Court of Appeal (WA)|2000-11-10|Before: Ipp J, Miller J

Inkhorn Pty Ltd (Acn 009 236 337) (Subject To Deed of Company Arrangement) & Anor v Herbert & Anor [2000] WASCA 333 (10 November 2000)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : INKHORN PTY LTD (ACN 009 236 337) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) & ANOR -v- HERBERT & ANOR [2000] WASCA 333

BETWEEN : INKHORN PTY LTD (ACN 009 236 337) (SUBJECT TO DEED OF COMPANY ARRANGEMENT)

CIVILS AUSTRALIA PTY LTD (ACN 009 289 105) (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVER AND MANAGER APPOINTED)

Practice and procedure - Leave to appeal from strike-out application - Test to be applied - Whether development of law would be stifled - Need to distinguish case where law is clear

Duty of receiver/manager to act in good faith - Whether need to take reasonable care - State of Australian authority - Relevance of s 420A of the Corporations Law

First Respondent (First Defendant) : Ms C J McLure QC

Second Respondent (Second Defendant) : Ms C J McLure QC

First Respondent (First Defendant) : Minter Ellison

Second Respondent (Second Defendant) : Minter Ellison

ANZ Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd [1978] HCA 21; (1978) 139 CLR 195

Astley v Austrust Limited [1999] HCA 6

Black and White Taxi Co v Brown and Yellow Taxi Co [1928] USSC 59; 276 US 518 (1928)

Bride & Anor v Australian Bank Limited & Ors [2000] WASC 116

Brutan Investments Pty Ltd v Underwriting & Insurance Ltd (1980) 58 FLR 289

Cachalot Nominees Pty Ltd v Prime Nominees Pty Ltd [1984] WAR 380

Citicorp Australia Ltd v McLoughney (1984) 35 SASR 375

Esso Australia Resources Limited v Commissioner of Taxation [1999] HCA 67

Hospitals Contribution Fund of Australia Ltd v Hunt (1982) 44 ALR 365

Jeogla v ANZ [1999] NSWSC 563

Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566

Kleinwort Benson Ltd v Lincoln City Council [1998] UKHL 38; [1998] 4 All ER 513

Lipohar v R [1999] HCA 65

McKinney v The Queen [1991] HCA 6; (1991) 171 CLR 468

Murchison Zinc Company Pty Ltd v Theiss Contractors Pty Ltd [2000] WASCA 167

John Pfeiffer Pty Limited v Rogerson [2000] HCA 36

Pollnow v Garden Mews St Leonards Pty Ltd (1984) 9 ACLR 82

SCM Chemicals Ltd v Saipem Australia Pty Ltd (1991) 4 WAR 469

State Bank of Victoria v Parry (1988) 7 ACLC 226

WA v Bond Corporation Holdings Limited (1991) 5 WAR 40

Westpac Banking Corporation v Mousellis (1985) 37 NTR 1

Wilson v Metaxas [1989] WAR 285

1 IPP J: I agree generally with the reasons to be published and the orders proposed by Miller J. I shall briefly set out my reasons for coming to the same conclusions as his Honour.

2 This is an application for leave to appeal and an appeal from the decision of the learned Master. The issue that falls for decision is whether the applicants should be entitled to plead a cause of action based on the proposition that, in 1993 (prior to the introduction of s 420A of the Corporations Law 1992), a receiver, in the exercise of the power of sale over mortgaged property, had a duty to obtain a fair market value for the property or, in general terms, had a duty to take reasonable care to obtain the highest price at which the property could be sold. The learned Master struck out the paragraphs of the applicants' amended statement of claim alleging duties of this kind. The applicants say that he was wrong in doing so.

3 The first point argued by the applicants is that the pleaded duties reflected the common law as it was in 1993.

4 In my opinion this proposition cannot be sustained. In Westpac Banking Corporation Ltd v Kingsland (1991) 26 NSWLR 700 (at 708) Cole J noted that:

"In Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676, it was held that the obligation of a mortgagee exercising a power of sale is to act in good faith (Griffiths CJ (at 679), Barton J (at 694), Isaacs J (at 700))."

Cole J referred to Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410 where Lord Denning MR sitting on the Court of Appeal held (at 1415 - 1416) that a mortgagee or receiver who enters into possession and realises a mortgaged property, has a duty to use reasonable care to obtain the best possible price that the circumstances of the case permit. His Honour then observed:

"The law as stated by Lord Denning in Standard Chartered Bank Ltd v Walker in relation to the duties of a mortgagee in relation to the exercise of a power of sale is not, until the High Court indicates to the contrary, the law in Australia."

In coming to this conclusion, in addition to referring to Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676, Cole J cited decisions by Judges at single instance level in this State, in New South Wales, South Australia, the Northern Territory and in the Federal Court where the expressions of principle in Pendlebury were followed. I would add to those decisions State Bank of Victoria v Parry (1989) 7 ACLC 226 per Malcolm CJ.

5 It is true, as Miller J notes, that since Pendlebury various members of the High Court have expressed doubts and even conflicting opinions in regard to the principles enunciated in Pendlebury. Nevertheless, as Brennan J observed in Commercial and General Acceptance Ltd v Nixon [1981] HCA 70; (1983) 152 CLR 491 (at 522 ) the "balance of opinion" at that time in the High Court accepted that a mortgagee's duty stopped short of "exposing the mortgagee to liability for mere negligence or carelessness". There has been no statement from the High Court since then that has altered the situation and in my view Cole J correctly set out the law in Westpac Banking Corporation Ltd v Kingsland.

6 Counsel for the applicants submitted that it is possible that, had the High Court been seized of the issue in 1993, it might have come to a different conclusion. I accept that such a possibility exists, but it is nothing more than speculation. The fact is that by 1993 the law in this country, as expressed in Pendlebury, had remained unchanged for at least 80 years. The doubts expressed by a minority of members of the High Court in different cases do not detract from this.

7 Counsel for the applicants referred to the well known test in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 and the general proposition that courts at first instance should be careful not to risk stifling the development of the law by rejecting a claim summarily while there is a reasonable possibility that, as the law develops, a cause of action will be found: Bridgetown/Greenbushes Friends of the Forest Inc v Executive Director of the Department of Conservation & Land Management (1997) 18 WAR 126 (at 188 - 189) per Templeman J. In my view these authorities do not assist the applicants. There is a longstanding decision of the High Court which binds this Court on the very issue which the applicants wish to raise. There is no question but that at first instance and intermediate level the applicants have no cause of action. As far as this Court is concerned, the applicants' case "cannot possibly succeed", to adopt a phrase noted by Barwick CJ in General Steel Industries Inc. It is not for this Court to pre-empt any change in direction on the part of the High Court. As regards the principle referred to by Templeman J, the issue raised involves no novel question of law and there is no question of stifling the development of the law. The law has been declared by the

High Court. Again, as far as this Court is concerned, that is the end of the matter.

8 The next proposition argued on behalf of the applicants is that the common law has been altered by s 420A of the Corporations Law. In my view that proposition cannot be sustained. The idea that in a period of some seven years the common law has altered so as to conform with an Act of Parliament is fanciful. The same comment applies to the proposition that the Explanatory Memorandum to the Corporations Law in some way declared the common law so as to bind the courts.

9 The third proposition advanced by the applicants is that, since 1993, the common law of Australia has been altered, particularly because of developments in other common law jurisdictions since 1993. In the latter respect reference is made to Medforth v Blake [1999] EWCA Civ 1482; (1999) 3 All ER 97 and certain New Zealand decisions. It is then said that, if the common law has changed since 1993, the High Court would declare it retrospectively as at 1993. Again, I am not persuaded that developments in other countries over the past seven years have brought about a change in the common law of this country in circumstances in which the issue, the subject of those developments, is governed in this country by statute. While there certainly are areas in which the common law of Australia has been influenced by developments in other countries, that could not occur, in my view, where for all practical purposes those representing parties who complain about the conduct of receivers in selling mortgaged property would ordinarily rely solely on a statutory remedy. In such circumstances there is simply no need for the common law to develop. As counsel for the appellant candidly (and rightly) accepted, "the question of the content at common law ... of receiver's duties owed to a mortgagor/chargor in exercising a power of sale is likely never again to arise in Australia". Put simply, where there is no need for the common law to develop (because of the statutory provisions applicable), the common law will remain unaltered.

10 I would grant the application for leave to appeal but I would dismiss the appeal.

11 MILLER J: This is an application for leave to appeal and appeal from the decision of Master Sanderson, delivered on 11 February 2000, in which the Master struck out certain paragraphs of the amended statement of claim of the applicants. They were paragraphs which asserted that the first respondent, in the exercise of his power of sale over certain property of the applicants pursuant to a mortgage, had a duty as Receiver/Manager

to obtain a fair market value for the property or, if the property did not have a market value, to take reasonable care to obtain the highest price that could be obtained in relation to it. In the alternative, there was a plea that the first respondent was obliged to take reasonable care to obtain the highest price available for the property sold. The first respondent contested the entitlement of the applicants to plead the duties referred to. He contended that he was required as Receiver/Manager to act in good faith in relation to the exercise of the power of sale, but no more. For these reasons, application was made by the first respondent to strike out the paragraphs to which I have referred. The Master concluded that there was clear authority against the pleas contained within the paragraphs of the statement of claim in question. He ruled that they should be struck out.

12 The applicants seek leave to appeal from the decision of the Master on the basis that he erred in law in finding that the first respondent did not owe, or that it was not reasonably arguable that he owed, a duty to the applicants to take reasonable steps to obtain the market value of any property sold; or, in the event that the property sold did not at the material time have a market value, take all reasonable care to obtain the highest price reasonably obtainable; or (in the alternative) to take reasonable care to obtain the highest price available for any property sold in exercising his power of sale as the Receiver/Manager of the assets of the applicants.

13 The applicants made three simple submissions. They were:

(a) the pleaded duties reflected the common law (in the sense of non-statutory law) as it stood in 1993;

(b) in the alternative, in determining what the relevant common law rule was, regard should be had to s 420A of the Corporations Law and the common law rule "adapted";

(c) in the further alternative, in determining the relevant common law rule, regard should be had to developments in other common law jurisdictions since 1993.

14 In support of the first proposition, counsel for the applicants argued that there was a degree of uncertainty as to the state of authority in respect of this question as it stood in 1993. This, he contended, was evident from various judgments in the High Court of Australia and in the several Australian States. Reliance was placed upon the decision of the High Court in Commercial & General Acceptance Corporation Ltd v Nixon & Anor [1981] HCA 70; (1981) 152 CLR 491 and, in particular, the judgments in that case of Gibbs CJ (at 495 - 496), Mason J (at 505 - 506) and Aickin J (at 515 - 516). The following passage from the judgment of Aickin J (at 515 - 516) was especially relied upon:

"The relationship of mortgagor and mortgagee is more than that of contract, the nature of the relationship having been worked out by the Court of Chancery, though now mostly, but not exclusively, contained in the express terms of the mortgage instrument or in statutes. The power of sale is an essential part of the mortgagee's security but it is not to be exercised exclusively in his own interest without regard to the interests of the mortgagor by directing attention exclusively to the recovery of the mortgage debt, interest and expenses rather than obtaining the market value of the property as at the date of the sale.

It must be borne in mind that a mortgagee is not a trustee, nor is his position similar to that of a trustee. A mortgagee has for his own protection a power of sale but in its exercise he must not sacrifice the interests of the mortgagor or of subsequent incumbrancers. If his agent is negligent in the conduct of the sale he may recover any loss suffered by him but he recovers on his own account, not on account of the mortgagor, and could not claim more than his own loss. As a matter of policy these considerations demonstrate that the mortgagee is in a very different position from a trustee and he should be responsible for his agent's negligence in so far as it affects the mortgagor, an obligation for which he would be entitled to an indemnity from his agent.

The argument that the mortgagor would now have a cause of action in negligence against the agent (although such a right did not exist at the time of the earlier cases) and therefore has no need for, and does not possess, a right of action against the mortgagee is fallacious as Cross LJ demonstrated in Cuckmere Brick [1971] 1 Ch at 973. There is nothing unusual in a principal being vicariously liable for the acts of his agent; indeed it is generally so. There is nothing about the relationship of mortgagee and mortgagor which makes it inappropriate that the former should be liable for loss caused to the latter by reason of the negligence of the former's agent in carrying out instruction to conduct a mortgagee's sale."

It should, however, be pointed out that in the same case, Brennan J (at 522 - 523) formulated "the balance of opinion" in the High Court in the following terms:

"The duty of a mortgagee exercising a power of sale has been formulated sometimes as a duty to exercise the power in good faith, sometimes as a duty to take reasonable precautions to obtain a proper price. The divergent strands of authority were referred to in Forsyth v Blundell [1973] HCA 20; (1973) 129 CLR 477 and in Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd [1978] HCA 21; (1978) 139 CLR 195. In both cases it was found unnecessary to decide between the formulations. In Cuckmere Brick Co v Mutual Finance Ltd [1971] 1 Ch 949 the Court of Appeal considered the authorities, and held that the mortgagee in exercising the power of sale owed a duty to take reasonable care to obtain a proper price for the property, or, as Salmon LJ preferred to say, its true market value. An extensive and critical review of the cases was recently offered by Mr E L G Tyler ("Enforcing Mortgage Securities", Australian Law Journal, vol 55 (1981), p 559). In Queensland, whence the present appeal has come, the legislature has intervened by enacting s 85(1) of the Property Law Act 1974 (Q):

'It is the duty of a mortgagee, in the exercise after the commencement of this Act of a power of sale conferred by the instrument of mortgage or by this or any other Act, to take reasonable care to ensure that the property is sold at the market value.'

The balance of opinion in this Court accepts that a duty to take reasonable precautions to obtain a proper price imposes a more onerous duty upon a mortgagee than a duty to act in good faith, the duty to act in good faith requiring the mortgagee to act without fraud and without wilfully or recklessly sacrificing the interests of the mortgagor but stopping short of exposing the mortgagee to liability for mere negligence or carelessness (see Forsyth v Blundell [1973] HCA 20; (1978) 129 CLR 477 per Walsh J (at p 493) and Mason J (at p 505); Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676 (at pp 680, 700). Menzies J expressed a dissenting view in Forsyth v Blundell (at p 481) when he said: "To take reasonable precautions to obtain a proper price is but a part of the duty to act in good faith" though his Honour immediately declared the duty to fall short of the standard which the mortgagee, as a shrewd property owner, would be likely to adopt if the property were his own.

It follows that the statutory duty, which appears to reflect some of their Lordships' language in Cuckmere Brick, is more onerous than a duty to act in good faith. If a breach of the statutory duty is established, as Connolly J found and as the Full Court affirmed, it is unnecessary to define the limits of the duty to act in good faith or to determine whether the mortgagee's duty would be so limited if it were not for the statute."

15 In my view, there can be no doubt but that the statement of principle expressed by Brennan J reflects the present state of authority of the High Court of Australia of this issue. True it is that different opinions have from time to time been expressed in the High Court, some obiter, some perhaps not, but without doubt "the balance of opinion" in the Court at that time accepted the common law as being that the relevant duty is one to act in good faith: that is, without fraud and without wilfully or recklessly sacrificing the interests of the mortgagor, but stopping short of exposing the mortgagee to liability for mere negligence or carelessness. Pendlebury v Colonial Mutual Life Assurance Society Limited [1912] HCA 9; (1912) 13 CLR 676 is the ultimate authority for that proposition.

16 It was observed by Walsh J in Forsyth v Blundell [1973] HCA 20; (1973) 129 CLR 477 (at 493) that there are in the authorities "conflicting views on the question whether the obligation cast upon the mortgagee is simply that he should act in good faith, or as an obligation which is broken also if there is negligence in carrying out the sale". In the same case, Mason J made reference (at 506) to "the conflicting authorities" and said that, in any resolution of the question in the High Court, "account must be taken of what was said in Barns v Queensland National Bank Ltd [1906] HCA 26; (1906) 3 CLR 925 (at 942 - 943) and Pendlebury v Colonial Mutual Life Assurance Society Limited (supra) at 692, 693 - 695, 699 - 702". Conflicting views in the High Court there certainly are; but, in the end, Pendlebury v Colonial Mutual Life Assurance Society Limited stands as the authority of the Court.

17 Judges at first instance in the different States of Australia have consistently applied the decision in Pendlebury v Colonial Mutual Life Assurance Society Limited. Various decisions to this effect were reviewed in Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700 by Cole J (at 708 - 709), where his Honour said:

"The law as stated by Lord Denning in Standard Chartered Bank Ltd v Walker in relation to the duties of a mortgagee in relation to the exercise of a power of sale is not, until the High Court indicates to the contrary, the law in Australia. In Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676, it was held that the obligation of a mortgagee exercising a power of sale is to act in good faith (Griffith CJ (at 679), Barton J (at 694), Isaacs J (at 700): see also Forsyth v Blundell [1973] HCA 20; (1973) 129 CLR 477 at 481, 493. All judges at first instance who have considered the obligations of mortgagees in relation to exercise of power of sale have felt obliged to follow the expressions of principle in Pendlebury: see Expo International Pty Ltd (Receivers and Managers Appointed) (In Liq) v Chant [1979] 2 NSWLR 820 at 835-836 per Needham J; Brutan Investments Pty Ltd v Underwriting & Insurance Ltd (1980) 58 FLR 289 at 298; 39 ACTR 47 at 55 per Sheppard J; Cachalot Nominees Pty Ltd v Prime Nominees Pty Ltd [1984] WAR 380 at 393 per Smith J; Citicorp Australia Ltd v McLoughney (1984) 35 SASR 375 at 381 per Zelling J; Westpac Banking Corporation v Mousellis (1985) 37 NTR 1 at 8 per Nader J; Australia and New Zealand Banking Group Ltd v Carnegie per Crockett J, 16 June 1987 unreported at 42; Wenham v General Credits Ltd (McLelland J, 16 December 1988, unreported); Burke v Beneficial Finance Corporation Ltd (Hill J, 30 January 1991, unreported at 36). And so do I. The duty referred to in Pendlebury is a lesser duty than that expressed in Standard Chartered Bank Ltd v Walker."

18 More recently, in this Court, the same conclusion was reached in Bride & Anor v Australian Bank Ltd & Ors [2000] WASC 116, where Parker J expressed the view that there was general acceptance in Australia of the formulation of the duties of a receiver proffered by Needham J in Expo International Pty Ltd (Receivers and Managers Appointed) (In Liq) v Chant [1979] 2 NSWLR 820, adding [at 194]:

"This approach accords with the expression of principle in Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676 at 679, 694 and 700, that the obligation of a mortgagee exercising a power of sale is to act in good faith, which remains the guiding principle for the purposes of Australian law. See also Forsyth v Blundell [1973] HCA 20; (1973) 129 CLR 477 at 481, 493. While some statements of the law in the United Kingdom have sought to frame the principle to be applied in this respect so as to reflect the higher general law duty to exercise reasonable care, at least with respect to the realisation of assets, ie a duty to use reasonable care to obtain the best possible price which the circumstances of the case permit, see Cuckmore Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 and Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410, such an approach has not been followed in Australia because of its inconsistency with Pendlebury v Colonial Mutual Life Assurance Society Ltd (supra)."

It thus follows that the Master's decision to strike out various paragraphs of the statement of claim was in accordance with clear and binding authority.

19 The jurisdiction to summarily terminate an action is of course to be "sparingly employed" and "not to be used except in a clear case where the court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion". It was so put by Barwick CJ in General Steel Industries Inc v Commissioner for Railways NSW [1964] HCA 69; (1964) 112 CLR 125 (at 129). His Honour went on to say:

"The test to be applied has been variously expressed; "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involve useless expense".

At times the test has been put as high as saying that the case must be so plain and obvious that the court can say at once that the statement of claim, even if proved, cannot succeed; or "so manifest on the view of the pleadings, merely reading through them, that it is a case that does not admit of reasonable argument"; "so to speak apparent at a glance"."

These principles were also summarised in Kimberley Downs Pty Ltd v Western Australia, unreported; SCt of WA; Library No 6414; 25 August 1986, where Master Staples put them this way:

"(1) The rule is intended to apply only to cases which are really not arguable and not to cases where under the previous practice demurrer would have been the proper course: Packard v Transport Trading and Agency Co Ltd (1912) 14 WALR 191 at 195.

(2) On the application, not only must all the facts alleged in the statement of claim be accepted as true, but it must be taken for granted that on all other points the pleading is unassailable: Niven v Grant (1903) 29 VLR 102 at 106.

(3) Great care must be exercised to ensure that the plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal: General Steel Industries Inc v Commissioner for Railways NSW [1964] HCA 69; (1964) 112 CLR 125 at 130.

(4) But the rule should not be reserved for those cases where argument is unnecessary to show the futility of the plaintiff's claim. Argument, even extensive argument, may be necessary to demonstrate that the plaintiff's case is so clearly untenable that it cannot succeed: General Steel Industries Inc v Commissioner for Railways NSW, above, at 130.

(5) As a general rule, a plaintiff is entitled as of right to have his case heard, to have the facts found and then to argue the question of law as it arises before the trial judge upon the facts as found. It is only in cases in which it can be seen from the outset that, however the facts be found, there is no basis for the legal conclusion contended for by the plaintiff that the pleading should be struck out: Dalgety Australia Ltd v Rubin (WA Full Court, unreported, Lib No 5485, 24 August 1984).

(6) A court at first instance should be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that, as the law develops, it will be found that a cause of action will lie: Hospitals Contribution Fund of Australia v Hunt (1983) 44 ALR 365 at 373."

20 Counsel for the applicants placed great importance upon Master Staples' statement that a court at first instance should be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that, as the law develops, it will be found that a cause of action will lie. However, that submission can be immediately dealt with. In the present case, the Master was not dealing with the situation in which there was a reasonable possibility that, as the law developed, it would be found that a cause of action would lie. Rather, he was dealing with the situation in which the state of the law, at least in Australia, was clearly stated by the country's ultimate court of appeal, and consistently followed at first instance throughout the various Australian States. That is a very different position from one in which the state of the law is unsettled. It is true that recent English authority, in particular Medforth v Blake [1999] EWCA Civ 1482; [1999] 3 All ER 97, has expressed the duty of a receiver in different terms. In Medforth v Blake, Sir Richard Scott V-C (with whom Swinton, Thomas and Tuckey LJJ agreed) expressed the duties of a receiver towards the mortgagor (at 111) in this way:

"They are duties in equity imposed in order to ensure that a receiver, while discharging his duties to manage the property with a view to repayment of the secured debt, nonetheless in doing so takes account of the interests of the mortgagor and others interested in the mortgaged property. These duties are not inflexible. What a mortgagee or a receiver must do to discharge them depends upon the particular facts of the particular case. A want of good faith or the exercise of powers for an improper motive will always suffice to establish a breach of duty. What else may suffice will depend upon the facts. Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54, [1983] 1 WLR 1349 is a very good example. The fact that the mortgagee had an interest in the purchasing company placed the mortgagee under an obligation to show that a proper price had been obtained. This was an obligation more onerous than would otherwise have been required. It is true that Lord Herschell in Kennedy v de Trafford expressed the duty on the mortgagee in terms much less onerous than the terms in which Salmon LJ expressed the duty in the Cuckmere Brick case. That does not make the two cases inconsistent with one another. The facts that constituted the mortgagors' complaints were different. And the duty in equity appropriate to have been owed by a mortgagee selling in 1888 is not necessarily of the same weight as the duty appropriate to have been owed by a mortgagee selling in 1967. Equity is at least as flexible as the common law in adjusting the duties owed so as to make them fit the requirements of the time.

I do not accept that there is any difference between the answer that would be given by the common law to the question what duties are owed by a receiver managing a mortgaged property to those interested in the equity of redemption and the answer that would be given by equity to that question. I do not, for my part, think it matters one jot whether the duty is expressed as a common law duty or as a duty in equity. The result is the same. The origin of the receiver's duty, like the mortgagee's duty, lies, however, in equity and we might as well continue to refer to it as a duty in equity.

In my judgment, in principle and on the authorities, the following propositions can be stated.

(1) A receiver managing mortgaged property owes duties to the mortgagor and anyone else with an interest in the equity of redemption.

(2) The duties include, but are not necessarily confined to, a duty of good faith.

(3) The extent and scope of any duty additional to that of good faith will depend on the facts and circumstances of the particular case.

(4) In exercising his powers of management the primary duty of the receiver is to try and bring about a situation in which interest on the secured debt can be paid and the debt itself repaid.

(5) Subject to that primary duty, the receiver owes a duty to manage the property with due diligence.

(6) Due diligence does not oblige the receiver to continue to carry on a business on the mortgaged premises previously carried on by the mortgagor.

(7) If the receiver does carry on a business on the mortgaged premises, due diligence requires reasonable steps to be taken in order to try to do so profitably."

21 Although counsel for the applicants sought to argue that the implications of Medforth v Blake were such that there was now a changed common law in Australia, I can find no support for that view. There is simply a divergence of view between the Australian and the English authorities. That divergence is to be resolved in this case by applying the principles set out in Pendelbury v Colonial Mutual Life Assurance Society Limited. They are in marked divergence to the views expressed by the Court of Appeal in Medforth v Blake.

22 Counsel for the applicants contended that the introduction of s 420A of the Corporations Law in 1993 effected a change to the common law. The section is in the following terms:

"420A (1) [Reasonable care regarding price on sale] In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:

(a) if, when it is sold, it has a market value - not less than that market value; or

(b) otherwise - the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold."

23 It was argued that, because the duties of a receiver upon exercise of a power of sale are now statutory, regard ought to be had to the legislative position to determine the content of the preceding common law rule. This was said to be particularly so where the Explanatory Memorandum which accompanied the Corporations Law 1992 (introducing s 420A) did not express that s 420A was effecting or intending to effect any change to the relevant law. However, there is nothing to indicate that the introduction of s 420A into the Corporations Law in June 1993 was intended to reflect the existing common law position. Clause 406 of the Explanatory Memorandum was in the following terms:

"It is sometimes said of receivers that they are prepared to sell property at a price less than the best obtainable, so long as it is sufficient to cover the debt of the chargeholder who appointed them. Proposed section 420A will make it clear that, in selling company property, a controller (to be defined in section 9 to mean a receiver and any other person who has control of company property under a charge, such as a mortgagee in possession) must take all reasonable care to sell the property for its market value (if, when sold, it has a market value) or otherwise for the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold. The controller's duty under proposed subsection 420A(1) will be owed to the company. Proposed subsection 420A(1) will not affect any duties the controller may owe to others under the common law or otherwise."

24 Nothing said in this paragraph could possibly suggest that the proposed section reflected the existing common law. Such an argument has no foundation.

25 Although reliance was placed upon Esso Australian Resources Limited v Commissioner of Taxation [1999] HCA 67; (1999) 168 ALR 123 in support of the proposition that regard will be had to legislative changes in construing the common law, the decision in that case was concerned with a far different question, namely, whether the common law of privilege was modified by the Evidence Act 1995 (Cth). As Gleeson CJ, Gaudron and Gummow JJ pointed out [at 18] et seq, the interrelation and interaction between common law and statute may trigger varied and complex questions. At [19], their Honours said:

"Significant elements of what now is regarded as 'common law' had their origin in statute or as glosses on statute or as responses to statute. For example, in Peters v R [1998] HCA 7; (1998) 192 CLR 493 at 513-515, McHugh J explained the derivation of the criminal law of conspiracy from statutes enacted in the thirteenth century. The doctrine of part performance is expressed in three centuries of case law which has the effect of allowing specific performance of a contract which on its face the Statute of Frauds renders unenforceable. The Statute of Limitations in its terms does not operate directly upon equitable remedies, but, as Dixon J put it in Cohen v Cohen [1929] HCA 15; (1929) 42 CLR 91 at 100, 'such remedies are barred in courts of equity by analogy to the statute'. On the other hand, the courts did not refuse to enforce rights arising under a contract or trust merely because the trust or contract is associated with or in furtherance of a purpose rendered illegal by a statute which applied to the relevant parties."

26 Whatever the principles concerning the analogical use of statutes in developing common law principles, I cannot accept that the introduction of s 420A of the Corporations Law in 1993 was intended to, or did declare the preceding common law rule. I reject the argument that previous Australian authority on the consent of a receiver's duty to a mortgagor "ceased" or atrophied by reason of the introduction of s 420A. There is simply no room for such an argument.

27 In my view, the applicants have failed to make out the grounds of appeal advanced. The decision of the Master to strike out the offending paragraphs in the amended statement of claim was, in my view, entirely correct. I would grant leave to appeal but dismiss the appeal.

Inkhorn Pty Ltd (Acn 009 236 337) (Subject To Deed of Company Arrangement) & Anor v Herbert & Anor [2000] WASCA 333

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Judgment (88 paragraphs)

Inkhorn Pty Ltd (Acn 009 236 337) (Subject To Deed of Company Arrangement) & Anor v Herbert & Anor [2000] WASCA 333 (10 November 2000)

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Cases Cited (24)