Graeme Webb Investments Pty Limited v St George Partnership Banking Limited

PARTIES : Graeme Webb Investments Pty Limited (Appellant) St George Partnership Banking Limited (Respondent) JUDGMENT OF : Sheller JA at 1; Fitzgerald JA at 2; Ipp AJA at 101

LOWER COURT JURISDICTION : Supreme Court LOWER COURT 11201/93 FILE NUMBER(S) : LOWER COURT Newman J JUDICIAL OFFICER :

COUNSEL : P.M. Biscoe QC / R.G. Kaye (Appellant) M.J. Slattery QC / C.R. Newlinds / H.W. Stowe (Respondent) SOLICITORS : Robilliard & Robilliard (Appellant) Landerer and Company (Respondent) CATCHWORDS : Guarantee - appointment of receiver and manager by secured creditor - debtor's principal asset subject to hire purchaser agreement in favour of another party - principal asset seized by assignee from hire purchaser company - debtor's business terminated - secured creditor's enforcement of guarantee against surety - conduct of receiver and secured creditor - cross-claim by surety for damages and/or equitable compensation - D LEGISLATION CITED : Trade Practices Act 1974 (Cth) Corporations Law Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 Black v Ottoman Bank (1862) 15 Moo PCC 472 CASES CITED: Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654 Gosling v Gaskell (1896) 1 QB 669 Mailman v Challenge Bank Ltd (1991) 5 BPR 97400 Williams v Frayne (1937) 58 CLR 710 DECISION : Appeal dismissed with costs

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40682/99 CL 11201/93 SHELLER JA FITZGERALD JA IPP AJA

GRAEME WEBB INVESTMENTS PTY LTD v ST GEORGE PARTNERSHIP BANKING

1 SHELLER JA: I agree with Fitzgerald JA. 2 FITZGERALD JA: Advanced Glass Technologies of Australia Ltd ("AGTA") carried on business as a glass manufacturer at premises which it leased at Wetherill Park from the owner of the property, Soerpyk Pty Ltd. AGTA's operations included toughening glass by means of a special furnace known as a Tamglass furnace. AGTA had financed its acquisition of the furnace by a hire purchase agreement and the acquisition of other equipment, plant and vehicles by two leasing agreements with CBFC Limited ("CBFC"). 3 The appellant Graeme Webb Investments Pty Ltd ("GWI"), which is controlled by Mr Graeme Webb, had a controlling interest in Parramatta Glass and Aluminium Pty Ltd [1] ("PGA"), which in turn had a controlling interest in AGTA. 4 By mid-1992, AGTA was experiencing financial difficulties. Although it was meeting its obligations under its leasing agreements with CBFC, it was not paying the monthly instalments of $40,000 for which it was liable under its hire purchase agreement. 5 The respondent, St George Partnership Banking Limited [2] ("St George"), held a charge from AGTA over all its assets and undertaking. The charge was supported by a guarantee and indemnity from GWI, which was secured by a mortgage over its property at 561-565 Church Street, North Parramatta. St George's rights against GWI were limited to its rights as mortgagee of GWI's North Parramatta property. 6 On 6 July 1992, St George appointed a chartered accountant, Geoffrey David McDonald, as Receiver and Manager of AGTA. [3] 7 In August 1992, Mr McDonald appointed Iven James Page as General Manager of AGTA. Although Mr Page was an effective General Manager, AGTA's default under its hire purchase agreement with CBFC continued. 8 A winding-up order was made against AGTA on 26 October 1992, and liquidators were appointed. [4] By then, it owed CBFC about $1.2 million under their hire purchase agreement. 9 The amount which AGTA owed CBFC under the hire purchase and lease agreements exceeded the "forced sale" value of all AGTA's assets, most of which were owned by CBFC subject to AGTA's rights under their hire purchase and lease agreements. A valuation carried out on behalf of St George by Gray Eisdell & Timms Pty Ltd ("GET") had valued AGTA's assets at $965,535 as at 8 July 1992 on a "forced sale" basis. According to GET, the value on a "going concern" basis was $3,264,800, including approximately $2.5 million for the furnace.[5] 10 Mr Webb did not want to sell AGTA's business or assets. He hoped to retain a half interest in AGTA and sell the other half-interest for $2 million. St George permitted him to attempt to do so. A memorandum from Mr McDonald to St George on 25 January 1993 records a decision ".. to allow Webb more time, to finalise an equity partner." A memorandum from Mr McDonald dated 1 February 1993 and a St George memorandum dated 9 March 1993 contain statements to similar effect. 11 Unless Mr Webb could sell a half-interest in AGTA for a satisfactory price, a sale of AGTA's business as a "going concern" was plainly in the best interests of both GWI and St George. It was contrary to St George's own interests to damage or disregard GWI's interests, as GWI alleges occurred. It was in both GWI's and St George's interests for St George to recover as much as possible of the amount for which AGTA was indebted to it from the sale of AGTA's assets. That was in GWI's interest because it would reduce its liability as guarantor, and it was in St George's interests because GWI had effectively guaranteed only part of AGTA's liability to St George, namely, an amount equivalent to the value of GWI's North Parramatta property. The failure ultimately to sell AGTA's business on a "going concern" basis has resulted not only in GWI's loss of its North Parramatta property, which was sold by St George, but also in St George's failure to recover a substantial part of the amount of AGTA's indebtedness. The receivers, Mr McDonald and his partner, would also have benefited financially if AGTA's assets had been sold. 12 There were obstacles to a "going concern" sale, which depended on the cooperation of a number of parties who were in dispute. Some of the items in AGTA's hire purchase and lease agreements with CBFC were inadequately described and ownership was disputed. There was a further dispute between CBFC and Mr McDonald concerning whether or not the receivers were personally liable to CBFC for payments which fell due under AGTA's hire purchase and lease agreements during the receivership. Even if the furnace had not become a fixture, CBFC was concerned that its entry onto AGTA's leased premises to remove the furnace might constitute a trespass. In any event, the furnace could not be easily and inexpensively removed in the event of its repossession by CBFC or sale, and any prospective purchaser of the furnace was likely to require a further lease of the premises leased by AGTA from Sorepyk. GWI was suing Soerpyk for specific performance of a contract to purchase the property, but, even if GWI succeeded in that litigation, the premises could only be leased to a prospective purchaser of AGTA's business with Mr Webb's cooperation. 13 Mr McDonald and Mr Williams, an officer of CBFC, made arrangements to facilitate the sale of AGTA as a "going-concern". Letters dated 10 September and 12 October 1992 from Mr Williams and a letter dated 3 November 1992 from Mr McDonald confirmed that CBFC "[had] no objection to the sale of [AGTA] proceeding" but required that "sale proceeds … be held in trust pending confirmation of ownership of plant and equipment… ." Following an offer by Mr McDonald (with authority from St George)to pay CBFC less than what it was owed from a sale of AGTA's assets, a meeting was held on 12 November 1992 between Mr Webb, Mr McDonald (and an associate) and Mr Williams and two other CBFC officers. At or after the meeting, CBFC offered to accept more than Mr McDonald had offered but less than it was owed (the "$600,000 offer"). Newman J found that Mr McDonald accepted the $600,000 offer, which his Honour described as an offer by CBFC to "… accept $600,000, for all equipment governed by the three finance agreements in full and final satisfaction of their debt." 14 Neither party fully accepted the trial judge's findings with respect to the $600,000 offer. For example, it is common ground that CBFC's offer related to a sale of AGTA's assets on a "going concern" basis. 15 Other matters are disputed. A letter from Mr McDonald to St George on 12 November 1992 stated that CBFC's offer had been relayed to Mr Webb for his consideration. Mr Webb's evidence was that, on 12 or 13 November, Mr McDonald told him that he had accepted an offer from CBFC to accept $600,000 plus 50% of the difference between the sale price and $1.2 million up to the amount of AGTA's indebtedness to CBFC and that he would confirm his acceptance in writing. Mr McDonald did not accept the $600,000 offer in writing and there is no written agreement relating to the $600,000 offer. GWI submitted that Mr McDonald failed to accept the $600,000 offer and that the information which Mr McDonald gave Mr Webb concerning the terms of the $600,000 offer was inaccurate. 16 Difficulties continued after the $600,000 offer was made on 12 November 1992. There is no suggestion that any payment was made to CBFC after that time. Further, GWI did not challenge the trial judge's finding that "Mr Williams and others at CBFC during 1992 had formed views relating to Mr Webb, personally, AGTA and CBFC's relationship with either entity which was not favourable to them."[6] Although Mr Webb had access to sufficient funds to pay CBFC, he preferred not to do so. He sought to use his ability to obstruct a sale of GWI's assets to negotiate a financial outcome which was satisfactory to him and his companies. At least by the end of January 1993, CBFC was looking for a different solution from that which it had proposed in the $600,00 offer and was negotiating with Flat Glass Industries Pty Ltd ("Flat Glass"), a competitor of AGTA. A CBFC memorandum dated 25 January 1993 records that Flat Glass was "aware of the problems" which CBFC was having with Mr Webb. 17 St George also found Mr Webb difficult. For example, by October 1992 GWI had obtained an order in its specific performance action against Soerpyk which contingently entitled GWI to a transfer of the property at Wetherill Park which was leased by AGTA. Mr Webb used GWI's ability to control the future leasing of the property once it obtained ownership as a lever in his negotiations with CBFC and St George. By the end of October, Webb's position was that GWI would require a high rent for the premises and would not lease the premises at all unless St George released its mortgage over GWI's North Parramatta property. 18 Eventually, St George looked for a solution which did not involve Mr Webb. Negotiations were undertaken with Mr Kyprios, who controlled Soerpyk, who in early February 1993 was "apparently amenable" to a suggestion "re breaking the contract with Webb and would consider any offers we propose" and by 22 February had indicated that he would be "most commercial" in considering a lease of AGTA's premises. Nothing came of those negotiations. 19 In about February 1993, Mr Webb heard a rumour that CBFC was negotiating with a prospective purchaser for the sale and purchase of AGTA's plant and equipment. Later, Mr Webb heard that Flat Glass was the prospective purchaser. Mr Webb telephoned Mr McDonald about the rumour. Mr McDonald said that the agreement which he had made with CBFC consequent upon the $600,000 offer still applied although his acceptance of the $600,000 offer was not in writing. According to Mr Webb's evidence, Mr McDonald expressed confidence that that was sufficient, saying: "[CBFC] can't prove ownership. They are not going to sell … . If they do try and sell .., we'll sue." 20 Mr Webb subsequently telephoned Mr Williams who said that CBFC was not negotiating to sell AGTA's plant and equipment and that, to the best of his knowledge, CBFC's agreement with Mr McDonald consequent upon the $600,000 offer continued to apply. Although said to be troubled by Mr McDonald's omission to confirm his acceptance of the $600,000 offer in writing, Mr Webb was reluctant to ask Mr Williams to confirm in writing what he had told Mr Webb, who also did not write to Mr Williams to confirm their discussion. 21 According to Mr Webb's evidence, he remained unaware of the correct details of the $600,000 offer (or, as he believed, the agreement which had resulted from Mr McDonald's acceptance of that offer) because of the incorrect information which he had been given by Mr McDonald. 22 There was no communication of any kind between Mr McDonald and CBFC in the 4 months after 12 November 1992. An internal memorandum dated 9 March 1993 from St George's Credit Policy and Control Division to the Manager of the Lending Services Section of its parent company, Barclays Bank PLC in London, shows that St George then had in mind that a better bargain might be able to be struck with CBFC. That memorandum included the following passage: "We have also learned that CBFC - a lease finance company from which AGTA leases the furnace that forms the basis of the business cannot properly identify the assets that AGTA has leased. Accordingly the Receiver has ceased making payments to CBFC pending their provision of proof as to exactly what is leased. This has not been done by CBFC. The balance owing on the leases is AUD 1.2m. The receiver held discussions with CBFC as to the way forward and they have advised that they can identify the equipment properly but would accept AUD 600K in full settlement of the leases. Lease payments not made aggregate AUD244k, therefore it seems that CBFC are in a weaker position than is being stated." 23 On Friday, 12 March 1993, CBFC sold its rights under its hire purchase agreement with AGTA to Flat Glass for $640,000. 24 That afternoon, Flat Glass's employees and/or agents "raided AGTA's premises", [7] severed the cables to the furnace from a special electrical installation and removed essential computer equipment or parts. The furnace was rendered inoperative, paralysing the major section of AGTA's business. 25 The trial judge found that "… the raid [was] successfully carried out as far as the removal of the furnace was concerned.." and that "[f]ollowing the success of the raid, the business of AGTA continued on a vastly reduced basis for a couple of months before coming to an end." Neither finding is entirely accurate. Although the furnace could not be operated after 12 March 1993, part remained until it was removed by Flat Glass on 19 March. 26 Flat Glass' removal of the remainder of the furnace on 19 March was approved by Mr McDonald. Despite St George's general denial that Mr McDonald was its agent, it did not seem to dispute that it was its decision to allow Flat Glass to complete the removal of the furnace. Like many other matters, that decision was not adequately explained. 27 AGTA's residual business ceased on 2 April 1993, when Mr Webb prevented Mr McDonald and others from entering AGTA's premises. 28 On 11 March 1993, a day before CBFC and Flat Glass's precipitate actions, a deed had been entered into between St George, AGTA, GWI and Mr Webb which obliged GWI to lease AGTA's Wetherill Park premises to a purchaser of AGTA's plant and equipment at a rental which was to be independently determined. At the time, Mr Page was buoyed by recent good trading results and "reasonably confident" that AGTA could trade out of receivership. According to Mr Webb's evidence, he had been negotiating with a prospective purchaser. GWI submitted [8] that the events of 12 March 1993 had a "devastating effect". 29 However, in a draft letter dated 12 March 1993 which Mr McDonald did not send to St George, he had written that, although the amount of work had increased in February and March, AGTA's "trading position is precarious and closing of the business must be considered. The detriment of … trading at a loss must be weighed up against the benefits of possibly selling the business as a going concern." 30 Subsequently, Mr McDonald appeared more optimistic. In a letter to Flat Glass on 16 March 1993, he stated that its actions had caused "irreparable" damage to the business of AGTA. In a letter to CBFC dated 22 March 1993, he said that, until the events of 12 March, "[t]he future was looking brighter". In a report to St George dated 23 March 1993, Mr McDonald wrote: "It appeared that all was in readiness for the receivers to conclude the sale of the business as a going concern … The real disappointment arises from the fact that we were getting so close to achieving something that was so difficult. It has been suggested that the major security held by the bank is the North Parramatta property and obviously it is now time to take action to realise that property". 31 In a proceeding which it commenced against CBFC in the Commercial Division on 21 April 1993, St George's Amended Summons alleged that, as at 11 March 1993, "the Receivers had received an offer from a purchaser of [AGTA's] business for $1.2 million" [9] and that the events of 12 March 1993 "deprived [St George] of the opportunity to complete a sale of the business for $1.2 million" and caused it "loss in the sum of $600,000.00". [10] CBFC cross-claimed. 32 On 29 March 1993, less than 3 weeks after the events of 12 March and a few days before Mr Webb barred entry to AGTA's premises on 2 April 1993, St George served a notice of demand on GWI pursuant to its guarantee.

The litigation 33 On 5 April 1993, St George commenced proceedings in the Common Law Division against GWI, seeking possession of its North Parramatta property. GWI cross-claimed on a number of bases. Although GWI's cross-claim sought a determination that its guarantee had been discharged by the events which had occurred, St George's claim was determined prior to GWI's cross-claim without consideration of that question. 34 On 15 June 1994, Windeyer J made an order for possession of GWI's North Parramatta property in favour of St George. His Honour held that GWI had defaulted in its obligation to pay St George the amount which it had demanded, which included the amount of AGTA's indebtedness to St George which GWI had guaranteed. No appeal was brought from that judgment. 35 On 22 September 1994, Dowd J refused to restrain St George's sale of GWI's North Parramatta property, which was sold by auction on 23 September 1994 for $1.96 million. GWI does not now dispute that that was the market value. 36 Although the total which it has recovered is substantially less than the amount of AGTA's liability, St George accepts that it has no further claim against GWI because of its limited rights under GWI's mortgage and guarantee. 37 On 23 August 1999, Newman J dismissed GWI's cross-claim against St George with costs. The present appeal is brought by GWI from that judgment. 38 Newman J considered that the "central factual issue" was whether or not Mr McDonald accepted the $600,000 offer. His Honour held that Mr McDonald had done so. On the basis of that conclusion, his Honour expressed his reasons for dismissing GWI's cross-claim in the following passage: "Breach of common law duty

66 GWI claims that in breach of its duty the bank failed to make any proper or adequate arrangement, contractual or otherwise, with CBFC which would have avoided CBFC or an assignee from CBFC taking possession of the equipment; and complains of failure to comply with or enforce any such arrangement, contractual or otherwise, made with CBFC by recovering from the assignee Flat Glass the equipment seized in the break-in.

67 Central to the first allegation of breach of duty namely that the bank failed to make any proper arrangement which would have avoided CBFC or an assignee from taking possession of the equipment is the allegation that Mr McDonald did not accept the offer from CBFC of 12 November 1992.

68 I have found as a fact that he did. In so far then as this part of GWI's cross-claim depends upon Mr McDonald's failure to reach such an agreement the claim itself must fail. 69 Ancillary to this argument was that if there had been an oral acceptance by Mr McDonald of Mr Williams' oral offer, Mr McDonald was under a duty to confirm the agreement in writing. It is put that had that occurred CBFC would clearly have been deterred from taking steps to breach such an agreement.

70 However, as was properly conceded in the written submission put forward it is true that while written evidence of agreement goes to ease of enforcement and not enforceability. In these circumstance the duty being (should there by one) to reach an agreement once an agreement is reached there is no breach of duty in failing to document such agreement.

71 I should add that both these arguments depend upon an allegation that Mr McDonald was acting at all times as agent for the bank. While I have severe doubts as to whether this is correct, I have for the purposes of these reasons, accepted that this is so.

72 However, for those reasons I have advanced I am of the view that in any event this part of the claim must fail.

73 The second leg of GWI's claim is an allegation of failure to comply or enforce the agreement reached.

74 The bank commenced proceedings in the Commercial Division of this Court against CBFC on 21 April 1993. Those proceedings were based upon an allegation that CBFC breached the agreement entered into between Messrs McDonald and Williams of 12 November 1992.

75 That gave rise to not only a defence being filed on behalf of CBFC but a cross-claim in the sum of $319,095.78 based upon the use by the bank of the assets of AGTA from the time when Mr McDonald was appointed Receiver on 6 July 1992 to 12 March 1992.

76 As I have said during this time AGTA was in default in making payments under the hire purchase agreement involving the Tamglass furnace.

77 In the event Mr Taylor SC, having considered the valuation evidence flowing principally from Mr Gower (who gave evidence in these proceedings) concluded and advised the bank that "given the conclusions expressed in the preceding paragraph it is essential that the matter be settled."

78 The bank accepted senior counsel's advice and the matter was settled on proceedings that each party bear its own costs together with mutual release.

79 It was submitted on behalf of GWI to the extent that it was appropriate to go into settlement, counsel's advice assumed that the forced sale value put forward by Mr Gower, applied.

80 Even if senior counsel's advice was incorrect it is difficult to see how a commercial organisation could be said to be acting unreasonably if it acted upon advice of senior counsel. Let me say at once that I am not finding that Mr Taylor's advice was incorrect.

81 However, the nub of his advice being that on the valuation figures he had available to him there was little likely return from the proceedings. It is again almost impossible to see how one could conclude that the bank was acting unreasonably in accepting his advice.

82 A Mr Jackson who was the senior bank officer who finally gave the instruction to settle as suggested by senior counsel, when cross-examined as to his knowledge of the action, was insistent that what he did was to act upon senior counsel's advice.

83 For myself, again assuming that Mr McDonald was at all times acting as the bank's agent, I am of the view that the bank, in accepting counsel's advice to settle the action against CBFC as it did, was not in any breach of duty to GWI.

84 Accordingly the allegations based on breach of common law duty must fail.

85 Similar considerations apply to the allegation that the bank should have proceeded against Flat Glass.

The claim under s 52 of the Trade Practices Act 1974

86 Section 52(1) of the Trade Practices Act is in the following terms: "52(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

87 The nub of the argument here is that Mr Webb, having been misled by Mr McDonald as to the existence of the agreement of 12 November 1992, Mr Webb claims that having been misled by Mr McDonald he desisted from, in essence, paying out CBFC which had he done so would have obviated the assignment by CBFC to Flat Glass of the hire purchase agreement and thus would have enabled AGTA to keep trading with the consequent opportunity to sell the business on an on-going basis.

88 As I have found that in fact an agreement had been reached it follows that Mr McDonald did not mislead Mr Webb. On the evidence before me the only misleading of Mr Webb which occurred was by Mr Williams in the circumstances which I have set out above. The claim for damages under s 52 must accordingly fail.

89 The claim here is dependent upon a number of factors. In particular upon clause 7 of the deed entered into between the bank, GWI and Mr Webb himself and the company formally known as Parramatta Glass and Aluminium Pty Ltd (another Webb company) in which GWI agreed to lease the subject premises at Wetherill Park to whomsoever the Receiver might sell AGTA's business on an on-going basis.

90 Clause 7 is in the following terms: "... for so long as the business of AGTA is being conducted by the Receivers, `the Bank', will not take any action in respect of its security ... ." 91 It was put that as the Notice of Demand was served on 29 March 1993 and the summons seeking possession (which started these proceedings) was issued on 5 April 1993 the bank was in breach of clause 7 because the business was still being conducted by the Receiver.

92 Furthermore, it was alleged that the bank breached implied terms in the deed as follows: (a) would not take advantage of its own wrong in taking action in respect of the security;

(b) would do everything necessary on its part to enable GWI to have the benefit of the agreement; and

(c) had done and would do everything necessary to preserve the business as a going concern and permit its sale. The first two conditions are normally implied in contracts: Suttor v Gundouda (1950) 81 CLR 418 at 441; Graeme Webb Investments Pty Ltd v Soerpyk Pty Ltd (5.8.92, unreported, Hodgson J), Australis Media Holdings v Telstra Corp (1998) 43 NSWLR 104, Byrne v Australian Airlines (1995) 185 CLR at 448, Secured Income Real Estate (Aust) v St Martins Investments (1979) 144 CLR 596 at 607-608. The third implied term is really only a specific example of the second and is in any case maintainable by the business efficacy conditions referred to in Byrne at 441.

(d) The bank breached these terms by failing to do everything necessary to preserve AGTA's business as a going concern.

93 Furthermore, it was submitted that the bank was in breach of clause 37 of the guarantee document to which I have already made reference.

94 The argument was put as follows: (a) GWI is discharged from its guarantee by reason of the bank's breach of clause 37 of the guarantee. That breach was constituted by the contravention of clause 37 in its failure to comply with the condition precedent requiring a demand for repayment of the "whole or any part of the Secured Moneys". "Secured Moneys" are defined in clause 4 of the guarantee and are essentially limited to the moneys in fact owing or which may become payable to the bank.

95 A number of arguments were advanced in support of these propositions. However, counsel for GWI realised that Windeyer J's judgment granting possession of the North Parramatta premises was a stumbling block for the claims so advanced.

96 Reliance was placed upon a statement in the interlocutory judgment delivered by Dowd J on 22 September 1994 in which Dowd J observed: "the defendant (GWI) is not precluded from bringing any damages claim, including a claim that the plaintiff wrongfully sold the property if it be ultimately held the plaintiff had no power to enforce its security."

97 Accordingly it was put that no res judicata could be raised to defeat the claim under this head because Dowd J had expressly permitted GWI to argue absence of power by way of the very cross-claim with which I am dealing.

98 However, Windeyer J in a careful judgment had determined that: (a) the North Parramatta property was subject to a valued and enforceable mortgage;

(b) that default had been established under the mortgage;

(d) there was no other legal impediment to the bank obtaining possession of the property.

99 In essence what Windeyer J decided that the bank had a right to enforce its mortgage security. To uphold the matters raised by GWI under this head of claim would result in my delivering a judgment which was inconsistent with Windeyer J's judgment.

100 A primary judge cannot sit in judgment on a final judgment of another primary judge of the court. That is the function of the Court of Appeal.

101 Accordingly I am of the view that Windeyer J's judgment is determinative of the issues raised under this head and accordingly they must fail.

102 Once again GWI relies upon the representation made by Mr McDonald to him as to the agreement reached on 12 November 1992. For reasons I have already given I have found that in fact such an agreement had been reached. Accordingly no misrepresentation occurred. That being so the claim under this head must fail.

103 As I have said earlier in these reasons the central factual issue in this matter revolved around the allegation that Mr McDonald had not concluded an agreement with Mr Williams on 12 November 1992. Because I have found that in fact he did and that any misrepresentation which flowed came not from Mr McDonald or the bank but from CBFC through Mr Williams, many of the arguments advanced which include detailed submissions as to the law, must fail.

104 I have also held that Windeyer J's judgment as to the bank's right to possession is not one that can be effectively tested before a judge alone. Again, this finding which is in fact in the present proceedings of itself negates many matters of law raised by GWI. It is for these reasons I have not found it necessary to deal with many of the well presented arguments of law advanced on behalf of GWI.

105 It follows from what I have said that I am of the view that the cross-claim must fail.

106 Accordingly there will be judgment for the cross-defendant plus costs."

The issues in this Court 39 Broadly stated, grounds 1 to 8 of GWI's notice of appeal challenge Newman J's conclusion that Mr McDonald accepted the $600,000 offer. The remaining grounds are as follows: "9. His Honour erred in finding that there could be no breach of duty on the part of the Respondent, in the circumstances, in failing to document an agreement once an agreement was found to have been reached. 10. His Honour erred in his consideration of the Respondent's duty to enforce the agreement by failing to consider its obligation to take steps to recover the leased equipment rather than simply sue for damages for breach of contract. 11. His Honour erred in failing to find that McDonald had engaged in misleading or deceptive conduct. 12. His Honour erred in finding that there had been no breach of the Deed of 11 March 1993. 13. His Honour erred in finding that there had been no breach of clause 37 of the Guarantee. [11] 14. His Honour erred in his application of the principles of res judicata and by determining that the decision of Windeyer J precluded the Appellant's arguments based upon breach of contract and discharge of the guarantee." 40 Again broadly stated, St George supported Newman J's judgment and reasons, including his Honour's conclusion that Mr McDonald had accepted the $600,000 offer and thereby concluded a binding, enforceable agreement. St George also filed a notice of contention in the following terms: "1. The cause of any loss suffered by the Appellant was not anything done or omitted to be done by the Receivers or the Respondent, rather it was caused or contributed to by the Appellant: (a) failing to use available resources to pay the debt to CBFC limited; (b) with full knowledge of the consequences of so doing, conducting its affairs in such a way as to accept the risk of repossession of the goods. 2. The provisions of clauses 25(g) and 25(o) of the Guarantee preclude the Appellant from bringing and maintaining the claim against the Respondent. 3. In the circumstances as found by His Honour, the Respondent owed no duty to the Appellant to reach any agreement with CBFC Limited. 4. For the purpose of the conduct alleged by the Appellant, the Receiver was not acting as agent for the Respondent and, accordingly, the Respondent is not liable for any act or default by the Receiver. 5. The proper method to be adopted when valuing the glass manufacturing business carried on by Advanced Glass Technologies of Australia Pty Limited was not the "going concern" basis but rather the "asset sale" basis, on which basis the Appellant failed to demonstrate any loss or damage at all." 41 For reasons which were not explained, neither GWI nor St George called some obviously important witnesses. There is no direct evidence concerning much of what occurred or why various actions were taken or not taken and little, if any, evidence of any kind with respect to issues which are material to causation and damages. The parties' arguments largely depend on voluminous but incomplete documentation. The trial judge's approach enabled his Honour to decide the case without making detailed, or on some issues any, factual findings in relation to most of the multiple bases on which GWI advanced its claim and without giving any indication of the reliability of the evidence which was given by those witnesses who were called. Consideration of GWI's numerous claims is exceptionally difficult in such circumstances, and the outcome is potentially unsatisfactory. It seems to have been at least implicitly accepted by the parties in this Court that the Court cannot award GWI damages or compensation. There must be a new trial if GWI has established a breach for which St George remains liable notwithstanding Windeyer J's judgment. Otherwise, this appeal must be dismissed.

GWI's claim 42 GWI's protean claim can be broadly divided into 4 parts:

(a) AGTA's assets would have been sold on a "going concern" basis for sufficient to discharge its indebtedness to St George, which then would not have sold GWI's North Parramatta property, but for:

(i) breaches by St George of: · common law and/or equitable duties which it had to GWI as guarantor of AGTA's debt to St George; [12] · "an implied term of [GWI's] mortgage and guarantee that [St George] would act reasonably and not expose GWI to any liability arising from default of St George or its agent"; [13] · s52 of the Trade Practices Act 1974 (Cth); and/or

(ii) breaches of his duty as receiver by Mr McDonald for which St George is legally liable.

(b) GWI's Trade Practices Act claim involved the additional proposition that, if Mr Webb had been correctly informed, he or one of the companies which he controlled would have purchased CBFC's rights. GWI submitted that, even if CBFC would initially not have accepted $600,000 in full satisfaction from Mr Webb or one of his companies, it would have done so by the time it sold to Flat Glass for $640,000. Alternatively, GWI submitted that Mr Webb or one of his companies would have paid more than $600,000 if that had been necessary to ensure that AGTA's business could be sold on a "going concern" basis.

(c) St George breached clause 7 of the Deed dated 11 March 1993 between St George, GWI, PGA and Mr Webb when St George enforced its mortgage over GWI's North Parramatta property.

(d) St George's breaches of duty and/or of the Trade Practices Act and/or its enforcement of its mortgage over GWI's North Parramatta property in breach of clause 7 of the Deed of 11 March 1993 also breached implied terms in the Deed that St George: · "would not take advantage of its own wrong in taking action in respect of the security", · "would do everything necessary on its part to enable GWI to have the benefit of the security"; and · "had done and would do everything necessary to preserve the sale of the business as a going concern and permit its sale". [14] 43 GWI's claim that AGTA's assets would have been sold on a "going concern" basis but for breaches by St George for which it is liable was advanced on alternative bases which depended on whether or not Mr McDonald accepted the $600,000 offer. Both bases involved the premise that Mr McDonald's acceptance of the $600,000 offer would have resulted in a variation of AGTA's hire purchase agreement with CBFC. 44 GWI acknowledged that CBFC would have remained the owner of the furnace even if the $600,000 offer had been accepted, that Flat Glass acquired CBFC's rights, including its property rights, on 12 March 1993, and that Flat Glass was entitled to remove the furnace if Mr McDonald had not accepted the $600,000 offer. However, GWI submitted that, if the $600,000 offer had been accepted and the hire purchase agreement varied, neither CBFC nor Flat Glass, as assignee from CBFC, would have been entitled to remove the furnace because AGTA would not have been in breach of the varied hire purchase agreement on 12 March 1993. [15] The events of that day would not have occurred, at least if Mr McDonald had confirmed his acceptance in writing. GWI's alternative submission was that the property taken by Flat Glass could, and should, have been recovered by St George. Its omission to recover the property taken by Flat Glass and its subsequent permission to Flat Glass to remove the remainder of the furnace were breaches of duty. [16] If the furnace had not been removed or had been recovered, AGTA's business could and would have been sold as a "going concern." 45 Although GWI submitted that Mr McDonald had not accepted the $600,000 offer, its alternative claim that St George should have recovered the property taken by Flat Glass and should not have given it permission to remove the remainder of the furnace was founded on the trial judge's finding that Mr McDonald had accepted the $600,000 offer. Nonetheless, St George attempted to support that finding. It submitted that, although Mr McDonald accepted the $600,000 offer (on behalf of AGTA) and varied AGTA's hire purchase agreement with CBFC and the actions of CBFC and Flat Glass on 12 March 1993 breached that agreement, St George had no duty to litigate in an attempt either to recover the property which Flat Glass had removed or to refuse it permission to remove the remainder of the furnace. 46 St George relied upon both commercial and legal obstacles which it had confronted after the Flat Glass raid to support the decisions which were taken. Reference was made not only to legal advice which it had received which caused it to abandon its legal proceeding against CBFC but also to the damage which Flat Glass' removal of AGTA's property had caused to its business and the improbability that AGTA's business could be restored, especially after the delay which litigation would probably have involved. It was submitted that GWI had not established that litigation by St George would have been successful and economically justified, and, at least by implication, that even more clearly it had not been established that St George's decisions were unreasonable. 47 Although GWI contested St George's assertions, there is no suggestion that it ever requested St George to assign to it AGTA's rights of action against CBFC and/or Flat Glass (which were subject to AGTA's charge in favour of St George) or offered an indemnity to the liquidators of AGTA (which was effectively left without assets) to pursue a claim against CBFC and/or Flat Glass. 48 Notwithstanding GWI's premise that Mr McDonald's acceptance of the $600,000 offer would have resulted in a variation of AGTA's hire purchase agreement with CBFC, GWI argued that Mr McDonald was St George's, not AGTA's, agent in his negotiations with CBFC. Grounds 1 to 11 [17] of GWI's notice of appeal all proceed on the basis that Mr McDonald was the agent for St George and that his acceptance of the $600,000 offer would have resulted in an agreement between CBFC and St George, not AGTA. 49 For example, ground 1 asserts that the trial judge "… erred in finding that an agreement was concluded between CBFC and [St George] on 12 November 1992". His Honour did not make that finding. The material finding was that Mr McDonald (not St George) accepted the $600,000 offer. Further, the trial judge did not, as is stated in para. 62 of GWI's written submissions, make "a finding that the receivers were [St George's] agent." On the contrary, his Honour said that he would make an assumption in GWI's favour, but he had "severe doubts" as to whether "Mr McDonald was acting … as agent for [St George]." 50 As appears from ground 11 of GWI's notice of appeal, its Trade Practices Act claim [18] is likewise based on the proposition that Mr McDonald was St George's agent when he allegedly misstated the terms of the $600,000 offer to Mr Webb and misinformed Mr Webb that he had accepted the $600,000 offer and initially misinformed Mr Webb that he had accepted the offer in writing.

St George's alleged breaches of implied contractual terms 51 In an effort to minimise the confusion which permeated the argument on GWI's overlapping and inconsistent claims, some preliminary observations are desirable in relation to its allegations that St George breached not only its duty to GWI but also terms implied into its contractual relationship with GWI. 52 St George denied that it had breached its duty to GWI. It also raised other defences, including estoppel on the basis of Windeyer J's judgment. However, it did not deny that a creditor owes certain duties to a surety (although it disputed the nature and extent of those duties) or that the surety is entitled to damages or compensation if it is caused loss by the creditor's breach of duty. 53 In the circumstances, GWI's argument that St George also breached implied terms in their contractual relationship is an unnecessary complication. Even if the terms which GWI submitted should be implied are consistent with the express provisions of clauses 25(g) and (o) of its guarantee (which St George relied on in its notice of contention) and otherwise meet the legal requirements for the implication of a term into a contract, [19] the source of the implied terms for which GWI contended is not the parties' presumed intention in order to give business efficacy to their contract but St George's legal duty to GWI. [20] There is no basis for a conclusion that St George breached implied contractual terms if it did not breach its duty to GWI. Further, for present purposes, there is no other practical distinction between GWI's claims that St George breached its duty and GWI's claims that St George breached implied contractual terms; e.g., in the measure of damages or the applicable limitation period. 54 In the circumstances, it is unnecessary to consider GWI's claim against St George for breaches of implied contractual terms in addition to GWI's claim for breaches of duty.

Mr McDonald's agency 55 The instrument by which St George appointed the receivers and managers provided that they were to be AGTA's agent, "… as provided by the Charge …". St George's power to appoint a receiver was contained in clause 11 of the Charge, which included the following subclauses: "(5) Subject to clause 11(6), a Receiver appointed by the Bank shall be the agent of the Company and the Company shall be solely responsible for anything done or not done by the Receiver and for the Receivers remuneration. This clause 11(5) shall cease to apply if the Bank notifies the Company in writing that the Receiver is to act as the agent of the Bank.

(6) To the extent that a Receiver's power and authority to act as agent of the Company is restricted by the commencement of winding-up of the Company, the Receiver shall be the agent of the Bank."

The intent of those provisions was to maintain the relationship of principal and agent between AGTA and Mr McDonald so far as that was possible after AGTA went into liquidation, and to the extent to which that was not possible to substitute St George as Mr McDonald's principal. 56 It was common ground that the material events occurred before s420C of the Corporations Law came into effect on 23 June 1993. GWI submitted that AGTA's liquidation terminated Mr McDonald's agency for AGTA and that ".. his continuation of [AGTA's] business thereafter can be justified only as agent of [St George]..." Similar questions have been discussed in a number of cases since the dissenting judgment of Rigby LJ was upheld in the House of Lords in Gosling v Gaskell. [21] 57 Compulsory winding-up affects both the powers of a receiver and the agency relationship between the receiver and the corporation in receivership. After compulsory winding-up, a receiver continues to have powers, including powers which can be exercised in the name of the corporation in receivership and liquidation. Although a receiver cannot incur liabilities which are enforceable against the company in liquidation or its assets, recent decisions in this country, [22] including decisions of this Court [23]and the Full Federal Court, [24] establish that a receiver's powers after compulsory liquidation include power to carry on the company's business incidentally to the beneficial disposal of its assets and that a receiver continues to have a limited agency on behalf of the company in so far as such an agency is compatible with the statutory winding-up scheme. 58 Mr McDonald carried on AGTA's business incidentally to the beneficial disposal of its assets, and, in particular, in an effort to sell its business as a "going concern". That was consistent with his continuing as AGTA's agent in accordance with its charge to St George. GWI's argument that Mr McDonald ceased to be AGTA's agent and became St George's agent for the purpose of realising AGTA's assets and continuing its business for that purpose when its compulsory winding up commenced should be rejected. 59 In forming that view, I have not overlooked the circumstance, strongly relied on by GWI for this purpose, that, after Flat Glass removed the furnace, St George sued CBFC in the Commercial Division for damages for breach of contract, alleging that, after AGTA went into liquidation, Mr McDonald was the agent for St George and that on 12 November 1992 an agreement was made between CBFC and Mr McDonald as St George's agent which CBFC breached by its transaction with Flat Glass. Even if, as GWI argued, St George's allegations in its (unverified) Summons and Defence to CBFC's Cross-Claim are evidence which is relevant to the question of whether Mr McDonald's principal was AGTA or St George, such allegations of mixed fact and law, probably based upon the pleader's opinion with respect to clauses 11(5) and (6) of AGTA's charge in favour of St George, are of little, if any probative value. 60 The conclusion that Mr McDonald did not become St George's agent but continued to be AGTA's agent for the purpose of realising its assets and continuing its business for that purpose notwithstanding its liquidation does not necessarily mean that St George is immune from any liability to GWI by reference to Mr McDonald's conduct. Authority suggests that, although a receiver is the agent of the debtor, a secured creditor is liable to a surety for conduct of the receiver which was authorised by the creditor which conflicts with the secured creditor's duty to the surety and for breaches of the receiver's duty to the surety which are directed by the secured creditor. [25] It is unnecessary on this occasion to explore the judicial basis for these principles or their precise context.

Trade Practices Act 61 Likewise, it is not a precondition to St George's liability to GWI for a breach of s52 of the Trade Practices Act by reference to Mr McDonald's conduct that he acted as St George's agent. The authorities indicate that s84(2) of that Act has a wide, non-exhaustive operation which is not limited by general law notions of vicarious liability. Conduct engaged in by a receiver with the authority of a secured creditor which is a corporation might well constitute conduct of the secured creditor by virtue of s84(2). However, there is no evidence that St George authorised, or even had any knowledge of, any misstatements by Mr McDonald to Mr Webb. GWI's Trade Practices Act claim should be rejected.

Acceptance of the $600,000 offer 62 The conclusion that Mr McDonald continued to be AGTA's agent for material purposes after it was ordered to be wound up supports, and indeed is needed for, GWI's contention that his acceptance of the $600,000 offer would have resulted in a variation of AGTA's hire purchase agreement with CBFC. Consistently with its denial that Mr McDonald was its agent, that consequence was conceded by St George, which also argued that Mr McDonald accepted the $600,000 offer. That was disputed by GWI. 63 The trial judge's conclusion on what his Honour described as the "central factual issue" was that Mr McDonald accepted the $600,000 offer. His Honour considered that a file note supported his finding, but in this Court St George was unable to point to any file note which does so. It is possible that his Honour had in mind a file note written by a CBFC employee subsequently to the Flat Glass' raid which recorded a statement by Mr Williams to a police officer on 15 March 1993 that there had been an agreement 4 months earlier but it was now null and void. The CBFC employee who wrote that file note did not give evidence. His or her interpretation of a conversation in which reference to what had been agreed might mean either a legal contract or a commercial arrangement is of little, if any, weight. 64 St George also relied on passages in letters dated 27 November 1992 from Mr McDonald to St George and 15 December 1992 from Mr McDonald to the solicitors acting for St George and the receivers. The first of those letters stated that CBFC had "… agreed to accept the payout figure on all financing arrangements of $600,000". The second letter stated: "CBFC has agreed to settle all claims against the company for $600,000. This agreement was reached some weeks ago and CBFC has indicated that they would like the matter resolved as quickly as possible." 65 However, (in the circumstances self-serving) references to what had been "agreed" and to the "agreement" which had been reached were not conclusive evidence that a legally binding contract had been made. Shortly after they had received the second of those letters, the solicitors wrote saying that Mr McDonald proposed to reach agreement with CBFC. I will deal below with other evidence in St George's internal documents which indicates that the $600,000 offer was not accepted. 66 There is no other evidence that the $600,000 offer was accepted except:

(a) Mr McDonald's assertion in a letter to Mr Williams dated 22 March 1993, i.e. after the furnace had been removed by Flat Glass, that Mr McDonald had left a telephone message for Mr Williams "late on 12 November 1992 …stating that 'the offer is acceptable'"; and

(b) the statements made to Mr Webb by Mr McDonald and Mr Williams respectively in February 1993 that there was an agreement which continued to apply. 67 The February statements carry little, if any, weight for this purpose. The trial judge held that Mr Williams' object was to deceive Mr Webb while CBFC pursued its negotiations with Flat Glass and Mr Williams subsequently denied that any agreement had been made. Mr McDonald's statement, like his assertion in his letter of 22 March 1993 to Mr Williams, was plainly unreliable, particularly when Mr McDonald did not give evidence. On the evidence, neither Mr McDonald nor St George seems to have known the terms of the $600,000 offer which St George contends he accepted. A number of different versions of the $600,000 offer appear at different places in the documentary evidence relating to the period following 12 November 1992. 68 Moreover, there is persuasive evidence that the $600,000 offer was not accepted, although acceptance was authorised and even intended if and when Mr McDonald considered it appropriate. Both Mr McDonald's statement to Mr Webb in February 1993 that "[CBFC] can't prove ownership. They are not going to sell..", and the statement in St George's internal memorandum dated 9 March 1993, that "… it seems that CBFC are in a weaker position than is being stated" suggest that it was considered that CBFC was unlikely to withdraw the $600,000 offer or act on any different basis because of the difficulties which it faced and that an arrangement more favourable to AGTA, and derivatively St George (and GWI), might be able to be negotiated with CBFC. In contrast to the agreement which had been made in September 1992 and acknowledged in correspondence in October and November that year, there was no written record of an acceptance of the $600,000 offer or even confirming its terms. Mr McDonald and Mr Williams did not communicate between 12 November 1992 and 12 March 1993. 69 Mr Webb had similarly attempted to obtain a more favourable financial outcome than the $600,000 offer in that period. Except for the brief period after Mr Webb heard the rumour that CBFC was negotiating with a prospective purchaser until his concerns were allayed by Mr Williams, all other parties seem to have assumed that CBFC was anxious to obtain $600,000 from the sale of AGTA's assets on a "going concern" basis. No-one anticipated the pre-emptive strike which paralysed GWI's business on 12 March 1993. 70 Neither McDonald, Williams, any employee of St George nor any other person who might have given material evidence was called. The trial judge recognized that he should infer that there was no evidence which might have been given which would support St George's contention that the $600,000 offer was accepted. Nonetheless, his Honour found that that had occurred. In my opinion, that finding, which was not based on an assessment of any witness's credibility, is contrary to the evidence and cannot stand. 71 In the circumstances, it is unnecessary to consider either the purpose or the strength of GWI's argument that any agreement reached by Mr McDonald's acceptance of the $600,000 offer would have been void for uncertainty.

Mr McDonald's omission to accept the $600,000 offer and confirm his acceptance in writing 72 GWI's claim that AGTA's assets should have been sold on a "going concern" basis falls to be determined on the footing that Mr McDonald:

(b) was not St George's agent. 73 Those conclusions leave no foundation for GWI's claims that the property taken by Flat Glass on 12 March 1993 could and should have been recovered by St George and that Flat Glass should not have been permitted to remove the remainder of the furnace. GWI did not argue that AGTA was not in default, or that Flat Glass was not entitled to remove the furnace, if the $600,000 offer was not accepted and a variation effected to the hire purchase agreement between AGTA and CBFC. 74 GWI alternatively argued that St George is liable because Mr McDonald should have accepted the $600,000 offer and confirmed his acceptance in writing (and made an agreement which was sufficiently certain to be enforceable). 75 As GWI submitted, it is probable that Mr McDonald sought St George's authority to accept the $600,000 offer. However, GWI did not establish that St George instructed Mr McDonald not to accept the $600,000 offer or not to confirm his acceptance in writing or that St George withheld its authorisation from Mr McDonald. On the contrary, evidence to which reference has been made which supports the conclusion that Mr McDonald did not accept the $600,000 offer also suggests that St George left Mr McDonald with a discretion either to accept the $600,000 offer or to try to negotiate a more favourable arrangement. 76 GWI argued that St George's omission to ensure that Mr McDonald accepted the $600,000 offer on behalf of AGTA and confirmed his acceptance in writing breached its duty to GWI. [26] GWI submitted that St George's omission breached both its common law duty to take reasonable care and its equitable duty, which was variously formulated; for example, "reckless", "unconscionable", and a "sacrifice" of GWI's interest as surety. As earlier noted, because of its limited recourse against GWI, St George had the same interest as GWI (and AGTA and Mr McDonald) in maximising the amount obtained from the sale of AGTA's assets. 77 St George denied any breach and submitted that GWI cannot succeed because, as Newman J held, [27] its claims are inconsistent with Windeyer J's judgment. In addition paragraph 2 of St George's notice of contention asserts that "[t]he provisions of clauses 25(g) and 25(o) of the Guarantee preclude [GWI] from bringing and maintaining the claim against [St George]." 78 Clauses 25(g) and (o) of GWI's guarantee provide: 25. PRESERVATION OF OBLIGOR'S LIABILITY The liability of … the Obligor under this Agreement shall not be discharged or affected by: … (g) The Bank abandoning, releasing, realising, discharging, exchanging, varying, or dealing in any other way with the whole or any part of any security … which it holds now or in the future to secure the secured monies. …. (o) Any other event, act or omission whereby the obligor's liability to the Bank would, but for this provision, have been discharged or affected." 79 GWI submitted that, on their proper construction, those clauses do not affect its claims. It argued that, at best for St George, the clauses are ambiguous and that the ambiguity should be resolved in its favour. Reliance was placed on Ankar Pty Ltd v National Westminster Finance (Australia) Ltd. [28] GWI also relied on clause 37 of the guarantee, which, it submitted, "unambiguously excludes clauses 25(g) and (o)" (or, presumably, materially restricts their operation). GWI further submitted that:

(a) clauses 25(g) and (o) of the guarantee "should be construed as inapplicable to the circumstances of the present case" because they are "silent as to any claim against [St George] for damages or other remedies .. where the causes of action are based on breaches of duty by a receiver and manager appointed by [St George] for whom [it] is liable on agency principles, and breach of contract by [St George];

(b) "… clause 25(g) is also inapplicable because GWI's causes of action are not based simply on [St George] dealing with the security but arise from … breaches of duty and contract; and

(c) ".. it is not open to [St George] to rely on .. clauses [25(g) and (o)] so far as concerns the allegation … that it was under a duty to act in good faith and not sacrifice the interests of GWI because it has not pleaded [those clauses] as a defence [to that allegation"].

St George's duty to GWI 80 GWI submitted that a creditor has both a common law duty to take reasonable care to ensure that its conduct does not cause loss to the surety and an equitable duty, which GWI described in different terms at different points of its argument. St George acknowledged that it had a duty to GWI, but disputed GWI's submissions concerning the nature and extent of its duty to GWI and denied that it had breached its duty. 81 The decisions to which reference is later made are inconsistent with the existence of a common law duty of care. It is sufficient, in the circumstances, to quote the final paragraph in Part II, Chapter 8 of O'Donovan and Phillips, The Modern Contract of Guarantee. [29] The authors state: [30] "The existence of any … common law duty of care has been rejected, however, by the Privy Council in China & South Sea Bank Ltd v Tan , (1990) 1 AC 536, in the context of the creditor's duty when realising a security held for the enforcement of the principal obligation. The same view has been expressed in Australia, and, in the authors' view, if the guarantor is to be discharged, it must be by the application of equitable principles outlined in this chapter." 82 While references to a creditor's "duty" to a surety are not unusual, [31] they can cause confusion. A creditor's breach of its obligations to a surety does not necessarily cause damage to a surety. The primary legal consequence of a creditor's "breach of duty" to a surety is a discharge of the surety or a reduction in its liability to the creditor to the extent that the value of the surety's rights against the principal debtor if the surety pays the creditor has been impaired as a result of the breach. [32] It is unnecessary to explore the reason for this beyond noting that, subject to the terms of any contract between it and the creditor, a surety is entitled by subrogation to have the creditor's rights against the principal debtor assigned to it to the extent of the sum paid by the surety in discharge of the principal debtor's obligation. [33] 83 GWI's claims against St George proceeded on the footing that a surety who was entitled to be credited with a deficiency as a result of a creditor's "breach of duty" is entitled to recover the amount of any overpayment to the creditor from it as damages or compensation for those breaches of duty. GWI submitted that, as a result of St George's breaches of duty, GWI was entitled to a reduction in its liability to St George equivalent to the value of AGTAs assets on a "going concern" basis because such a sale would have been made but for St George's breaches. Since, according to GWI, the value of AGTA's assets on a "going concern" basis exceeded its liability to St George, a sale on that basis would have eliminated GWI's liability. GWI submitted that it is therefore entitled to damages compensation equivalent to the value of its North Parramatta property, which St George sold (wrongly, on this hypothesis). 84 St George did not dispute that GWI is entitled to damages or compensation if, as a result of St George's breaches, GWI overpaid St George, but it denied that it had breached its duty or that GWI is entitled to any damages or compensation. 85 The principles which determine whether a surety is entitled in a reduction of its liability are the subject of some uncertainty. For example, in O'Donovan and Phillips, The Modern Contract of Guarantee, [34] the authors state: [35] "In Black v Ottoman Bank , ((1862) 15 Moo PCC 472; 15 ER 573), … the Privy Council stated the general principle that a surety would be discharged if there has been 'some positive act done by [the creditor] to the prejudice of the surety or such degree of negligence, as in the language of Vice Chancellor in Dawson v Lawes ( (1854) 23 LJCh 434 at 441). "'to imply connivance and amount to fraud'" ((1862) 15 Moo PCC 472 at 483; 15 ER 573 at 577). … . Fraud, in this context, has been defined as conduct which is unfair to a surety ( Mayor of Durham v Fowler (1889) 22 QBD 394 at 419 per Denman J)." … … despite the apparent width of the principle it is difficult to find any clear examples in England or Australia of the discharge of a guarantor on this basis. There are three classes of cases. The first is where one of the bases for the decision is that the creditor must not act to the prejudice of the guarantor, but the fact that the guarantor has been discharged can be explained adequately on other well established grounds. The second is where the principle in Black v Ottoman Bank has apparently been recognised, but its application has been negated on the facts. Finally, there are cases which have cast doubt on the principle either by expressly disapproving of it or by refusing to apply or even analyse the principle even though the facts of the case might have justified its application. … The application of the principle in Black v Ottoman Bank has invariably been denied in cases falling within the second category, because the act of the creditor was held not to be a positive act but merely an act of negligence ( Guardians of Mansfield Union v Wright (1882) 9 QBD 683 esp at 688 per Jessel MR) or passive inactivity ( Mayor of Durham v Fowler (1889) 22 QBD 394 esp at 420 per Denman J). ….."

The subsequent discussion [36] discusses a number of cases which the authors consider fall within "the second category," and then the "final class of cases". [37] 86 With one exception, the breaches alleged by GWI against St George related to inactivity, not active conduct. The only positive action by McDonald and/or St George which GWI alleged constituted a breach of duty was the permission granted to Flat Glass to remove the remainder of the furnace on 19 March 1993. However, GWI did not submit that that was a breach if, as I have concluded, Mr McDonald did not accept the $600,000 offer. 87 Since the principle in Black v Ottoman Bank [38] therefore does not apply, the principle upon which GWI must rely in the present case is that stated by Dixon J in Williams v Frayne [39] and by Brennan J, with the concurrence of Gibbs CJ, Murphy and Wilson JJ in Buckeridge v Mercantile Credits Ltd. [40] Brennan J said: [41] "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." 88 The principle was expressed in somewhat different terms in Buckeridge [42] by Aickin J, with whom Gibbs CJ and Wilson J also agreed. Aickin J said: [43] "Another aspect of the argument for the appellants which calls for separate comment was that the respondent had prejudiced the value to them of the mortgage, to the benefit of which they were entitled, and that their liability to the respondent was thereby discharged to the extent that the acts done by the respondent reduced the amount to which they should be credited by reason of the sale of the property. They relied on the proposition stated by Lord Watson in Taylor v Bank of New South Wales (1886) 11 App Cas. 596 at p 603); 'The present case would, in such event, have been within the rule of Pearl v Deakin ((1857 24 Beav. 186; 1 D.G.J. 461 [44 E.R. 802]), where 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 .' Pearl v Deakin was a case in which the creditor destroyed the security by the exercise of a paramount right, in that case by distraining for rent furniture mortgaged to secure the amount guaranteed, and it was held that the surety was discharged pro tanto. It is not clear whether such pro tanto discharge is available only when there is wilful neglect or default; see Rowlatt [ Rowlatt on Principle and Surety , 3rd ed. (1936)], at pp 289-291; Carter v White (1883) 25 Ch D. 66, at 670." 89 The uncertainty alluded to by Aickin J in the last sentence in the passage quoted is reflected in the cases discussed in O'Donovan and Phillips, The Modern Contract of Guarantee, [44] two points are clearly established. 90 First a surety's equitable rights are subject to the terms of the contract between the creditor and the surety. [45] 91 Second, a creditor does not have a general obligation to act in the best interests of a surety. 92 In Mailman v Challenge Bank Ltd, [46] the appellants had guaranteed a proportion of the money owed to the respondent by a company which was also secured by a mortgage over property owned by the company. After default by the company, the respondent went into possession of the mortgaged property, but did not sell it although the value of the property was falling and the appellants had requested the respondent to sell. The respondent sued the appellants, who asserted that the respondent had breached a duty to sell the property. That proposition was rejected by this Court. 93 Sheller JA, with whom Gleeson CJ and Handley JA agreed, said: [47] "The appellants recognised that the decision of the Privy Council in China and South Sea Bank Ltd v Tan Soon Gin (1990) 1 AC 536 stood largely if not entirely against their submission. In that case the creditor made successful application for summary judgment against a guarantor which sought to rely upon a defence that shares mortgaged by the principal debtor had substantially declined in value between the date of the mortgage, the date when the principal sum became due and the date when proceedings were commenced against the guarantor to the point where they were worthless. The guarantor alleged that the creditor knew or ought to have known of the declining value of the shares and should have sold them before they became worthless. The Privy Council restored the order of the court of first instance giving summary judgment against the surety for the principal and interest secured by the guarantee. In the course of doing so Lord Templeman who delivered the judgment said at 545: 'In the present case the security was neither surrendered nor lost nor imperfect nor altered in condition by reason of what was done by the creditor. The creditor had three sources of repayment. The creditor could sue the debtor, sell the mortgage securities or sue the surety. All these remedies could be exercised at any time or times simultaneously or contemporaneously or successively or not at all. If the creditor chose to sue the surety and not pursue any other remedy, the creditor on being paid in full was bound to assign the mortgaged securities to the surety. If the creditor chose to exercise his power of sale over the mortgage security he must sell for the current market value but the creditor must decide in his own interest if and when he should sell. The creditor does not become a trustee of the mortgaged securities and the power of sale for the surety unless and until the creditor is paid in full and the surety, having paid the whole of the debt is entitled to a transfer of the mortgage securities to procure recovery of the whole or part of the sum he has paid to the creditor. The creditor is not obliged to do anything. If the creditor does nothing and the debtor declines into bankruptcy the mortgaged securities become valueless and the surety decamps abroad, the creditor loses money. If disaster strikes the debtor and the mortgaged securities but the surety remains capable of repaying the debt then the creditor loses nothing. The surety contracts to pay if the debtor does not pay and the surety is bound by his contract. If the surety, perhaps less indolent or less well protected than the creditor, is worried that the mortgaged securities may decline in value then the surety may request the creditor to sell and if the creditor remains idle then the surety may bustle about, pay off the debt, take over the benefit of the securities and sell them. No creditor could carry on the business of lending if he could become liable to a mortgagor and to a surety or to either of them for a decline in value of mortgaged property, unless the creditor was personally responsible for the decline.' ….. the only difference in point of principle between what was decided in the Privy Council and what is submitted by the appellants is that here there was a request by the guarantor to the bank to sell the property. It was not explained how this would put the guarantor in a better position than the case where the creditor knew or ought to have known of the declining value of the property. In an attempt to get round the effect of the decision of the Privy Council reliance was placed on more general statements of principle to be found for example in the dissenting judgment of Sir Wilfred Greene MR in In re Cleadon Trust Ltd (1939) Ch 286 at 301 dealing with circumstances in which equity will assist a person who has no right at law but is able to show that money belonging to himself has gone to swell the assets of the person to or for whose benefit he has paid it. Reference was made also to the judgment of McTiernan J in O'Day v Commercial Bank of Australia Ltd (1933) 50 CLR 200 at 223, a passage entirely consistent with the advice of the Privy Council; and the judgment of Gibbs ACJ in Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (1978) 141 CLR 335 at 348. His Honour there referred to the principle underlying the doctrine of subrogation that it would be inequitable for a creditor, by choosing not to resort to remedies in his power, to cast the whole of the obligation on the surety. His Honour's judgment again is entirely consistent with what is said in the Privy Council. If the surety is worried that the mortgaged securities may decline in value the surety may request the creditor to sell and if the creditor remains idle then the surety may bustle about, pay off the debt, take over the benefit of the securities and sell them. The fact that in the present case the presence of other guarantors inhibited the guarantor from taking this course does not as a matter of principle impose any greater duty upon the creditor than that described by the Privy Council." 94 More recently, in Austin v Royal, [48] Handley JA said: [49] "… . The appellants' case depended upon the equitable doctrine of subrogation as it operates in the favour of a surety. It is well established that the doctrine does not operate to cut down the rights of the secured creditor. As Lord Hoffmann said in Banque Financier De La Cite v Parc (Battersea) Ltd (1999) 1 AC 221 at 236 there is no question of competition between the secured creditor and the party claiming subrogation. ….." 95 Although GWI did not refer to the High Court's decision in Buckeridge v Mercantile Credits Ltd, [50] its argument that St George breached its duty must, in the present context, amount to a submission that St George's omission to ensure that Mr McDonald accepted the $600,000 offer and confirmed his acceptance in writing "sacrificed or impaired [AGTA's charge in favour of St George]" or constituted "neglect or default [which] allowed it to be lost or diminished" [51] and consequently breached St George's duty to GWI. At most, it might be said that the non-acceptance of the $600,000 offer "diminished" St George's charge from AGTA. 96 GWI's argument seems to me inconsistent with this Court's decision in Mailman. [52] In any event, a decision to leave Mr McDonald with a discretion to accept the $600,000 offer or pursue other possibilities cannot be stigmatised as "neglect or default".

Clause 7 of the Deed dated 11 March 1993 97 GWI's only remaining claim is that St George breached clause 7 of the Deed dated 11 March 1993 between St George, GWI, PGA and Mr Webb when St George enforced its mortgage over GWI's North Parramatta property. Clause 7 of the Deed provided that "[f]or so long as the business of AGTA is being conducted by the receivers [St George] will not take any action in respect of its security". The sole basis for this claim is that St George served a notice of demand on GWI pursuant to its guarantee on 29 March 1993 when, it is said, the receivers were still conducting AGTA's business. Mr Webb did not lock the receivers out of AGTA's premises until a few days later, on 2 April 1993. 98 If there were any merit in this point, it might entitle GWI to nominal damages, perhaps $1. That is not the basis on which this case has been litigated. It is futile to consider the matter further.

Conclusion 99 In summary, GWI's claims all fail. 100 The appeal should be dismissed, with costs. 101 IPP AJA: I agree with Fitzgerald JA. ********** End Notes

1. Later GIP Glazing Pty Ltd.
2. Formerly Barclays Bank Australia Limited.
3. One of Mr McDonald's partners was also appointed Receiver and Manager but appears not to have played an active role and was ignored in the parties' arguments.
4. The liquidators do not seem to have played any role and were effectively ignored by the other parties.
5. Later material suggests that a "going concern" sale might have produced substantially lest than GET's figure.
6. Judgment, para. 28.
7. Judgment, para. 52.
8. Written submissions, para. 26.
9. Amended Summons filed 11 June 1993, para. 11.
10. Amended Summons filed 11 June 1993, para. 16.
11. This ground was "not pressed on appeal": GWI's written submissions, para. 79.
12. At one point in its argument, GWI might have suggested that St George had identical obligations under implied terms in GWI's mortgage and guarantee. However, the point was not developed and need not be discussed.
13. Para. 61(b) of GWI's written submissions, referring to Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 (CA).
14. Paras. 83 and 84 of GWI's written submissions, referring to Suttor v Gundowda (1950) CLR 418 at 441, Graeme Webb Investments Pty Ltd v Soerpyk Pty Ltd (1992) 6 BPR 13,876; Australis Media Holdings v Telstra Corp (1998) 43 NSWLR 104 (CA), Byrne v Australian Airlines (1995) 185 CLR at 448, Secured Income Real Estate (Aust) v St Martins Investments (1979) 144 CLR 596 at 607-608.
15. Subject to one qualification, that was conceded by St. George. It argued that if (as it submitted) Mr. McDonald accepted the $600,00 offer and AGTA's hire purchase agreement was varied, Flat Glass (as CBFC's assignee) would have been entitled to remove the furnace after a reasonable period has elapsed without payment to CBFC (or Flat Glass as its assignee) and reasonable notice had been given to AGTA. the purpose of this argument is unclear since no notice was given. However, having regard to other conclusions which I have formed , the argument need not be discussed.
16. At times, St George's duty seemed to require it to sue Flat Glass for damages, perhaps in the alternative, and/or continue to prosecute a damages action against CBFC which it discontinued.
17. Grounds 12 and 14 are immaterial to these issues and ground 13 was not pressed.
18. In argument, GWI extended its claim based on alleged misstatements to a claim for negligent misstatement.
19. See, for example, Australis Media Holdings v Telstra Corp (1998) 43 NSWLR 104, 118 ff; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, 363-369.
20. Cp Simonius Vischer and Co v Holt & Thompson (1979) 2 NSWLR 322, 348; Australis Media Holdings Pty Ltd v Telstra Corporation (1998) 43 NSWLR 104, 122-123.
21. (1896) 1 QB 669, 699-700; (1897) AC 575.
22. e.g. Re Leslie Homes (Australia) Pty Ltd (1984) 8 ACLR 1020, 1023; Dale Park Pty Ltd (Receiver and Manager Appointed) v Roads Corporation (1994) 2 VR 524; New Imperial Pty Ltd v Beveridge (1996) 14 ACLC 445. See also SA Asset Management Corp. v Sheahan (1995) 13 ACLC 328, 1138.
23. Atkins v Mercantile Credits Ltd (1985) 10 ACLR 153, 158 (foot) - 160.
24. Wiley (as liquidator of United Telecasters Sydney Ltd (rec. and mgrs. appointed) (in liq) v Commonwealth of Australia (1996) 19 ACSR 720, 736.
25. American Express International Banking Corp. v Hurley (1985) 3All ER 564, 568; Wiley (as liquidator of United Telecasters Sydney Ltd (recs. and mgrs. appointed) (in liq) v Commonwealth of Australia (1995) 131 ALR 712, 718; State Bank of NSW v Chia (2000) NSWSC 552, paras. 880-889.
26. I have earlier explained why it is unnecessary to consider GWI's alternative claim that St George's omission to ensure that Mr McDonald accepted the $600,000 offer and confirmed his acceptance in writing breached "an implied term of [GWI's] mortgage and guarantee that [St George] would act reasonably and not expose GWI to any liability arising from default of [St George] or its agent," and implied terms in the Deed of 11 March 1993 between St George, GWI, PGA and Mr Webb that St George "would not take advantage of its own wrong …", "would do everything necessary on its part to enable GWI to have the benefit of the security", and "had done and would do everything necessary to preserve the sale of the business as a going concern and permit its sale".
27. Paras. 99-101.
28. (1987) 162 CLR 549, 561.
29. 3rd ed. 1996.
30. O'Donovan and Phillips, The Modern Contract of Guarantee, 3rd ed. P.425.
31. For example, Market Services Pty Ltd v Westpac Banking Corporation (1997) VConvR 54-569, 66, 812; Mailman v Challenge Bank Ltd (1991) 5 BPR 97400, 11,726.
32. Williams v Frayne (1937) 58 CLR 710, 738 per Dixon J.
33. Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654, 668-669, 674, 675; Austin v Royal (1999) 47 NSWLR 27, 32.
34. 3rd edition, (1996).
35. O'Donovan and Phillips, The Modern Contract of Guarantee, 3rd ed pp 420-421.
36. O'Donovan and Phillips, The Modern Contract of Guarantee, 3rd ed pp 421-422.
37. O'Donovan and Phillips, The Modern Contract of Guarantee, 3rd ed pp 422-424.
38. (1862) 15 Moo PCC 472.
39. (1937) 58 CLR 710 at 738.
40. (1981) 147 CLR 654 at pp 674-675.
41. Buckeridge 147 CLR 674-675.
42. 147 CLR 654.
43. 147 CLR 654, 671.
44. 3rd ed. (1996), pp 391 ff.
45. See Buckeridge 147 CLR 654 at 666-667, 671, per Aickin J, with whom Gibbs CJ and Wilson J agreed; O'Donovan and Phillips, The Modern Contract of Guarantee, 3rd ed., pp 412-418.
46. (1991) 5 BPR 97400
47. Mailman (1991) 5 BPR 97400, 11727-11728.
48. (1999) 47 NSWLR 27.
49. 47 NSWLR 27, 33.
50. 147 CLR 654.
51. Buckeridge 147 CLR 654, 668, 669 per Brennan J.
52. (1991) 5 BPR 97400

Revision Reasons Hyperlinked End Notes added - 04/05/07

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