of the guarantors to pay to the plaintiff the amount of the debt is expressed in the Guarantee and Indemnity in very strong language. Clause 3 provides as follows: 3. Guarantee The guarantor unconditionally and irrevocably guarantees payment to GE Capital of the guaranteed money. If the debtor does not pay the guaranteed money on time and in accordance with any agreement which imposes the obligation to pay it, then the guarantor agrees to pay the guaranteed money to GE Capital on demand from GE Capital (whether or not demand has been made by GE Capital on the debtor. A demand may be made at any time and from time to time. 15 In cl.1.1 "Guaranteed money" is given an extended definition and extends to all moneys which are payable, and all moneys which had been advanced to the debtors. 16 Clause 7 is entitled PRESERVATION OF GE CAPITAL'S RIGHTS and includes: 7.1 The liabilities under this guarantee and indemnity of the guarantor as a guarantor principal debtor or indemnifier and the rights of GE Capital under this guarantee and indemnity are not affected by anything which might otherwise affect them at law or in Equity …

and there follow a long list of circumstances included in this provision. One of these is: (h) a person dealing in any way with a Security Interest guarantee, judgment of negotiable instrument (including, without limitation, taking, abandoning or releasing (wholly or partially), realising, exchanging, varying, abstaining from perfecting or taking advantage of it); 17 Clause 8.1 is in these terms: SUSPENSION OF GUARANTOR'S RIGHTS 8.1 As long as the Guaranteed Money or other money payable under this guarantee and indemnity remains unpaid, the Guarantor may not without the consent of GE Capital: (a) in reduction of its liability under this guarantee and indemnity, raise a defence, set-off or counterclaim available to itself, the Debtor or a co-surety or co-indemnifier against GE Capital or claim a set-off or make a counterclaim against GE Capital; or (b) make a claim or enforce a right (including, without limitation, an Encumbrance) against the Debtor or any other Guarantor or against their estate or property; or (c) prove in competition with GE Capital if an Insolvency Event occurs in respect of the Debtor or any other Guarantor whether in respect of an amount paid by the Guarantor under this guarantee and indemnity, in respect of another amount (including the proceeds of a Security Interest) applied by GE Capital in reduction of the Guarantor's liability under this guarantee and indemnity, or otherwise; or (d) claim to be entitled by way of contribution, indemnity, subrogation, marshalling or otherwise to the benefit of a Security Interest or guarantee or a share in it now or subsequently held for the Guaranteed Money or other money payable under this guarantee and indemnity. 18 Clause 9 is entitled PAYMENTS and provides under the subheading "Manner of Payment" 9.1 The Guarantor agrees to make all payments to GE Capital under this guarantee and indemnity in immediately available funds to the account and in the manner notified by GE Capital to the Guarantor.

9.2 The Guarantor agrees to make payments without set-off or counterclaim and free and clear of any withholding or deduction for Taxes unless prohibited by law.

19 Clause 8.1(a) and cl.9.2 appear to deal wholly or partly with the same subject, should be read together and complement each other. 20 Whether the fixed equitable charges were effective. A number of issues in the pleadings are related to the cross-claimants' general position that the charges were ineffective. Paragraph 12 of the Amended Statement of Claim alleges that GE Capital entered into possession of the equipment pursuant to the charges. In para.10 of the Defence the defendants while admitting that GE Capital took possession of and sold the equipment say that GE Capital had no legal right or entitlement pursuant to the charge to do so. 21 In the Amended Cross-claim it is alleged in para.7 that it was a term and a condition of the guarantee that GE Capital would take a valid and effective security over the equipment. In para 7A it is alleged "The term was an inferred express term or, alternatively, an implied term of the Guarantee". Particulars of this allegation set out very extensive circumstances which cover more or less the whole of the circumstances of negotiating for the loan, the charge and the guarantee including references to the requirement that there be a security and the letter of offer, GE Capital's practice of requiring valuation of manufacturing equipment it proposed to finance, references in conversations between Mr Gibson on behalf of GE Capital and Mr Davis to its being an essential requirement of the loan facility that the partnership secure the equipment, the fact that GE Capital obtained a valuation and many other incidental circumstances and references to security. 22 None of these circumstances has in my opinion any tendency to show that it was a condition of the guarantee or of the liability of the guarantors under that document that the security would be valid and effective. There is no express provision to that effect, there is no dealing with the subject of validity at all in the guarantee, and at no point in the preliminary negotiation was any such condition established, or referred to at all. 23 The references in the letter of offer and at other points in negotiations to GE Capital's intention to take security show, altogether clearly, that the proposal to take security was a measure for the protection of GE Capital, and this must have been clear to all persons concerned including the guarantors; there was nothing to show that taking security and consideration given to the sufficiency of security were measures for the protection of the guarantors, and there was no basis on which it should be concluded that there was a term, collateral warranty or representation which in any way had the effect that the plaintiff promised Mr Davis and the persons he represented, or warranted or made a representation that the liability of the guarantors was subject to any condition relating to the validity and effectuality of the securities. Quite to the contrary, on any correct address to the meaning of the guarantee it must be understood that failure of the securities was one of the circumstances in which the Guarantee and Indemnity afforded protection by the guarantors in favour of GE Capital; this is the plain meaning and intent of the guarantee document. The alleged term, condition, collateral warranty and representation are contrary to the terms of the document and inconsistent with its main purpose. 24 In para 8 it is alleged that GE Capital breached the terms of the guarantee, and particulars refer to a number of matters including, in para (c) of the particulars, a claim that a valid and effective security interest required an instrument in writing (meaning, I understand, one instrument) entered into by both Chircan and Mahiya trading as Grenadier Coating, and capable of being registered as a bill of sale. 25 In para. 9 it is alleged that there was a collateral contract to the guarantee which had as a term (which was a condition) that GE Capital would take valid and effective security over the equipment, and in para. 10 it is alleged that the collateral contract was breached. In para.11 a number of matters were alleged about the operation of the alleged condition. 26 In para.12 it is alleged that the guarantors were entitled to terminate the guarantee for breach and did so. 27 In para.13 it is alleged that any amount which the guarantors were liable to pay under the claims in the Statement of Claim were damages for breach of the term or of the collateral contract. 28 Then it is alleged in para.14 that on or about 18 September 1998 GE Capital made a representation to the guarantors that GE Capital would take a valid and effective security over the equipment, the representation being made partly by the letter of offer, its acceptance, the valuation and the loan agreement, partly by discussion and partly by implication. In following paragraphs it is alleged that the representation was false, was made in breach of duty of care, or was made in breach in various ways of the Trade Practices Act or the Fair Trading Act and caused damage. In paras. 21 to 25 much the same facts are put forward as giving rise to an estoppel which prevents GE Capital from maintaining its claims. 29 In compliance with directions which I made before the hearing the defendants filed on 22 February 2002 a Short Statement of the Substance of their Position on the validity of the securities. That document should be read with the pleadings. While it must be understood in its own terms, it appears to me to take the position that neither Chircan nor Mahiya had specific title, legal or equitable, or any divisible interest in any individual asset of the partnership and that the equipment purportedly charged by each charge was not property of the corporation; that the property of a corporation which is a member of a partnership is an equitable chose in action, and that a fixed charge over an equitable chose in action was not capable of being registered under the Corporations Act. 30 In my opinion all of these positions fail, and they fail at every point. Overriding all other considerations is that, even if it were the case that the charges were not valid and enforceable they were acted on and given practical effect in all respects as if they were enforceable, without being challenged by Mahiya or Chircan or by any other person. The course of events proceeded in all respects as if the charges were valid and effectual. Even if they were not valid and effectual it could not be said that the outcome for the guarantors was in any way worse than or different to what would have been the outcome if they were. 31 In Canny Gabriel Castle Jackson Advertising Pty Ltd v. Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 the judgment of the High Court dealt with the nature of a partner's interest in the partnership property. At 327-328 the Court said: The nature of a partner's interest in the partnership property has often been explained. The partner's share in the partnership is not a title to specific property but a right to his proportion of the surplus after the realization of assets and the payment of debts and liabilities. However, it has always been accepted that a partner has an interest in every asset of the partnership and this interest has been universally described as a "beneficial interest", notwithstanding its peculiar character. The assets of a partnership, individually and collectively, are described as partnership property ( Partnership Act , 1892, as amended (N.S.W.), s.20). This description acknowledges that they belong to the partnership, that is, to the members of the partnership.

In In re Fuller's Contract [1933] Ch. 652, at p.656, Luxmore J. (as he then was) said: … as between the partners, the partnership property must be dealt with in a particular way, but so far as all the rest of the world is concerned, there is no limitation on the interests of the partners; the partners have the beneficial interest in the partnership assets, which are held together as an undivided whole, but they respectively have undivided interests in them.

It is significant that s.20(ii) of the Partnership Act , 1892, as amended (N.S.W.), treats a partner as having a beneficial interest in real estate belonging to the partnership for in this respect no distinction can be drawn between the nature of a partner's interest in real estate and his interest in personal estate. … Nevertheless we think that the interest of the partner in an asset of the partnership is sui generis (cf. Livingston v. Commissioner of Stamp Duties (Q.) (1960) 107 C.L.R. 411, at pp453-454. It is, as we have said, recognized as a beneficial interest.

As such it constitutes an equitable interest and is not a mere equity to set aside or rectify a transaction by means of a court order (see Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (1965) 113 C.L.R. 265. Consequently it prevails over the subsequent equitable charge held by Canny Gabriel, despite that company's ignorance of the prior equitable interest at the time when the equitable charge was granted. 32 It will be seen that the High Court treated as authoritative statements cited from In Re Fullers Contract including the following: "… so far as all the rest of the world is concerned, there is no limitation on the interests of the partners; the partners have the beneficial interest in the partnership assets, which are held together as an undivided whole …". 33 In my opinion these statements require qualification if there is an attempt to apply them to transactions between partners, or to transactions where a partner purports to deal with the partner's separate interest; but there is no room for qualification where all partners deal with someone outside the partnership in the same way. No matter how tangled the legal and equitable arrangements among the partners, to the rest of the world they are co-owners, and an outsider who has an assignment or a series of assignments which cumulatively assign to him all their interests has a good title to the partnership property. 34 United Builders Pty Ltd v. Mutual Acceptance Ltd (1980) 144 CLR 673 related to competing claims for priority between creditors of a partner (and not of the partnership) to which successive charges had been granted, the earlier over the interest in the partnership and the later a floating charge over all the debtor's assets. It was not a case where all the partners were dealing with the outside world. The cross-claimant's counsel claimed some support from passages in United Builders in the judgment of Mason J at 688. In my view this claim is dealt with by addressing several passages from that judgment, commencing at 687. The vital question is: What rights passed to Mutual by virtue of the charge over United's right, title and interest in the partnership? The answer to this question is that, according to long established principle, a mortgage or charge over a partner's share or interest in the partnership does not vest any interest in the assets of the partnership against the other partners. What the mortgage or charge does is to confer an entitlement on the holder on dissolution of the partnership in relation to the partner's share of the partnership assets. Section 34 of The Partnership Act specifically provides that a mortgagee is on dissolution entitled to receive the mortgagor's share of the assets and that, for the purpose of ascertaining that share, he is entitled to an account from the other partners as from the date of dissolution.

This principle does not in my opinion deny the existence of a partner's beneficial interest in each of the partnership assets, but this interest is of a special and non-specific kind ( Canny Gabriel Castle Jackson Advertising Pty. Ltd. v. Volume Sales (Finance) Pty. Ltd. (1974) 131 C.L.R. 321, at pp.327-328; Federal Commissioner of Taxation v. Everett (1887) 35 Ch. D. 436. … The vital consideration is that the partner's interest is in truth a chose in action, which, as Everett acknowledged, "consists of a right to a proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership" (1980) 143 C.L.R., at p.446. A mortgage or charge is considered to vest rights over that chose in action but it is not considered to carry any title to the specific assets until dissolution. It follows that so long as the partnership business is carried on, its assets may be disposed of in the ordinary course of that business free of any claim to title by the holder of a mortgage or charge over a partner share in the partnership. 35 The cross-claimant's position is not in my opinion assisted by illustrations of the difficulties which attend assignments of the separate interest of a partner. No doubt those difficulties can be acute, but in the present case there were assignments by way of security of all the assets of the partnership, and both members of the partnership made such assignments, in exactly the same terms and at the same time. 36 Cross-claimant's counsel contended that there are good policy reasons for adopting the approach that "[t]he special (sui generis) nature of the beneficial interest of each partner in each asset of the partnership is such that it is legally inappropriate to say that by entering into the charge which each partner in fact entered into, each charge at the very least, because it seeks to charge more than it can give, was an effective charge over what each partner could give …". He supported this contention by referring to several matters which he said were policy reasons; I am unable to recognize them as policy reasons supporting the submission, and in any event if there were policy reasons for taking that view, they could not override policy reasons favouring giving effect to an unmistakably expressed assignment. 37 Cross-claimant's counsel claimed that his position is in some way assisted by a passage in the judgment of Perry J in Bailey v. Manos Breeder Farms Pty Ltd (1990) 3 ACSR 143 at 146. In that case six companies which traded in partnership (being all of the partners) gave identical deeds of debenture to secure a debt. The terms of the debentures did not establish, or did not establish clearly that the debentures were intended to charge the assets of the partnership as well as the separate assets of each partner. As they were clearly intended so to do, Perry J made an order rectifying them. He then went on to deal with a question relating to whether the debentures as rectified were registrable pursuant to s.200 of the Companies Code then in force. Perry J held they were so registrable, and that they were enforceable. At pp145-146 Perry J referred to the passage in Canny Gabriel Castle Jackson Advertising Pty advertising commencing "The nature of a partner's interest in the partnership of property has often been explained" which I set out above and said at 146: Applying that statement of principle to the present case, there can be no doubt that each of the partner companies has an interest in every asset of the partnership. Indeed, it must be that collectively the 6 companies own every asset of the partnership, as the partnership is not a separate entity capable of holding property. It follows that, given that after rectification the debentures operate together to create a floating charge by the companies over assets of the partnership, the charge so created must be regarded as a floating charge "on property of" each company within the meaning of s.200(1).

This decision was affirmed on appeal in an unreported decision of 5 April 1991 [1991] SASC 2799. 38 The cross-claimant's counsel pointed to the following passage in the judgment of Perry J, not found in the report but quoted at para [16] of the judgment of the Full Court of the Supreme Court of South Australia on appeal: "For one partner to create a charge over partnership assets, as opposed to a charge over his interest in the partnership, would require the authority of the remaining partners, and a clear indication in the instrument creating the charge that the partnership assets were being charged. But the execution by each partner company of separate debentures tells against an inference that the partners were authorising each other to create a charge over the partnership assets." 39 It cannot be that Perry J's views in any way support the cross-claimant's arguments. The passage I first cited from p146 of the Report shows the contrary. The passage I cited secondly is plainly not applicable here, as the terms of the loan agreement and the conduct of the companies through Mr Davis their common director on 6 October 1998 show unmistakably that each consented to the creation of the charge by the other. The terms of the charges refer unmistakably to the partnership assets. 40 I was never told, and I am unable to see any reason why an effective security over co-owned property is not created by a series of charges granted by each of the co-owners of that property, notwithstanding that the words used in each security to describe the interest of its grantor are excessive and state the interest charged higher than it actually is. A person who holds charges over all the property from each of the co-owners is in as good a position as if that person held one charge from all co-owners acting together. The circumstance that the co-owners are partners with each other could render a charge granted by one but not all of them inconvenient and difficult to enforce, not necessarily impossible; but there are no such difficulties where all partners have acted in the same way. If there otherwise were difficulties, GE Capital would be assisted by the circumstances that in the loan agreement both partners together agreed that that security would be granted. 41 Although I found the cross-claimants' position difficult to follow, in my understanding the position taken was that the nature of the interest of each of Chircan and Mahiya in the partnership assets was such that the charge was not a charge on a personal chattel, referred to in subpara.(d) of subs.262(1) of the Corporations Act and did not fall under any other case dealt with by that subsection; and hence the charge did not require registration and was not registrable under Pt.2K.2 of the Corporations Act; but further that registration of the charge was required under the provisions of the Bills of Sale Act 1898 (NSW), in particular s.4. However if this line of reasoning were correct, avoidance under subs.4(2) of the Bills of Sale Act is produced only in the circumstances, and as against the persons referred to in that subsection, and the avoidance has no application to the circumstances of Chircan and Mahiya. If it is relevant (and I do not think that it can be, as the charges were registered under Pt.2K.2 of the Corporations Act) the provisions of s.267 of the Corporations Act relating to avoidance could not have any relevant application either. 42 My conclusion then is that the various matters relating to the supposed condition relating to the validity and effectuality of the charges, expressed as they are in a number of ways, do not have any force as defences available to the guarantors against GE Capital's claim, or in support of any of the claims in the cross-claim. 43 Remedies under s.420A. Among the many bases put forward for an entitlement of the guarantors to relief under the cross-claim was a submission that they have a private right to bring an action for damages for breach of the statutory duty created by s.420A of the Corporations Act. Counsel sought leave to amend the claims for relief in the cross-claim to allege specifically a claim for damages for breach of statutory duty. Subsection 420A(1) is in these terms:

(1) In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for: (a) if, when it is sold, it has a market value - not less than that market value; or (b) otherwise - the best price that is reasonable obtainable, having regard to the circumstances existing when the property is sold. 44 Subsection (2) preserves the generality of duties arising under a number of other sections. 45 No provision of the Corporations Act expressly confers any right to damages or any other remedy on the corporation, or on anyone else, if the controller does not comply with the mandatory requirement of s.420A(1). By contrast a number of other provisions of the Corporations Act expressly provide for compensation, damages or other remedies or for penalties for breaches: examples include provisions in Pt.5.7B relating to insolvent trading and Ch.6B relating to takeover provisions: and there are others. Subsection 420A(1) is markedly unlike s85 of the Property Law Act 1975 (Queensland) in that s.85 expressly confers a right to damages. On the face of subs.420A(1) it was enacted for the protection of the corporation over the property of which a controller exercised power of sale, and it might also be that it was enacted for the protection of other persons who had interests in property owned by a corporation. There is nothing in the terms of s.420A, or elsewhere in the Corporations Act, which indicates that it was enacted for the protection of persons who do not have interests in the property of the corporation, such as guarantors who incur obligations by reference to the obligations of the corporation. Their obligations are not obligations to the corporation, they do not have an interest in its relevant property and they have not entered into any relevant contractual relationship with the corporation, in respect of its property or otherwise; they have guaranteed an obligation of the corporation to a third party. There is in my opinion no basis for the view that s.420A, alone or with the aid of context, operates or was intended to operate so as to confer a right to recover damages or any other right to a remedy on guarantors. The subsection speaks with Delphic simplicity and exemption from interrogation by saying what the controller must do without referring to consequences of failure to comply. 46 In s.420A the only allusion to remedies is contained in subs.420A(2) which preserves the generality of duties imposed by several other sections; this does not do anything to indicate a legislative intention that there should be any particular remedy for breach of subs.420A(1). Counsel did not refer to any general provision of the Corporations Act which created a right of action or entitlement to damages; to my reading there is no provision to that effect which relates to s.420A. 47 Section 85 of the Property Law Act 1975 (Queensland) by subs.85(1) creates a duty of a mortgagee in a provision which, from its terms appears to have been a model on which s.420A was based, and goes on in later subsections to regulate the conduct of the mortgagee in detail and in ways not found in s.420A or in any related provisions. Subsection 85(3) expressly confers a right to damages: (3) The title of the purchaser is not impeachable on the ground that the mortgagee has committed a breach of any duty imposed by this section, but a person damnified by the breach of duty has a remedy in damages against the mortgagee exercising the power of sale.

A guarantor who suffers loss through breach of subs.85(1) has a remedy in damages: Higton Enterprises v. BFC Finance [1997] 1 QdR 168. By providing for this remedy s.85 indicates the legislative intention as to the persons to whom the duty of a mortgagee created by subs.85(1) is owed. Section 420A contrasts strongly as it contains no express statement of remedies intended to be created, and no indication of the persons for whose benefit the controller must act as required, apart from the reference to the corporation property of which is sold. It contains no express indication whether or not a wider class of persons such as guarantors who have involved themselves contractually in the outcome without having any interest in the property of the corporation are intended to be given any protection or remedy. 48 Whether a statute which creates a duty also creates a remedy for its breach is to be determined by addressing the implications of the express provisions of the statute. This process is not always very clear; see O'Connor v. SP Bray Limited (1937) 56 CLR 464 (Dixon J) at 477-478: The received doctrine is that when a statute prescribes in the interests of the safety of members of the public or a class of them a course of conduct and does no more than penalise a breach of its provisions, the question whether a private right of action also arises must be determined as a matter of construction. The difficulty is that in such a case the legislature has in fact expressed no intention upon the subject, and an interpretation of the statute, according to the ordinary canons of construction, will rarely yield a necessary implication positively giving a civil remedy. As an examination of the decided cases will show, an intention to give, or not to give, a private right has more often than not been ascribed to the legislature as a result of presumptions or by reference to matters governing the policy of the provision rather than the meaning of the instrument. Sometimes it almost appears that a complexion is given to the statute upon very general considerations without either the authority of any general rule of law or the application of any definite rule of construction. … 49 Dixon J referred to authority and went on: Whatever wider rule may ultimately be deduced, I think it may be said that a provision prescribing a specific precaution for the safety of others in a matter where the person upon whom the duty laid is, under the general law of negligence, bound to exercise due care, the duty will give rise to a correlative private right, unless from the nature of the provision or from the scope of the legislation of which it forms a part a contrary intention appears. The effect of such a provision is to define specifically what must be done in furtherance of the general duty to protect the safety of those affected by the operations carried on. 50 Dixon J's reference to legislation which does no more than penalise a breach of its provisions is not exactly applicable to s.420A, which does not penalise a breach of its provisions. This distinction if anything assists a conclusion that s.420A was intended to confer a civil remedy. 51 Sovar v. Henry Lane Pty Ltd (1967) 116 CLR 397 related, like O'Connor v. SP Bray, to industrial safety legislation and to personal injuries. A passage in the judgment of Kitto J has become a classic statement on inferring intention to create remedies in industrial safety legislation and in my respectful view establishes the principles involved. At 404-405 Kitto J said: In the case of an enactment such as s.27(1), prescribing conduct to be observed by described persons in the interests of others who, whether described or not, are indicated by the nature of a peril against which the prescribed conduct is calculated to protect them, the prima facie inference is generally considered to be that every person whose individual interests are thus protected is intended to have a personal right to the due observance of the conduct, and consequently a personal right to sue for damages if he be injured by a contravention: see Whittaker v. Rozelle Wood Products Ltd. (1936) 36 S.R. (N.S.W.) 204; 53 W.N. 71. At least this is so where the peril provided against is one of personal injury and the relationship existing between the person enjoined and the person protected is one which is recognized by the common law as giving rise to a duty on the part of the former to take precautions for the safety of the latter: O'Connor v. S.P. Bray Ltd (1937) 56 C.L.R. 464, at p. 478. But at the outset of every inquiry in this field it is important, in my opinion, to recognize, notwithstanding the views expressed by some writers (see Mr. G. M. Fricke's article 76 Law Quarterly Review 240), that the question whether a contravention of a statutory requirement of the kind in question here is actionable at the suit of a person injured thereby is one of statutory interpretation. The intention that such a private right shall exist is not, as some observations made in the Supreme Court in this case may be thought to suggest, conjured up by judges to give effect to their own ideas of policy and then "imputed" to the legislature. The legitimate endeavour of the courts is to determine what inference really arises, on a balance of considerations, from the nature, scope and terms of the statute, including the nature of the evil against which it is directed, the nature of the conduct prescribed, the pre-existing state of the law, and, generally, the whole range of circumstances relevant upon a question of statutory interpretation: see Martin v. Western District of the Australasian Coal and Shale Employees' Federation Workers' Industrial Union of Australia (Mining Department) (1934) 34 S.R. (N.S.W.) 593, at p.596, and cases there cited. It is not a question of the actual intention of the legislators, but of the proper inference to be perceived upon a consideration of the document in the light of all its surrounding circumstances. Of course, as reported cases illustrate again and again, decisions given upon enactments which seem fairly comparable will not always be easy to reconcile with one another, for upon questions of inference some lack of uniformity of opinion is to be expected. But that is no justification, it seems to me, for seeing the task as other than a genuine exercise in interpretation. 52 The view of the majority of the High Court in Northern Territory of Australia v. Mengel (1996) 185 CLR 307 at 343-344, was that "… there is no action for breach of statutory duty unless the legislation confers a right on the injured person to have the duty performed." Their Honours' authorities for this proposition at note 244 included O'Connor and Sovar. In Byrne v. Australian Airlines Ltd (1995) 185 CLR 410 at 424 the majority stated to the effect that the source of a cause of action for damages for breach of statutory duty is the intention of the statute on its proper construction; see 424. McHugh and Gummow JJ concurred in the result and dealt with this subject at much greater length at pp458-461, and their Honours' review indicates the difficulties of reconciling all decided cases with the view that the intention of the legislature is being applied. 53 My view is that the requirement imposed on the controller by subs.420A(1) takes the place of, or it may be operates cumulatively to the obligation otherwise existing with the general law of a controller exercising power of sale in respect of property of a corporation. In so doing the section enhances the duty of the controller and the protection afforded to the corporation. This is achieved, and the apparent legislative intention is fulfilled without altering the remedies available to the corporation for breach of obligation in exercising the power of sale, and without altering the means available for obtaining remedies. Where real property subject to a mortgage has been sold and the mortgagor succeeds in establishing that there has been a sacrifice of the mortgagor's interest in the exercise of the power of sale the mortgagor's remedy is to be credited compensation when accounts are taken of the mortgage debt. Subsection 420A(1) alters this scheme by inserting a more stringent rule, but does not otherwise change the scheme. 54 Section 420A can readily be given full and effectual operation without resorting to any implication of an intention to confer a remedy in damages on corporations which mortgage their property, still less to confer such a remedy on guarantors of the debts of those corporations; section 420A can readily take a place in the existing remedies without supposing that it was intended to confer or that it does confer any rights at all upon guarantors. 55 In my view s.420A was plainly enacted for the protection of the corporation the property of which is referred to, and the implication that the duty created by subs.420A(1) should be enforced by a remedy conferred on the corporation is irresistibly clear, notwithstanding that the legislation does not specify what that remedy is to be. In the context of the exercise of a power of sale in an mortgage over property of a corporation the corporation had, before s.420A was enacted, a remedy against the mortgagee, and an efficacious and reasonable operation can be attributed to subs.420A if the duty in that subsection takes the place of the test of entitlement of the corporation to what would otherwise be its remedy. There is no context of an existing entitlement under Common Law to damages, and no reference in the legislation to any such entitlement, in strong contrast to the Queensland legislation. The intention of the legislature should be understood to be that the corporation as mortgagor was to have the remedies already available to it, but the availability of the remedies was to be tested by reference to the duty in subs.420A(1). In reasoning in this way I echo the last passage I have set out from the judgment of Dixon J in O'Connor; a specific rule for the protection of the interests of corporations is prescribed in a matter where the mortgagee is under the general law already subject to a duty in favour of the corporation, and the effect of s.420A(1) is to redefine the duty and what must be done to protect the corporation and its property when affected by exercise of a power of sale. 56 In my view there is nothing to indicate that it was the intention of the legislature that subs.420A(1) should confer any right or remedy on guarantors or other persons who involve themselves contractually in consequences of the exercise of the power of sale, but the guarantor is entitled to rely on the availability to the mortgagor of a remedy, whether the remedy was that previously established by Pendlebury v. Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 or is now the remedy available to the mortgagor on breach of the duty declared by subs.420A(1); the guarantor is entitled to have an equitable remedy on the basis that the mortgage accounts are taken on whatever may be the principle truly applicable to taking mortgage accounts. In my opinion the equitable remedies which in an earlier state of the law were available to a guarantor where there was a breach of the mortgagee's duty to a mortgagor corporation are now to be tested by reference to whether there was a breach of the duty stated in subs.420A(1). 57 Where security is given over goods it would not be usual for accounts to be taken in Equity but equitable remedies are extended to interests in valuable goods of unique character, such as the plant and equipment the subject of these proceedings, and the assumption on which argument proceeded that accounts between borrower and lender may be taken in Equity appears to me to be correct. 58 Damages under s.1324(10). It was also contended that s.1324 confers some right on the cross-claimants or confers some power on the Court to award damages to the cross-claimants in respect of failure to comply with s.420A. The terms of s.1324, conforming to the heading of the section, show that its provisions relate to the grant of injunctions. Subsection 1324(1) is in these terms: 1324. Injunctions (1) Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute: (a) a contravention of this Act; or (b) attempting to contravene this Act; or (c) aiding, abetting, counselling or procuring a person to contravene this Act; or (d) inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or (e) being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or (f) conspiring with others to contravene this Act; the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.

59 Cross-claimant's counsel particularly relied on subs.1324(10) in these terms: (10) Where the Court has power under this section to grant an injunction restraining a person from engaging in particular conduct, or requiring a person to do a particular act or thing, the Court may, either in addition to or in substitution for the grant of the injunction, order that person to pay damages to any other person. 60 Under subs.1324(1) standing to apply for an injunction is granted on very wide terms which could well include guarantors, and the Court may grant an injunction restraining contravention of the Corporations Act, including no doubt contravention of s.420A. In the circumstance of the present case there is and at the time when the litigation was commenced there was no prospect that the Court might make an injunction restraining breach of s.420A; all the events relating to the exercise of the power of sale had been completed and there was no prospect that conduct relating to exercise of the power of sale would be repeated or continued. 61 As there was not when the litigation was commenced any prospect that an injunction would be granted, the power to grant damages in addition to grant of an injunction cannot apply, nor can the power to grant damages in substitution for the grant of an injunction. Where there is simply no prospect of the grant of an injunction there is no room under subs.(10) for ordering payment of damages. In my opinion s.1324 is of no benefit to the cross-claimant. This holding is in accordance with the view well established in this Court of the operation of subs.1324(10); see Waterhouse v. Waterhouse (1999) 46 NSWLR 449 at 490-491 (Windeyer J) and Artistic Builders Pty Ltd v. Elliot and Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16 at 132. 62 Damages under s.423. The cross-claimant's counsel also contended that they could be awarded remedies in an inquiry which the Court should conduct under s.423 of the Corporations Act. Section 423 is in the following terms: 423. Supervision of controller (1) If: (a) it appears to the Court or to ASIC that a controller of property of a corporation has not faithfully performed, or is not faithfully performing, the controller's functions or has not observed, or is not observing, a requirement of: (i) in the case of a receiver---the order by which, or the instrument under which, the receiver was appointed; or (ii) otherwise---an instrument under which the controller entered into possession, or took control, of that property; or (iii) in any case---the Court; or (iv) in any case---this Act, the regulations or the rules; or (b) a person complains to the Court or to ASIC about an act or omission of a controller of property of a corporation in connection with performing or exercising any of the controller's functions and powers; the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it thinks fit. (2) ASIC may report to the Court any matter that in its opinion is a misfeasance, neglect or omission on the part of a controller of property of a corporation and the Court may order the controller to make good any loss that the estate of the corporation has sustained thereby and may make such other order or orders as it thinks fit. (3) The Court may at any time: (a) require a controller of property of a corporation to answer questions about the performance or exercise of any of the controller's functions and powers as controller; or (b) examine a person about the performance or exercise by such a controller of any of the controller's functions and powers as controller; or (c) direct an investigation to be made of such a controller's books. 63 The terms of s.423 show that it is primarily concerned with empowering the Court and also ASIC to inquire into faithful performance of functions of controllers of property, and of other requirements imposed on controllers. The section is primarily directed to inquiring into complaints or into other circumstances which have brought failures of performance by controllers to the notice of the Court or of ASIC. The powers of the Court are extended beyond inquiry by the last words of subs.423(1) "…. the Court may take such action as it thinks fit." This is a very ample conferral of power, limited by the discretion of the Court as to its exercise. The power under s.423 and analogous powers under predecessor legislation have in fact been exercised to award remedies requiring payment of moneys or other like remedies against liquidators appointed by the Court. In my view the discretion to award a remedy under s.423 should only be acted on where an inquiry into the conduct of the controller has revealed the existence of a liability which can be established simply and is not open to any substantial dispute. Except in clear cases it would not in my opinion be appropriate to press subs.423(1) into service to extemporise procedures and remedies against controllers of the property of corporations; except for remedies for which simple summary procedures are appropriate, the ordinary procedures of the Court should be followed. Section 423 does not empower the Court to order some remedy on the ground that the Court saw fit to do so in a case where there was not otherwise an enforceable obligation. The power although briefly stated is extensive; a court would not see fit to exercise it except in enforcement of some obligation which the law created. 64 The relevant operation of s.423, the case law on that section and predecessor sections and the remedies which can be awarded under it were reviewed by Campbell J in Artistic Builders at paras [134] to [153]. His Honour relied on subs.423(1) when ordering a remedy for a breach of s.420A which had been fully litigated, and regarded the hearing which had taken place before him as having been an inquiry of the type envisaged by s.423, notwithstanding that no explicit claim was made in the Statement of Claim for an order for payment of money under s.423 or (as I understand) for an inquiry under s.423. The plaintiff's counsel had made it clear that reliance was placed on s.423 to found a remedy and no objection had been taken by counsel for the defendant to s.423 being relied on in this way; see Campbell J at [152]. In the circumstances before his Honour, particularly that there had been explicit reliance on s.423 from the opening address onwards without any objection, Campbell J's readiness to make an order for a remedy under s.423 was in my respectful view well within his Honour's discretionary powers. The plaintiff was a registered third mortgagee of real property owned by the corporation and was plainly entitled to have an account taken in Equity in respect of debts due under the mortgage and in respect of liabilities allegedly incurred by the mortgagee in purported exercise of the power of sale. 65 I do not regard Artistic Builders as establishing that the power of the Court should be exercised in cases where the grounds of the remedies sought are in any way complex, or that it should be readily exercised in cases where use of that power is contentious. In my opinion it is not a correct or a fair view that the hearing of these proceedings was undertaken as an inquiry under s.423 upon a complaint of kind referred to in para.(b) of subs.423(1). A trial of proceedings before the Court should not readily be interpreted as an inquiry under s.423 or as opening the possibility of remedies by such order as the court might think fit unless it is clear from the outset that such an inquiry is being undertaken and that there is a claim for exercise of the Court's power to grant remedies. In these circumstances I am not prepared to grant any remedy in exercise of the court's discretionary power under subs.423(1). 66 Remedies in tort for negligence. Counsel for the cross-claimants contended to the effect that GE Capital as a creditor and mortgagee has a duty of care in negligence to the guarantors where the power of sale is in fact exercised. Although the question is arguably open for consideration by the High Court of Australia, it is orthodox legal doctrine that the relationship between mortgagor and mortgagee is equitable, there is no duty of care under tort law and that the remedies of the mortgagor are not remedies in damages but can be given effect only by taking accounts under the mortgage and establishing completely all the entitlements of all parties interested in the property. That process may be quite complicated, but it is not necessarily so, depending on what aspects of the mortgage accounts are in dispute. The foundation for this orthodoxy is the decision of the High Court of Australia in Pendlebury v. Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676. In Commonwealth Bank of Australia v. Hadfield (2001) 53 NSWLR 614 at 621 Beazley JA, in a judgment with which Mason P and I agreed, after referring at 620 [36-39] to authorities said at [40]: [40] Notwithstanding these authorities, it is arguably an open question in Australia whether there is available a common law claim in negligence against a mortgagee for, what I will describe loosely as a breach of the mortgagee's duty of care in the exercise of a power of sale: see for example, Forsyth v Blundell (1973) 129 CLR 477; Australian and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195. However, it is certainly not established that this is the case and I think that it is preferable on an application of the type presently before this Court to apply orthodox legal doctrine. [41] The various legal writings on the issue to which the Court was referred also speak with one voice as to the nature of the claim available to a mortgagor in such circumstances. In essence, the commentators state that an account is the appropriate form of relief where a mortgagee is alleged to have sold the mortgaged property at an undervalue or otherwise in breach of the mortgagee's duty in relation to sale: see E L G Tyler, P W Young & C E Croft, Fisher & Lightwood's Law of Mortgage, Australian ed (1995); R P Meagher, W M C Gummow & J R F Lehane, Equity Doctrines and Remedies , 3rd ed (1992) Sydney, Butterworths; E I Sykes & S Walker, The Law of Securities , 5th ed (1993) Sydney, Law Book Co Ltd; D Browne, Ashburner's Principles of Equity, 2nd ed (1933) London, Butterworth & Co (Publishers), Ltd. 67 The decision of the Court of Appeal of England in Standard Chartered Bank Ltd v. Walker [1982] 1 WLR 1410 was to the effect that the receiver and manager of the mortgagor owed a duty of care in negligence to the guarantor. The decision did not relate to obligations to a guarantor of a mortgagee exercising power of sale. It was based upon development by Lord Denning MR of his Lordship's views of the duty owed by the mortgagee exercising power of sale to the mortgagor; those views were quite different to the orthodox legal doctrine in Australia to which I have referred. 68 In China and South Sea Bank Limited v. Tan [1990] 1 AC 536, an appeal from Hong Kong relating to a claim that the mortgagee creditor owed the surety a duty to exercise the power of sale, the Judicial Committee did not treat the law of negligence or tort law as the source of principles upon which the sureties' claim was to be determined, and did not refer to Standard Chartered Bank Limited v. Walker, or to Cuckmere Brick Co. Ltd v. Mutual Finance Limited [1971] Ch 949, on which Lord Denning had relied, although those cases were cited in argument. The decision in China and South Sea Bank v. Tan was not an authoritative indication of the state of opinion in England because of the interlocutory character of the appeal. It is evident that it was their Lordships' view that no duty of care in negligence and no remedy in tort law are available to guarantors against mortgagees. In their Lordships' view there were significant protections available to a surety, but they were equitable remedies. Their Lordships' views appear in a lengthy passage from their opinion at pp543G to 545H. Their Lordships said to the effect the tort of negligence does not supplant the principles of equity or contradict contractual promises. They reviewed the remedies by which Equity intervenes to protect a surety and several cases which exemplified this. 69 Since China and South Sea Bank v. Tan opinion in England appears no longer to relate the duty of mortgagees and of receivers appointed by them to negligence law, or to tort law; see Downsview Nominees Ltd v. First City Corporation Ltd [1993] AC 295 and Medforth v. Blake [2000] Ch. 86. These cases do not relate to mortgagee sales. 70 The remedies available to a guarantor against the mortgagee were considered at length in the judgment of Cole J in Westpac Banking Corporation v. Kingland & Ors (1991) 26 NSWLR 700 in the lengthy passage under the heading "The issues raised by the Defence and Cross-claim" at pp704-709. The complaint in that case did not relate to the manner in which the mortgagee had realised the value of the secured property, but to inaction of the mortgagee. Cole J showed, in my respectful view in a convincing way, that the law as stated by Lord Denning in Standard Chartered Bank Ltd v. Walker in relation to duties of a mortgagee in exercise of power of sale is not the law in Australia. Cole J made an extensive citation of Australian case law, and struck out the cross-claim which was based on the view that there was a duty of care in negligence owed by the mortgagor to the guarantor. The distinction between the facts before Cole J and the facts of the present case to which the cross-claimants' counsel pointed was that the present case relates to the manner of exercise of a power of sale and not to an omission to exercise it. Counsel did not refer to any reason in principle for attributing importance to that distinction. The authorities cited by Cole J speak uniformly of the remedies available to the guarantor as equitable remedies, and there is no Australian authority for the existence of a duty of care in tort law of the mortgagee to the guarantor. Standard Chartered Bank v. Walker is altogether unpersuasive about the state of the law in Australia because its basis, according to Lord Denning's expressions, is a view about the law of England on the obligations of a mortgagee to a mortgagor which is quite different to orthodox legal doctrine in Australia. 71 In my opinion there is no reason in principle for introducing tort law into the relationship which arises out of a contract of guarantee; parties may contract on whatever terms they decide, and there is already a developed body of equitable doctrine establishing the circumstances in which remedies arise out of the performance of such contracts. In the circumstances of these parties remedies under tort law are unknown in Australia and on the basis of China and South Sea Bank v. Tan it now seems that they may not be law in England. Introduction of a duty of care into the existing skein of relationships and obligations, which it would not supplant, would introduce obscurity and complexity without discernible advantages. Certainly no advantages are suggested. The argument was supported by references to the words "negligently", "negligent" and like expressions in passages in judgments in Hancock v. Williams (1942) SR (NSW) 252-255 (Jordan CJ), Bank of New South Wales v. Taylor (1881) 2 LR (NSW) 118 at 124 (Manning J) and Williams v. Frayne [1937] 58 CLR 710 at 738. These expressions occur in passages which show altogether clearly that the obligations under consideration were equitable and were plainly not attempts to state that the tort of negligence is the source of the mortgagee's obligation, nor were they references to tort law in any way. 72 In my opinion the law of torts and the tort of negligence are not applicable to the claims in the cross-claim. 73 Cross-claim or set-off for remedies under s.420A. Procedural law. The cross-defendant's counsel submitted that if the cross-defendant has breached its duty under s.420A of the Corporations Act it does not follow that the cross-claimants are entitled, and they are not entitled, to make a cross-claim in respect of that breach or to seek to set-off any liability for such breach against the guarantors' liability. This submission went on to deal with procedural law on the availability of cross-claims and set-off, and the effect of provisions of the guarantee. I deal first with the procedural law. A guarantor cannot rely on a cross-claim for damages which may be available to the debtor as against the creditor. That this is so is established by the decision of the Court of Appeal of New South Wales in Covino & Anor v. Bandag Manufacturing Pty Ltd (1983) 1 NSWLR 237. In that case the defendants guaranteed the indebtedness of a trading corporation to its supplier for goods to be sold and delivered to the trading corporation. The guarantors were sued by the supplier on the guarantee, in proceedings to which the trading corporation was not a party, although it was defendant in another action also brought by the supplier and heard at the same time. The trial judge refused leave to amend the defence by adding cross-claims. The Court of Appeal held that the refusal was erroneous as to one cross-claim but upheld the refusal as to the other cross-claim. The circumstances appear most clearly in the judgment of Glass JA at 239D-E and following. The cross-claim would have alleged a cause of action for breach of a franchise agreement between the supplier and the trading corporation; that is, a cause of action of the trading corporation. The guarantee related to indebtedness for goods sold and delivered. The Court of Appeal held that the guarantors were not able to rely defensively on any cross-claim for damages enforceable by the debtor against the creditor. In so doing Glass JA applied a passage in the judgment of Isaacs J in Cellulose Products Pty Ltd v. Truda (1970) 92 WN (NSW) 561 which held to that effect, after an extensive review of authorities. In the passage set out by Glass JA at 241 Isaacs J showed that the guarantor could obtain a remedy in proceedings in which the guarantor when sued joined the debtor as a party and claimed indemnity, and the debtor in turn joined the creditor as party and claimed the damages to which the debtor was entitled; only in this indirect manner could the guarantor gain the benefit of a cause of action which he could not sue on. Glass JA referred with evident approval to discussion of the subject in Rowlatt on the Law of Principal and Surety 4th ed. at 103 to 105. 74 Covino did not involve any set-off or claim for a set-off. Set-off was referred to incidentally in the course of the judgment of Hutley JA who said at 238: The orders made in the company's case and upheld on appeal remove any basis for an equitable counter-claim which must go to the root of the title of the plaintiff: Meagher, Gummow and Lehane, Equity Doctrines and Remedies (1975) at 672. Even if the claim and counter-claim had been heard together, the counter-claim and the claim had no connection, except they had their respective origins in the same agreement and this is not sufficient for an equitable counter-claim which would reduce the debt pro tanto. 75 These authorities were considered in the Court of Appeal of England by Slade LJ in National Westminster Bank v. Skelton [1993] 1 WLR 72 [note]. In that case the bank sued guarantors who had given a mortgage to secure liabilities of a corporation to the bank; the corporation was not a mortgagor, and the guarantors were. The bank called up the debts to it and sued the guarantors for possession under the mortgage. The guarantors filed a defence claiming that the debtor had an entitlement to damages against the bank arising from alleged breach by the bank of contractual obligations of confidence by revealing the corporation's affairs to an employee, who then removed its property and set up a competing business. The primary judge struck out this part of the defence, and this was affirmed on appeal. The principal ground of the Court of Appeal's decision appears to relate to the extensive right of possession given to mortgagees by law and practice in England, quite unlike New South Wales; see pp77 and 78. The Court of Appeal regarded it as an established principle (referred to as the Mobil Oil principle) that the existence of a cross-claim, even if it exceeds the amount of a mortgage debt, will not by itself defeat a right of possession enjoyed by legal chargees. At 78 Slade LJ said: I say nothing about the case where a mortgagor establishes that he has a claim to a quantified sum by way of equitable set-off. 76 Slade LJ then addressed whether a guarantor when sued for payment of the debt guaranteed was entitled to avail himself of any right of set-off or counter-claim which the principal debtor possessed against creditor. Although Slade LJ gave considerable attention to this submission, he did not act on it because (79H) the claim before the Court of Appeal was a claim for possession and not a claim to recover payments. His Lordship said at 78G-79B: The other ground upon which Mr. Brock submitted that the Mobil Oil principle is not applicable was that special considerations apply where the mortgage is merely one by way of guarantee intended to afford security for the debts of a third party. In this context he relied strongly on a passage in Halsbury's Laws of England , 4th ed., vol. 20 (1978), p. 102, para. 190, which was not referred to by the judge and states the rights of creditor and surety in these terms: On being sued by the creditor for payment of the debt guaranteed, a surety may avail himself of any right to set off or counterclaim which the principal debtor possesses against the creditor, and any division of the High Court can give effect to it or to any equitable defence raised.

Correspondingly, Mr. Brock submitted, in the present case, on being sued by the creditor bank for possession the defendant sureties are entitled to avail themselves of the assumed right of set-off which the company in liquidation possesses against the bank.

Rowlatt on the Law of Principal and Surety , 4th ed. (1982), at p. 103, contains a statement similar to that cited from Halsbury's Laws of England, in the following terms: "Where the principal is entitled to a set-off against the creditor's demand arising out of the same transaction as the debt guaranteed, and in fact reducing that debt, the surety is entitled to plead it in an action by the creditor against the surety alone." 77 His Lordship went on to refer to Isaacs J in Cellulose, to Covino and other Australian authority and said at 79F: The reasoning of Isaacs J. in the Cellulose case is, with respect to him, impressive, but for my part I would not think it right, on this striking out application, to decide that there is any general rule that a guarantor cannot avail himself of the remedies which otherwise may be open to the principal debtor as against the creditor or, if there is such a general rule, that it necessarily applies in the present case. First, Isaacs J. himself expressly recognised, at p. 585, that exceptions to his general rule might arise in cases such as the present where a debtor is insolvent so that, instead of having a full right of exoneration by the principal debtor, the surety can only prove in the liquidation of the principal debtor for a dividend. Secondly, the Court of Appeal in Hyundai Shipbuilding & Heavy Industries Co. Ltd v. Pournaras [1978] 2 Lloyd's Rep. 502 expressly accepted the correctness of the passage in Halsbury's Laws of England , 4th ed., vol. 20, para. 190, though regarding it as inapplicable on the particular facts of that case because of the form of guarantee which had been employed. 78 I respectfully say that the distinctions among a cross-claim brought by a guarantor to enforce a right of his own, a cross-claim by the guarantor to enforce a right of the principal debtor and a set-off available to the guarantor were not fully adverted to in the argument so far as it can be followed, nor fully adverted to by Slade LJ. Perhaps these distinctions are more sharply drawn in New South Wales, where procedural law has a different history: see Stehar Knitting Mills Pty Ltd v. Southern Textile Converters Pty Ltd [1980] 2 NSWLR 514. An illustration of the importance of the distinction for Glass JA in Cellulose is that his Honour observed that the views expressed by Isaacs J concurred with the discussion contained in Rowlatt and referred to pp103 to 105, which pages include the passage cited by counsel in National Westminster Bank v. Skelton for the entitlement of the surety to plead a set-off available to the principal debtor; unless the distinction is observed this passage could be thought to be opposite to the proposition established in Cellulose. 79 In Elkhoury & Anor v. Farrow Mortgage Services (1993) 114 ALR 541 at 549 the Full Court of the Federal Court (Lockhart, Gummow and Lee JJ) said: There is a substantial body of Australian authority that, in the absence of the principal debtor as a party to the proceeding, the guarantor cannot assert in answer to an action on the guarantee an equitable set-off which the debtor might have in an action on the principal obligation: Cellulose Products Pty Ltd v Truda (1970) 92 WN (NSW) 561 at 588; Covino v Bandag Manufacturing Pty Ltd [1983] 1 NSWLE 237 at 240-1; Indrisie v General Credits Ltd [1985] VR 251 at 253. The position may be otherwise in England: National Westminster Bank plc v Skelton [1993] 1 All ER 242 at 250-1: see, generally, Phillips and O'Donovan, The Modern Contract of Guarantee (2nd ed, 1992), pp468-70. 80 I do not find this observation persuasive as the Australian authority referred to related to cross-claims in which the guarantor sought to enforce a cause of action which belonged to the debtor and not to the guarantor, and did not relate to equitable set-off. 81 The plaintiff's counsel referred to many authorities in which Courts have considered circumstances in which an equitable set-off continues to be available in New South Wales. The amount of judicial attention which has been given to equitable set-off is remarkable. See the notes "Equitable set-off" in the commentary at [6.0.0] in Ritchie's Supreme Court Procedure New South Wales. The subject was examined closely by Giles J in AWA Ltd v. Exicom Australia Pty Ltd (1990) 19 NSWLR 705. In his Honour's later decision in Murphy v. Zaminex Pty Ltd (1993) 31 NSWLR 439 at 465 Giles J said: Equitable set-off is available where the defendant establishes an equitable ground for being protected from the plaintiff's claim. That has been expressed in language to the effect that the defendant's set-off goes to the root of or impeaches the title of the plaintiff's claim, but also in language to the effect that the counter-claim is so directly connected with the claim that it would be unjust to allow the plaintiff to recover without taking into account the defendant's counter-claim. 82 Although counsel referred to a number of later authorities I do not understand them to make any further or better elucidation than that made by Giles J. There are many judicial formulations of the kind of claims which may be raised in this way, none of them exhaustively clear, and I will not attempt to reduce them to a single formulation or add to them. In a claim by a mortgagee against a mortgagor for the balance of the mortgage debt, the mortgagor would be entitled to raise a claim for equitable compensation for sacrifice of the mortgagor's interest in exercise of a power of sale as an equitable set-off of compensation against the contractual debt. To do so would be no more than a short form of claiming that an account be taken of the amount due under the mortgage. 83 In the present case ascertainment whether any credit in respect of breach of s.420A should be allowed in calculating the amount of the debt, and what that credit should be is at the heart of establishing what amount of money the plaintiff should recover against the defendants. The amount of the guarantors' liability is established by calculating the amount for which Chircan and Mahiya were indebted to the plaintiff, and the calculations include a credit for the net realisation on sale of the security property. If the contention that there was a breach of s.420A is correct this credit was less than the just credit, and there should be a further credit for equitable compensation for breach of s.420A. In the absence of s.420A there would have been a further credit for equitable compensation if it had been shown that there had been a sacrifice of the interests of the mortgagor. In my opinion and subject to the terms of the guarantee, the guarantor is entitled to have the correct amount of any credit ascertained and brought into account in calculating the amount of the liability of the principal debtor which in its turn determines the amount of the liability of the guarantor. If the mortgagor is entitled to have a further credit brought into account on taking the mortgage accounts, the guarantor can get the benefit of the credit by relying on an equitable set-off against the creditor's demand. To do so is to rely on an entitlement of the mortgagor to set-off that credit on taking the mortgage accounts. The substance of what the guarantor does by relying on a set-off is establishing the true amount of his own liability by showing that the debtor is entitled to a set-off. Allowing this course tends to avoid multiplicity of proceedings and to deal as far as possible with all matters in controversy, as required by s.63 of the Supreme Court Act 1970. The defendants have in my opinion no right to sue under s.420A themselves, the credit is equitable in its nature, and unless they are allowed to rely on it as a set-off, their claimed right to have regard paid to it will not be recognised in these proceedings. In these circumstances they ought in my opinion to be allowed to raise it by way of set-off; subject however to the terms of the Guarantee and Indemnity. The procedural difficulties which prevent a party from raising a cross-claim and putting forward a claim to which someone else was entitled but the cross-claimant was not, which are central to the decisions in Cellulose and Covino, do not stand in the cross-claimants' way in this case. 84 Absence of debtors as parties. In proceedings to establish the amount due and the availability of any equitable set-off it is desirable that all persons interested including the debtor should be parties to the proceedings and bound by the results. If guarantors took the initiative and brought proceedings in which they claimed orders establishing the amount of their indebtedness the court should not permit them to do so without joining the debtors as parties to taking the mortgage accounts. Yet for Mahiya and Chircan, which passed into creditor's voluntary liquidation the day before the sale, there seems to be little or nothing to be achieved by joining them as parties. Even under the old strict practice considered by Isaacs J in Cellulose, and even in relation to a common law claim for damages for breach of a contract in right of the debtor there may be exceptions to procedural strictness. In National Westminster Bank PLC v. Skelton Slade LJ said at 79: "First, Isaacs J himself expressly recognises, at p585, that exceptions to his general rule might arise in cases such as the present where a debtor is insolvent so that, instead of having a full right of exoneration by the principal debtor, the surety can only prove in the liquidation of the principal debtor for a dividend." In Langford Concrete Pty Ltd v. Finlay [1978] 1 NSWLR 14 at 18-19 the Court of Appeal approved the absence of a debtor which was in liquidation from proceedings in which the guarantor sought to raise as a cross-claim a contractual claim to which the debtor was entitled. As Mahiya and Chircan are insolvent and in liquidation their absence from the litigation and their not being bound by the decision do not seem to have any practical importance. 85 Remedies available to guarantors in their own right. The obligation of the guarantor to the principal creditor arises under the contract between them; however protection extended in Equity to the guarantor has the effect that the guarantor can raise an equitable defence in part or in whole against a claim for its contractual liability. The protection extended to the guarantor in Equity is related to the guarantor's right to be subrogated to the rights of the principal creditor against the security if the guarantor pays out all the secured debt. The protection extended in Equity may have had its origin in this right of subrogation. The availability of protection is subject to any provision in the contract between the guarantor and the principal creditor which qualifies or limits the guarantor's rights; in this case the qualification is of high importance, because of provisions of the guarantee with which I will deal. The guarantor cannot complain of any conduct of the creditor, or of any dealing with the secured security property which was authorised by the terms of the contract of guarantee, or by the terms of the security granted by the debtor. 86 A guarantor of a secured debt is entitled to show that his liability to the secured creditor has been reduced or (it may be) extinguished as a result of some shortcoming in the realisation or management of the security by the mortgagee. 87 Guarantors have remedies in their own right for conduct of secured creditors which sacrifices the security or diminishes the value which the security could have yielded. In Healy v. Cornish (1863) 3 SCR Eq 28 Milford J awarded a remedy to a guarantor on the basis of breach of an obligation of the secured creditor to the guarantor, not expressed by his Honour as an obligation of the secured creditor to the debtor who provided the security. The claim was a strong one on the facts and Milford J formulated the principle (at 31) in terms which seem to have been higher than was necessary for the occasion. In Bank of New South Wales v. Taylor (1881) 2 LR (NSW) 118 Manning J referred to a possible remedy in Equity if the guarantor could prove "fraud or negligence" (124). Martin CJ at 124 referred to the possible remedy as for "gross misconduct or fraud". These were incidental observations as the terms of the security authorised the secured creditor's conduct complained of. In Taylor v. Bank of New South Wales (1886) 11 App.Cas 596 the Privy Council heard an appeal in other litigation arising from the same events. That appeal was disposed of on the ground that the sale of the sheep the subject of security by the debtor took place within the terms of the security between the debtor and the bank, and the bank had not acted improperly by not intervening; it would seem that the bank had no right to intervene. The observations of the Privy Council at 602-603 on the circumstances in which sureties might have a remedy are obiter dicta. Their Lordships' observations approved the rule in Pearl v. Deacon (1857) 24 Beavan 186 53 ER 328 (Romilly MR), 1 De Gex & Jones 461 44 ER 802 (LJJ) which their Lordships said was: … [W]here the creditor had, by his own act, rendered unavailable part of the security, to the benefit of which the surety was entitled, and the latter was held to be discharged, not absolutely, but only pro tanto .

Their Lordships appear to have distinguished the operation of this rule from a case where there had been an alteration of the original contract between the creditor and the principal debtor without the consent of a surety, who in that case would be wholly discharged. Their Lordships' observation on Pearl v. Deacon endorses a rule under which any act of a creditor which renders unavailable part of the security gives rise to a pro tanto reduction in the liability of the surety; however their Lordships spoke obiter and were not called upon to consider or to state what acts of the creditor have that effect and in what circumstances. 88 In Hancock v. Williams & Anor (1942) 42 SR (NSW) 252 Jordan CJ and Halse Rogers J dealt with this subject in an extensive exposition of the proposition (at 255): A guarantor is responsible only for the obligation which he has guaranteed.

In the course of this exposition their Honours said at 255-256; with citations of authority: But the fact that a stipulated security for the guaranteed obligations has been exploited or realised by the obligee, in a manner which involves no breach of the contract of suretyship and no change in the nature of the guaranteed obligation, does not release the guarantor … although if such exploitation or realisation is negligently carried out, so that the surety derives less advantage from it than he is entitled to expect, he is entitled in equity to treat himself as discharged to the extent to which he has been damnified thereby, but no further: Re Wolmershausen 62 LT 541 at 545-6; Wullf v. Jay 7 QB 756; Polak v. Everett 1 QBD 669 at [675-6]; Mutual Loan Fund Association v. Sudlow 5 CBNS 449; Williams v. Frayne 58 CLR 710 at 738. 89 Counsel contended that the words: "if such exploitation or realisation is negligently carried out" establish the test for entitlement to a pro tanto discharge; in my opinion these words were not intended to make a full exposition of the standard applied but indicated the general subject dealt with by the authorities cited. The old authorities referred to by Jordan CJ used various expressions for the shortcomings found against guarantors - misconduct in Mutual Loan Funds Association, laches in Wulff. They did not examine the entitlement of the debtor where a sale was mismanaged and they did not treat the guarantors' entitlement as measured by the debtor's entitlement. In Polak v. Everett the security was varied without the concurrence of the guarantor who was thereby completely discharged. 90 Opinions in judgments in the High Court of Australia, which have a primary claim as sources of the law which I am to apply, do not state the test with great precision. In Williams v. Frayne (1937) 58 CLR 710 at 738; Dixon J said: If the guarantee is given upon a condition, whether express or implied from the circumstances, that a specific security shall be obtained, completed, protected, maintained or preserved, any failure in the performance of the condition operates to discharge the security and the discharge is complete. But otherwise the surety can complain only if the creditor sacrifices or impairs a security, or by his neglect or default allows it to be lost or diminished, and in that case the surety is entitled in equity to be credited with the deficiency in reduction of his liability. The cases are collected in the ninth chapter of Sir Sidney Rowlatt's book, and there is an examination of some of them in the judgment of Hanna J in Northern Banking Co. v. Newman & Colton (1927) IR 520 at 536-539. 91 In Buckeridge v. Mercantile Credits Limited (1981) 147 CLR 654 at 675 Brennan J said: In a case where the act of a creditor does not discharge a surety, but the creditor has nonetheless sacrificed or impaired a security, or by his neglect or default allowed it to be lost or diminished, the surety is entitled in equity to be credited with the deficiency in reduction of his liability ( Williams v. Frayne (1973) 58 C.L.R. 710, at p. 738, per Dixon J.). The surety's entitlement is lost, however, if he bargains away his right to complain of the act which occasions the deficiency (cf. Perry v. National Provincial Bank of England [1910] 1 Ch. 464; Bank of Adelaide v. Lorden (1970) 127 C.L.R. 185). The respondent submits that the appellants, by the terms of the guarantee, had precluded themselves from complaining of any deficiency consequential upon the respondent pursuing against the mortgagor its remedies under the debenture. If that submission be right, the case is distinguishable from Pearl v. Deacon , where a creditor by exercise of a paramount right, sacrificed a security to the benefit of which a surety was entitled, and the surety had not agreed to the exercise of the right or to accept the prejudice flowing from the sacrifice of the security. 92 These authoritative statements appear to me to have the effect that the surety may complain of anything of which the debtor may complain, and has further rights where the value or realisation of the security has been diminished by the creditor's neglect or default. What is meant by neglect or default is not further defined by the authorities, but it gives more protection than was available to the debtor under Pendlebury. The guarantor has even greater protection and may be completely discharged if the creditor fails to obtain effective security which is available as in Wulff v. Jay, or varies the terms of the loan or security without the guarantor's concurrence. Where subs.420A(1) applies I am of the view that it should be applied as a fair representation of the standard of neglect or default referred to by Dixon and Brennan JJ. If the guarantors show that the mortgagors would, if they made a claim, be entitled to a remedy under subs.420A(1), the guarantors are, in my opinion, entitled to a similar remedy by way of an equitable defence to the claim against them, subject to the provisions of the guarantee. 93 Primacy of the plaintiff's right to payment: ouster of jurisdiction. The effect of the obligations in cl.8.1 is that the guarantors were contractually bound to pay the amount of money owing by the debtor when it was demanded. It was a contract to make an amount of money available when it was demanded. It was not an element of the obligation that it was subject to or limited by any process of ascertaining whether the debtor should be allowed any credits or set-offs, in respect of the security or of any other matter. Irrespective of the existence of security, and irrespective of the state of progress of any attempt at realising the security, it was and remains the obligation of the guarantors to provide to GE Capital the money amount of the debtors' obligation. The provisions relating to suspension of the guarantor's rights including cl.8.1 give effect to the amplitude of this obligation, and remove the possibility that the guarantors might in any way compete with GE Capital in attempts to recover from the debtors. Clause 8.1 does not bar the guarantors from making any claims or enforcing any rights against either GE Capital or the debtors; it suspends those rights so long as the guaranteed money remains unpaid, and the suspension can be ended at once if the guarantors meet their contractual obligation and pay the amount of the guaranteed money. Once they do that, they can bring any proceedings they wish against GE Capital or against the debtors, notwithstanding cl.8.1; but the effect of cl.8.1, and of cl.8 generally, is that until they make that payment they are contractually bound to the proposition that they are not entitled to bring any claims or proceedings or to act in any of the manners referred to. The jurisdiction of the Court is not ousted in any respect, the rights of the guarantors are suspended but otherwise not impaired, and they can pursue their rights as they wish if they first comply with what the Guarantee and Indemnity makes their primary obligation. 94 The guarantors' counsel contended and the plaintiff's counsel accepted that provisions of this kind are to be construed strictly against the interest of the plaintiff. Adopting this approach is significant if the language used yields an ambiguity, but not otherwise. Contractual provisions which limit the rights of guarantors and ensure the primacy of recovery by the creditor have a long history in guarantee documents. In Credit Lyonnais Australia Ltd v. Darling (1991) 5 ACSR 703 at 708 Kirby P after referring to the strict approach taken to the construction of such provisions said "But in the end, courts must give effect to the agreement of the parties as expressed in their written document, read in context … Courts should not seek to twist the words of an agreement which the parties have executed in such a way as to frustrate the achievement of the purpose of their agreement as expressed in those words." The guarantors have unequivocally agreed to the effect that they will not make such claims as they now make in their cross-claim unless and until they have paid the whole of the guaranteed moneys, which they have not done. 95 Counsel for the guarantors contended that provisions of the guarantee and indemnity, particularly cl.8.1(a) are against public policy and hence unenforceable or invalid because they create a negative restriction upon the right of a person to invoke the jurisdiction of the court to determine a dispute. Counsel referred to Dobbs v. National Australia Bank of Australasia Ltd (1935) 53 CLR 643 at 651-653 (Dixon, Evatt & McTiernan JJ). Their Honours considered at length, in the context of a clause in a guarantee making certification of indebtedness conclusive, the law relating to contractual ouster of jurisdiction, including case law relating to arbitration clauses. At 652 their Honours said: "No contractual provision which attempts to disable a party from resorting to the Courts of law was ever recognised as valid. It is not possible for a contract to create rights and at the same time to deny to the other party in whom they vest the right to invoke the jurisdiction of the court to enforce them." Their Honours considered many authorities, largely relating to arbitration and the mechanism adopted in Scott v. Avery (1856) 5 HLC 811; 10ER 1121; in that mechanism a contractual provision prevents any cause of action, and hence any right to resort to the courts, from arising until conditions have been fulfilled. In my opinion a party would be disabled from resorting to the courts by a colourable condition which produced a practically insurmountable obstacle to resort to the courts, for example, a condition which postponed resort indefinitely or for a length of time unrelated to the purposes of the agreement or on conditions which could not practically be met, or had no relation to the purposes of the agreement. A party would not be disabled from resorting to the courts by a provision which postponed his right to do so until he had met an obligation which was the main purpose of the contract. 96 There is a well-established principle that a claim in respect of cargo cannot be asserted by way of deduction from the freight; see Aries Tanker Corporation v. Total Transport Limited (1997) 1 WLR 185 and Langford Concrete Pty Ltd v. Finlay [1978] 1 NSWLR 14 at 17. In a building contract there is an obvious economic need for a builder to maintain the flow of money while operations continue regardless of the existence of other disputes. Provisions in building and engineering contracts relating to progress payments can if appropriately expressed make progress payments payable without deduction for cross-claims and set-offs, and these provisions are enforced. In the speeches in Gilbert-Ash Northern Ltd v. Modern Engineering (Bristol) Ltd [1974] AC689 the Law Lords proceeded on the assumed basis that the right to make a cross-claim could be contractually excluded, and their attention was directed to whether the contract before them had done so; they held that it had not. I do not see in the speeches any distinct statement to the effect that the contract which provided such an exclusion would be effective, but an assumption that it would be effective underlies the ground on which the appeal was disposed of and it is not possible that lack of effect of such a provision would have passed without observation. As an illustration of this assumption, Lord Diplock said at 718: "So when one is concerned with a building contract one starts with the presumption that each party is to be entitled to all those remedies for its breach as would arise by operation of law, including the remedy of setting up a breach of warranty in diminution or extinction of the price of material supplied or work executed under contracts. To rebut that presumption one must be able to find in the contract clear unequivocal words in which the parties have expressed their agreement that this remedy shall not be available in respect of breaches of that particular contract." In Algons Engineering Pty Ltd v. Abigroup Contractors Pty Ltd (1997) 14 Building and Construction Law 215 Rolfe J accepted that a building subcontract on its proper construction required the contractor to pay the amount of the progress claim without any deduction for amounts claimed by way of set-off or cross-claim, and granted summary judgment for the amount of the progress claim on that basis, after considering at 221 to 229 a number of authorities dealing with progress payments in the context of building contracts. 97 The jurisdiction of courts and the rights of parties to make claims before courts are not conferred by contract and cannot be ousted by contract. However there is in my opinion no infringement of this principle where parties agree that in stated circumstances a particular sum of money will change hands without the opportunity at the same time to obtain judicial disposition of any other claim between them. In the contract of guarantee there is no infringement of the principle where parties agree to ensure that the guaranteed sum will be paid, and make this the more certain by postponing litigation raising any cross-claim or set-off. 98 The effect in substance of the provisions of the guarantee including cl.8.1(a) is that there is no limit on the right to resort to the courts if the guarantor first meets the obligation the protection of which is the primary purpose of the guarantee and indemnity, and pays the amount of the debt. It is well established in this area of the law that the guarantor can have recourse to securities given by a principal debtor to indemnify himself, but that he cannot do so until he has paid the whole debt. The validity of modifications of what would under the general law be the rights of guarantors is well established. These contractual provisions extend the ways in which the guarantors' remedies are postponed, and extend the creditor's freedom from competition in enforcement of its rights. The condition which must be fulfilled is directly related to the purposes of the agreement. 99 In my opinion the operation of cl.8.1 and cll.9.1 and 9.2 of the Guarantee according to their terms is not contrary to any principle of law. 100 Clause 8.1 purports to confer an absolute discretion on GE Capital to consent. If cl.8.1 were not qualified in this way it would in my view be valid and effective, and the reference to discretion does no more than express the obvious availability of waiver to GE Capital should it choose to waive. 101 The claim for relief under the Contracts Review Act. For reasons I have stated, none of the grounds of cross-claim advanced in the interest of all four cross-claimants should succeed. In paras. 26 to 28 of the Amended Cross-claim allegations are made in support of reliance by Mr and Mrs Davis, the individual cross-claimants, on the Contracts Review Act 1980, and in my understanding of the Amended Statement of Claim these allegations are the basis for claim 40(d)(a) for an order that those guarantors be wholly or party relieved of liability under the Guarantee. 102 This claim is based in para.27 of the Amended Cross-claim on allegations that Mr and Mrs Davis executed the guarantee in circumstances where: (a) Mr and Mrs Davis entered into the guarantee on a false basis and with a fundamental misapprehension as to its effect and the obligations they were thereby incurring; (b) They did not have independent legal advice prior to executing the guarantee. Extensive particulars are given of these allegations. 103 Some particulars of the false basis and fundamental misapprehension relate to matters on which I have already made findings. There are said to have been misapprehensions with respect to the security being valid and effective, or related matters; however I have determined that the securities were valid and effective, and in any event they were enforced according to their terms. 104 Another particular (iv) is to the effect that Mr and Mrs Davis believed that if GE Capital exercised its rights under the Guarantee, they would be subrogated to security over equipment having a forced (liquidation) auction value of at least $1 million. 105 A further particular (v) contains a lengthy statement to the short effect that they misapprehended that GE Capital would make sure that the security had a forced liquidation auction value of at least $1,000,000 and that amount would be realised. 106 Mr Davis obtained a valuation from a well-qualified firm of valuers some months before he approached GE Capital for finance. At the time of deciding to enter into the transaction with GE Capital, and of entering into it, he had not seen a valuation which GE Capital had obtained from a company related to GE Capital for the purpose of considering whether it should give the finance, and he did not know the contents of that valuation, except that it satisfied GE Capital's requirement that there be a valuation of at least $1,000,000; and he had a discussion with an officer of GE Capital in which it was said to the effect that the valuation was sufficient, obviously in context meaning sufficient for the apparent safety of GE Capital and hence sufficient for GE Capital to decide to make the loan. There was nothing in the context of conversations, and nothing in the circumstances which could possibly have conveyed any indication to Mr Davis that GE Capital was advising him or telling him what his position could be expected to be; he was bringing to GE Capital his own proposition to borrow a million dollars, not putting himself in their care, and discussion about the size of risk could only relate to the risk for the lender. Mr Davis was and for many years had been the leading figure in the affairs of the partnership and had, obviously so, a far better opportunity to know what the equipment was, what it could do and who might be interested in buying it than GE Capital or anybody else. In all rationality he could not have relied on GE Capital to guide him into whether or not he should make a decision to give a guarantee, and GE Capital could not possibly have thought that he placed any such reliance on GE Capital. 107 Mrs Davis did not have any relevant direct communications with GE Capital, and relied on Mr Davis and what he told her about the transaction, as well as on her own decision about what she should do. 108 Counsel pointed to evidence to the effect that Mrs Davis thought that there was little prospect of the guarantee being called upon, that there was minimum exposure, and the comfort she took in knowledge, it would seem from Mr Davis, that GE Capital had a valuation, plant and equipment that was over $1,000,000 from which she thought that there would be no reason to call in the loan. In making this appreciation Mrs Davis acted on her own understanding, and on what she understood from her husband, on whom she chose to rely, without any input into her knowledge or beliefs from the plaintiff. 109 Discussion about whether the risk would be small, and a comment by a GE Capital officer that it would be, could not reasonably be the basis on which Mr Davis decided to go into the transaction and give guarantees. In his commercial circumstances, trading with limited liability companies, he could not in all rationality have expected to get finance of $1,000,000 unless the directors gave guarantees. He had obtained his own expert valuation. He was in a far better position than GE Capital or its officers to appraise the size of the risk involved in continued operations of the partnership which he had been managing for many years in an industry in which he had worked all his life. The business, the plant and equipment, the finances, the earnings and the prospects of the partnership were all in his hands. No magic can convert readiness of a creditor to enter into a loan transaction on the basis of what the creditor regards as its efficient valuation into an assurance to the principals of the borrower about how the loan transaction can be expected to be resolved. 110 Mr and Mrs Davis had existing large obligations to the previous financier which were resolved by obtaining finance from GE Capital. Between them they controlled all interests in the business, the partnership and the web of companies. They stood directly to gain, and they were the only persons who stood directly to gain from the financing. They had many years of business experience specifically in relation to this business and directing its affairs. They had independent legal advice fully available to them and in fact consulted their solicitor on a different aspect of the transaction to the workings of the guarantee. There was no element in the whole affair of any kind of unfair practice by GE Capital. The plaintiff did nothing to get the better of Mr and Mrs Davis, to mislead them, to overbear them or to exercise financial dominance over them. The Contracts Review Act and its discretionary power to set aside unjust contracts have no relation to Mr and Mrs Davis, their contract or their circumstances. They should not be given relief under its terms. 111 In my opinion neither Mr and Mrs Davis should be granted any remedy under the Contracts Review Act. 112 The claim under subs.420A(1). My conclusions on the primacy of the plaintiff's right to payment and on ouster of jurisdiction mean that adjudication is not required on the claim that there was in fact a breach of subs.420A, or on the amount of equitable compensation if any to which Mahiya and Chircan would be entitled for any such breach. However as a large body of evidence and detailed submissions were made on that subject, I will state my conclusions on it, and the more important of the considerations on which the conclusions are based, although I do not think that an address to every part of the extremely detailed submissions on facts which counsel made is required. 113 Market value in s.420A(1). The operation of subs.420A(1) and the significance of the apposition of paras (a) and (b) were considered at first instance in Jeogla v. ANZ Banking Group 150 FLR 359 (Einstein J) and on application for leave to appeal by the Court of Appeal in Skinner v. Jeogla Pty Ltd [2001] NSW CA 15, 19 ACLC 1163. The judgment of Spigelman CJ with the concurrence of Powell JA and Ipp AJA reviewed references to market value and to value in subs.420A(1) but authoritative determination was not required in the leave application. From observations of Spigelman CJ at paras 32 to 42 I understand that his Honour did not accept "a submission that the two paragraphs of s.420A(1) are true alternatives, in the sense that para.(b) articulates a duty which will generally be applicable and para.(a) articulates an alternative duty which will have application in some circumstances." His Honour also appears (para.34) to disapprove of the approach of Einstein J: "His Honour appeared to apply a test of whether or not a market value was ascertainable, in accordance with the classic statement of valuation principle in Spencer v. The Commonwealth (1907) 5 CLR 418. The effect of this construction is that para.(b) will have very little, if any, work to do. It may be that it would be limited to the case of property which in fact has only a single buyer, for example, a right of way to land-locked real property. Nothing in the legislative history would suggest that para.(a) was intended to have so dominant, if not exclusive, a role." 114 Spigelman CJ examined the legislative history, which does not throw light on the relation between para.(a) and para.(b). His Honour said at [37]: The central difficulty in the construction of s.420A(1) is that it is premised on the basis that there is a category of property that is in fact 'sold' which has no 'market value'. This incongruity is enough to indicate that a very particular concept of 'market value' is being employed. 38. The construction favoured by Einstein J was to the effect that the words 'market value' meant that a value was, in effect, ascertainable. Two alternative constructions suggest themselves as reasonably arguable. First, that 'market value' means a definite value. Secondly, that 'market value' means a readily determinable value. 39. By 'definite value' I mean a value that is clearly and obviously established as a market price. By way of example, a small parcel of shares in a corporation listed on the Stock Exchange has a definite market value which can be ascertained at any point of time simply by looking up a document. Shares in a company which is not listed do not have a definite value in this sense. 40. By the alternative of 'determinable value' I mean to refer to property for which the number and nature of comparable sales, and the closeness of the degree of comparability, is such that at any point of time a market value can be readily determined. This is in contrast with property which has so unique a quality that comparisons cannot readily be made, or is so scarce that sales are rare. 41. It is not necessary to choose between these alternatives for present purposes …. 115 In National Transport Insurance v. Smith (2001) 40 ACSR 149 at 153-4, paras [13-15] Hunter J made observations on the apparent anomaly of there being no "market value". 116 In my view para.(a) turns on whether the property has a market value, not on whether there is a market for the property. It is difficult to suppose, of any property which might be owned by a corporation and come under a power of sale, that a market for the property did not exist or could not be found. Subsection 420A(1) asks a different question, whether the property has a market value, and from the context a market value is something which, in the meaning in which the words are used, property conceivably may not have. In my opinion which of paragraphs (a) and (b) is applicable depends on the degree of certainty with which value is ascertainable by reference to events in a market. Ascertainability can have various degrees of certainty by reference to events in a market, including the definite value referred to by Spigelman CJ, declining to the determinable value to which his Honour refers, and declining further by degrees, and the language of subs.420A(1) requires it to be understood that a degree of uncertainty can be reached at which there is not a market value and value is to be ascertained otherwise. Even for sales of small parcels of shares there can be price variations within a day or within an hour. Complete certainty is rare. It can reasonably be supposed that market events can yield ascertainable values, with the assistance of expertise and with receding certainty, for retail goods, new cars, second hand goods, used cars, rarely traded large parcels of shares, house properties; but it appears to me that, in the meaning of the words in the subsection, a point is reached where market experience does not yield a market value with sufficient certainty to be used as an integer. I cannot offer means by which to establish the exact point of transition out of market value, but on the basis of the valuation evidence in this case it does appear to me clearly that the main items in the Grenadier Coating production line had such special characteristics of use, location, age, history and adaptation that they did not have a market value in the sense employed. This conclusion is based largely on the matters put in evidence in an attempt to show by reference to sales or other dealings with property said to be comparable that they did have a market value; in my view these attempts only succeeded in demonstrating the unavailability of any useful valuation reasoning based on comparable sales or otherwise based on market events. 117 Findings on whether GE Capital took all reasonable care to sell the property for the best price that was reasonably obtainable, having regard to the circumstances existing when the property was sold on 22 May 2001, require an address to those circumstances. Since Mahiya and Chircan went into voluntary administration on 6 March 2001 GE Capital had been disabled from enforcing the charges by s.440B of the Corporations Act. They were so disabled until Mr Woodgate gave a consent in writing on 1 May 2001. During that period Mr Woodgate had made extensive endeavours to sell the business as a going concern, in the course of which he had made the availability of the business, with its plant and equipment, widely known to the limited number of businesses and persons carrying on operations in the same or like industries within Australia, and also to a much wider circle of persons likely to be interested in industrial plant and equipment, and to some limited extent to persons outside Australia, and there had been interest shown outside Australia, including from persons in Pakistan and other countries in Asia who might conceivably have been interested in purchasing the plant and equipment. Mr Woodgate and his staff had received some inquiries dealing with the plant and equipment. Mr Woodgate's task in attempting to sell the business was made the more difficult because receivers and managers appointed by Scottish Pacific had closed down operations and dismissed staff on 7 March, precipating industrial action and a picket-line by workers who had been dismissed and were unpaid. 118 Mr Woodgate had obtained an Inventory and Appraisal of the plant and equipment, his main purpose being to guide himself, but he had passed knowledge of its contents on to GE Capital; this estimated the Auction Realisation of the plant and equipment at $348,700 to $451,700 in the same order as the prices actually achieved at GE Capital's auction, and in a completely different order to valuations, not themselves uniform, which had been obtained in 1998 and by Mr Davis in 2001. The Gray Eisdell Timms or GET valuation which Mr Woodgate obtained was directed to Mr Woodgate's voluntary administration, in the more dire circumstances which had emerged when the companies went into voluntary administration and the business operations were closed down, and to a contemplated short period of realisation such as would be available in an administration. On 1 May when it became possible for GE Capital to act the situation was even more dire than it had been when the voluntary administration commenced and the GET valuation was made, in that there had been a wide canvass of attempts to sell the business, and it could be known to people interested in purchasing it that those attempts had not been successful and that there was no-one who wished to obtain all plant and equipment together and operate it in a continuation of the previous enterprise. Further, the time for disposal contemplated in the GET valuation had passed. 119 By May 2001 the period of time during which Mahiya and Chircan had been in default of paying rent under their lease had extended and the difficulties of obtaining extension of the opportunity actually to remain in possession had been correspondingly increased. GE Capital in fact negotiated an arrangement with AMP Henderson Global Investors, the landlord, which was very favourable. Under that arrangement, no rent or like payment was to be made for occupation in May or June, but GE Capital had to undertake to remove all plant and equipment and deliver up the premises by the end of June. Circumstances of dealing with the landlord included that there had been rent arrears over a number of years, there had been recovery action by the landlord, the landlord claimed that a deposit of three months' rent for which the lease provided had not been paid, and also claimed that rent was in arrears for several months when administration began. Then the landlord was prevented from recovering possession during the administration by s.440C of the Companies Act. It was an express term of the arrangement that the auction would be conducted by 22 May, the date on which it was conducted. These arrangements were made in a context in which the equipment could be expected to sell best if it was in situ in the factory; it would not sell as well if it were demounted and shown in store, not in its working situation, and considerable expense would be incurred in doing so. After the property had been sold, purchasers who bought heavy fixed plant would require time to arrange for the plant to be demounted and removed. Any postponement of the auction (and there was one postponement) to a date later than 22 May would have been in breach of the arrangement to which AMP Henderson agreed, and would have increased the difficulties for persons who bought the property and gave a commitment to dismantle and remove it by the end of June. These difficulties are exemplified by the experience of the principal of Essatex, the Pakistani company which in fact bought some of the heaviest equipment; he said that he was unable to make financing and other arrangements for the removal of the equipment, did not remove it by 30 June, and removed it later after negotiating some extension of time between Essatex and AMP Henderson. 120 GE Capital obtained the consent of Mr Woodgate and the opportunity to sell the property at all only after a series of communications and dealings with Mr Woodgate; it was necessary to await the expiry of Mr Woodgate's hopes of selling the business as a going concern, and then to negotiate and pay for his consent, which was not available without paying him $90,000 in respect of his administration and various expenses incurred in the administration, including indeed payments to AMP Henderson to obtain their agreement to his remaining for as long as the end of April. 121 In the context, there is a lack of reality about criticisms of the conduct of the auction which express or assume a requirement that more time should have been spent in canvassing a wide market overseas, advertising in overseas newspapers and trade journals, and endeavouring to reach potential markets, sometimes said to exist in Europe and North America, a rather unrealistic proposition in relation to the age of the equipment, and at other times said to exist in Asian countries and even at one point in Eastern Block countries in Europe. There simply was not time available to circulate information and advertise in trade magazines throughout the markets. Exigencies created by the financial failure of Mahiya and Chircan, and their not having paid rent, limited severely the time available for approaching markets or preparing for an auction. GE Capital was limited by what it could prevail on AMP Henderson to do rather than seize the premises and undertake for itself the task of getting rid of the equipment on them; balancing out AMP Henderson's rights and impatience at a two months extension appears to me to have produced a very good result. 122 An important part of the context is that there was no opposition, protest or resistance from Mahiya and Chircan, who indeed were the principal debtors and the owners of the equipment, in the person of their administrator Mr Woodgate; no protest against relying on the GET valuation, making plans for the conduct of the auction on that basis, or proceeding with the auction at the time at which it was held. Quite otherwise, Mr Woodgate provided the GET valuation and participated in the auction by arranging to have stock which was not the subject of the security sold at the same time. There is no evidence of any expressions of doubt, concern or opposition from Mahiya and Chircan as to the way in which the auction was conducted; nor indeed is there any evidence of opposition from Mr Davis who took only a very small part in the events, but complains, without having any reasonable basis for doing so, that he was not given some greater part in them. It was as open to him as to anyone else to give publicity to the availability of the equipment for auction, and he had the advantage of decades of participation in the relevant industry. 123 The cross-claimants called expert evidence of Mr Simon Hill on matters relevant to whether the cross-defendant exercised reasonable care to sell the property for not less than the market value, or for the best price reasonably obtainable having regard to the circumstances existing when the property was sold. Mr Hill's principal criticisms related to the extent and manner of advertising the auction and to the manner of preparation for the auction; his criticisms were largely affected by his understanding of the time available for the cross-defendant to sell the property. He expressed the opinion that Mr Hyman was not given enough time by the cross-defendant properly to advertise specialised items of machinery in the appropriate publications, and that Mr Hyman was not given enough lead-up time by the cross-defendant properly to prepare the plant and equipment at the premises for auction. Mr Hill's expert evidence was largely based on or affected by his taking an approach in which the time available for cross-defendant to act, to make preparations for the auction and to have Mr Hyman to attend to all necessary preparation began when the administration began on 6 March. Mr Hill was not aware, and did not become aware until his cross-examination, of the limitations imposed on the cross-defendant's action by s.440B of the Corporations Act. Nor were Mr Hill's opinions and evidence appropriately accommodated to the limitations on time available for the cross-defendant to act, and on the actions which the cross-defendant could take, arising from the history of relations of Mahiya and Chircan and their Administrator with the landlord, and from what the cross-defendant achieved in negotiation with the landlord, including the requirement that the auction be conducted on or before 22 May. 124 Mr Hill's evidence, and his adverse views were not directed to the actual situation in which the cross-defendant had to act, particularly not to the limitations of time for action which existed in reality. Mr Hill made other criticisms of the conduct of the auction, but these related to matters of subsidiary importance, and his principal criticisms were really disabled from acceptance. Mr Hill's evidence was outweighed by evidence given by Mr Hyman about the circumstances in which he acted, which was tested with some severity in cross-examination without, in my view, establishing that he had acted in any way which was less than reasonable; and was also outweighed by expert evidence called by the cross-defendant, which was given with a clearer view of the constraints imposed by the actual circumstances. 125 Various criticisms were directed at matters of detail connected with the management of the auction by the auctioneer, and at incidental decisions. I am satisfied that the auctioneer Mr Hyman conducted the auction on a reasonable basis in accordance with the scale of expenditure and endeavour suggested by the valuation of GET, which he, GE Capital, and Mr Woodgate treated as a reasonable basis on which to proceed. In the context of circumstances, assisted by the address in the GET valuation to circumstances closer to those which actually existed than the address made in any other valuation, it was quite reasonable to proceed on that basis. The auction was well attended and most lots were sold. Although some attempts were made by Mr Hyman to reach potential customers overseas they can have had very little effect on the outcome, as they were made only a short time before the auction in fact took place. There must have been fairly wide knowledge of the availability of the equipment, by a process referred to in evidence as the grape-vine; the purchasers included a party which attended from New Zealand, and the Essatex company from Pakistan. The amount of money expended by GE Capital in arranging for the auction was quite large, by far the largest part being the amount paid to Mr Woodgate to obtain his consent; contentions that GE Capital was reasonably required to expend even larger sums of money did not strike me favourably. If there had been security of possession of the premises for some months, an altogether different approach to marketing and auctioning the plant and equipment could have been taken; but that was impossible, and was unlikely that it could have been made possible without undertaking liability for rent in the order of the previous rent, which was about $42,000 per month. In my view GE Capital incurred significant financial risks by making expenditures in connection with the auction, and is not reasonably open to criticism for limiting the amount expended to what in fact was expended. 126 It has not been established, on the balance of probabilities, that the auction did not realise the best price that was reasonably obtainable, having regard to the circumstances existing when the property was sold. It is a remarkable fact that none of the valuers who prepared the four written valuations of which the evidence speaks was called to give evidence. The terms of the valuations themselves, unsupported by their authors, do not in any case make strong claims for a finding about the best price reasonably obtainable. There was no expert valuation evidence which actually addressed the circumstances which existed on 22 May; two valuations were made in 1998, and two were made earlier in 2001 when events were not in the state they were in at 22 May. GE Capital cannot reasonably be criticised for acting on a valuation which was actually handed to GE Capital by the debtors in the person of the debtors' administrator. That valuation, so far as it goes, suggests that the best prices were obtained. The cross-claimant's expert witness Mr Hill disregarded it; but he did not give any appropriate basis for doing so. He made an attempt, in very broad figures, to state the values of the three main items; however his attempt demonstrates how difficult the valuation exercise is, the absence of any significant comparable sales information, and with the need to go on inherently unreliable sources such as prices quoted for other uninspected second-hand equipment and reasoning from the prices of new equipment, or from transactions which were attended by elaborate special conditions and cannot be fitted into a recurring pattern of like market transactions. The valuation problem is beset with the unique character of each piece of second-hand equipment, particularly equipment which was 20 or more years old and had been extensively adapted for use in a particular industrial situation, and a wide range of reasonably available views of valuers would probably arise in view of the nature of the valuing problem in hand. It would be difficult to attain a high degree of confidence in the opinion of any valuer, in relation to equipment for which there was no established market value or recurring pattern of sales, and where the weight attributed to a valuation is very much a matter of the confidence to be placed in the opinion and judgment of each valuer. Where the valuers do not give evidence, that weight can be very little. 127 It has not in my finding been shown on the balance of probabilities that the plant and equipment was not sold for the best price that was reasonably obtainable having regard to the circumstances existing when it was sold. 128 Conclusions and orders. For these reasons the cross-claim will be dismissed. I propose to give judgment for the plaintiff. However I require assistance in calculating the exact amount for which judgment should be given, including interest up to the date on which my order is made.

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