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.